Mercantile Law Bar Examination Q & A (1990-2006)
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ANSWERS TO TO BAR EXAMINATION QUESTIONS IN
MERCANTILE LAW LAW ARRANGED BY TOPIC TOPIC (1990 – 2006)
E dited and Arranged by:
Silliman University College o La! "at#$ 2005 U%&ate& 'y(
)on&ee )* "AR+Reta,e 200-
From the ANSWERS TO BAR EXAMINATION QUESTIONS b the U! "AW #OM!"EX $ !%I"I!!INE ASSO#IATION OF "AW S#%OO"S 200&
June 27, 2007 Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
FOREWARD This work is no inen!e! "or s#$e or %o&&er%e' This work is "reew#re' I &#( )e "ree$( %o*ie! #n! !isri)ue!' I is *ri&#ri$( inen!e! "or #$$ hose who !esire o h#+e # !ee*er un!ers#n!in o" he issues ou%he! )( he Phi$i**ine B#r E-#&in#ions #n! is ren!' I is s*e%i#$$( inen!e! "or $#w su!ens "ro& he *ro+in%es who, +er( o"en, #re re%i*iens o" !e$i)er#e$( !isore! noes "ro& oher uns%ru*u$ous $#w s%hoo$s #n! su!ens' .h#re o ohers his work #n! (ou wi$$ )e ri%h$( r i%h$( rew#r!e! )( Go! in he#+en' I is #$so +er( oo! k#r&#'
We wou$! $ike o seek he in!u$en%e o" he re#!er "or so&e B#r /uesions whi%h #re i&*ro*er$( %$#ssi"ie! un!er # o*i% #n! "or so&e o*i%s whi%h #re i&*ro*er$( or inor#n$( *hr#se!, "or he #uhors #re us B#r Re+iewees who h#+e *re*#re! his work whi$e re+iewin "or he B#r E-#&s un!er i&e %onsr#ins #n! wihin heir $i&ie! know$e!e o" he $#w' We wou$! $ike o seek he re#!er1s in!u$en%e "or # $o o" (*or#*hi%#$ (*or#*hi%#$ errors in his work'
The Auhors Ju$( 2, 2003 4*!#e!5 June 27, 2007
TA"LE ./ C.NTENTS Gene Ge nera rall Pr Prin incip ciples les of Me Merc rcant antil ilee La Law w '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 62
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Commercial Transaction (2003) Joint Account (2000) Joint Account vs. Partnership (2000)
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Theory of Cognition vs. Theory of Manifestation (!!") 5H5H
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"an,ing La! ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 62 413H413H
Banks: Applicability: Foreign Currency Deposit Act & Secrecy of Bank Deposits !""#$ Banks: Collateral Security !""!$ Banks: Secrecy of Bank Deposits% Garnis'ent !""($ Banks% Classifications of Banks !""!$ Banks% Conser)ator )s* +ecei)er !"",$ Banks% Diligence +e-uire. /00!$ Banks% 1nsol)ency% Proibite. 2ransactions !"""$ Banks% 1nsol)ency% +e-uire'ents /003$ Banks% +estrictions on Loan Acco''o.ations !""!$ Banks% +estrictions on Loan Acco''o.ations !"",$ Banks% Safety Deposit Bo4% Liability Banks% Secrecy of Bank Deposit% AMLC !"",$ Banks% Secrecy of Bank Deposit% 54ceptions !"",$ Banks% Secrecy of Bank Deposits /00"$ Banks% Secrecy of Bank Deposits /00/$ Banks% Secrecy of Bank Deposits /00!$ Banks% Secrecy of Bank Deposits /00($ Banks% Secrecy of Bank Deposits /00#$ Banks% Secrecy of Bank Deposits /006$ Banks% Secrecy of Bank Deposits !"""$ Banks% Secrecy of Bank Deposits% 54ceptions !""($ Banks% Secrecy of Bank Deposits% Garnis'ent !""/$ BSP% +ecei)ersip% 7uris.iction /00!$ Legal 2en.er !"""$ PD1C Law )s* Secrecy of Bank Deposits Act /003$ +esponsibilities & 8b9ecti)es of BSP /006$ 2rut in Len.ing Act /00/$ 2rut in Len.ing Act !"""$
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"l, Sales La! '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 20
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Bulk Sales Law% Co)ere. 2ransactions /00($ Bulk Sales Law% Co)ere. 2ransactions !"""$ Bulk Sales Law% Co)ere. 2ransactions !"",$ Bulk Sales Law% 54clusions /00$ Bulk Sales Law% 8bligation of te ;en.or /00#$ Bulk Sales Law% 8bligation of te ;en.or /003$ Bulk Sales Law% 8bligation of te ;en.or !""/$
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Consmer rote#tion La! '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 26
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Metric Syste' Law /00($
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26
Cor%oration La!'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 22
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B8D: 5lection of Aliens as 'e'bers !""#$ B8D% Capacity of Directors /00,$ B8D% Co'pensation /00/$ B8D% Conflict of 1nterest /00($ B8D% 1nterlocking Directors /00#$ B8D% 1nterlocking Directors /00,$
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#y$%a&s' aliity' limiting *ualifications of #+, mem-ers (!!)
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By
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Close Corporation' /estriction' Transfer Transfer of shares (!!)
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Contro)ersy% 1ntra
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Corporation1 Corporation1 ssuance of shares of stoc to pay for the services (2004)
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Corporation: +igt of +epurcase of Sares% 2rust Fun. Doctrine !""#$ Corporation: Sole Proprietorsip !""($ Corporation% Articles of 1ncorporation /00"$ Corporation% Bulk Sales Law !""#$ Corporation% By
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Corporation' Commencement' Corporate 56istence (2003)
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Corporation% Con)ersion of Stock Corporation !""/$ Corporation% De Facto Corporation /00($
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Corporation' ,issolution' Methos of %i*uiation (200) Corporation% 1ncorporation% +e-uire'ents !"",$ Corporation% 1ncorporation% +e-uisites !""!$ Corporation% Meetings% B8D & Stockol.ers /00$ Corporation% =ationality of Corporation /006$ Corporation% =on
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Corporation' Po&er to nvest Corporate 7uns for other Purpose (!!4)
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Corporation% Power to 1n)est Corporate Fun.s in anoter Corporation /00,$ Corporation% +eco)ery of Moral Da'ages /006$ Corporation% Separate 7uri.ical Personality /00#$ Corporation% Separate 7uri.ical Personality /00,$ Corporation% Separate 7uri.ical Personality /00,$ Corporation% Separate 7uri.ical Personality /000$ Corporation% Separate 7uri.ical Personality !"""$
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22 22 22 22 22 2 2 2 2 28 28 28 23 23 23 23 23 2 2 2 2 2 27 29 29 29 29 29 29 2: 2: 2: 2: 0 0 0 6 6 6 6 2
Corporation% Separate 7uri.ical Personality !"""$ Corporation% Set<8ff% >npai. Subscription /00($ Corporation% Stock Corporation !""/$ Corporation% ;ali.ity of Corporate Acts /006$ Corporation% ;ali.ity of Corporate Acts !""!$ Corporation% ;oluntary ;oluntary Dissolution !""!$ Corporation% ;oting ;oting 2rust Agree'ent /00!$
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2 2 2
Deri)ati)e Suit: +e-uisites !""($ Deri)ati)e Suit: ?atere. Stock /00$
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,erivative 8uit' Close Corporation' Corporate +pportunity (2004)
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Deri)ati)e Suit% Minority Stockol.er !""$
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,istinction1 ,e facto Corporation vs. Corporation -y 5stoppel (200)
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Distinction: Di)i.en.s )s* Profit: Cas Di)i.en. )s* Stock Di)i.en. !""#$ Distinction% Pri)ate )s* Public Corporation !""($ Distinction% Stock )s* =on
p Perio. of a Corporation /003$ 5ffects% ?in.ing >p Perio. of a Corporation !"""$
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7oreign Corporation' 9,oing #usiness: in the Philippines (!!)
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Foreign Corporation% @Doing Business in te Pilippines% Acts or Acti)ities !""!$ Foreign Corporation% @Doing Business in te Pilippines% 2est !""!$ 7oint ;enture% Corporation /00,$ Liabilities% B8D% Corporate Acts /00,$ Liabilities% Stockol.ers Directors 8fficers /003$ Piercing te Corporate ;eil /00($ Piercing te Corporate ;eil /00,$ Piercing te Corporate ;eil !""/$ Piercing te Corporate ;eil !""($ Piercing te Corporate ;eil !"",$ Prenpai. Subscription /003$ Stockol.ers: Pree'pti)e +igt !""($ Stockol.ers% Appraisal +igt !""$ Stockol.ers% +e'o)al of 8fficers & B8D !""/$ Stockol.ers% +e'o)al% Minority Director /00/$ Stockol.ers% +igts /00,$ Stockol.ers% ;oting ;oting Power of Stockol.ers /00"$ Stocks% 1ncrease of Capital Stock !""/$ Stocks% Sale 2ransfer of Certificates of Stock /00,$ Stocks% Sale 2ransfer of Certificates of Stock !""/$ Stocks% Sale 2ransfer of Certificates of Stock !""($ 2rust Fun. Doctrine /00!$ 2rust Fun. Doctrine% 1ntra
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8 8 8 3 3 3 3 7 7 7 7 9 9 9 9 : : : : : 80 80 80 80 80 86 86 86 82 82 82 82 82 82 82 8 8 8 8 8
Cre&it Transa#tions '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 88
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Cattel Mortgage )s* After<1ncurre. 8bligations /00/$
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88
Cattel Mortgage )s* After<1ncurre. 8bligations /000$ Cattel Mortgage% Foreclosure /003$ Cattel Mortgage% 8wnersip of 2ing Mortgage. /00"$ Cre.it 2ransactions /000$ Mortgage /000$ Mortgage )s* Le)y !""$ Mortgage% 54tra9u.icial Foreclose !"",$ Mortgage% Foreclosure !""$ Mortgage% Foreclosure !""$ Mortgage% Foreclosure of 1'pro)e'ents /000$
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88 88 83 83 83 8 8 8 8 8
Mortgage' 7oreclosure' 5ffect of mere taing -y creitor$mortgagor of property (!!2)
151H151H
87
559H559H
Mortgage' /eemption Perio' 7oreclose Property (2002)
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87
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Mortgage% +e'e.ies !""$ Preference of Cre.its !""!$ Pro'issory =ote: Liability !""/$ +e'e.ies% A)ailable to Mortgagee
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89 89 89 89 8: 8:
Insran#e La! '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 8:
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Beneficiary: 5ffects: 1rre)ocable Beneficiary !""#$ Beneficiary: +igts% 1rre)ocable Beneficiary !""#$ Beneficiary% Life 1nsurance% Proibite. Beneficiaries /006$ Conceal'ent% Material Conceal'ent !""/$
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Concealment' Material Concealment1 ncontesta-ility Clause (!!)
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Conceal'ent% Material Conceal'ent: 1ncontestability Clause /00,$ Conceal'ent% Material Conceal'ent: 1ncontestability Clause /003$ Conceal'ent% Material Conceal'ent% 1ncontestability Clause /00/$ Conceal'ent% Material Conceal'ent% 1ncontestability Clause /006$ 1nsurable 1nterest: Bank Deposit !"""$ 1nsurable 1nterest: Public 5ne'y !"""$ 1nsurable 1nterest: Separate 1nsurable 1nterest /000$ 1nsurable 1nterest% 5-uitable 1nterest /00/$ 1nsurable 1nterest% Life )s* Property 1nsurance /003$ 1nsurable 1nterest% Life )s* Property 1nsurance !"""$ 1nsurable 1nterest% Life )s* Property 1nsurance !""!$ 1nsurable 1nterest% Property 1nsurance /00($ 1nsurable 1nterest% Property 1nsurance !""/$ 1nsurance% Cas & Carry Basis !""$ 1nsurance% Co<1nsurance )s* +e<1nsurance /00($ 1nsurance% Double 1nsurance !""#$ 1nsurance% Double 1nsurance% effect /00$
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8: 30 30 30 30 30 36 36 36 36 32 32 32 32 32 3 3 3 3 3 38 38
nsurance' 5ffects' Payment of Premiums -y nstallment (200;)
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1nsurance% Life 1nsurance% Assign'ent of Policy /00/$ 1nsurance% Perfection of 1nsurance Contracts !""$ 1nsurance% Property 1nsurance% Prescription of Clai's /00,$ 1nsurance% +eturn of Pre'iu's !"""$ 1nsure.% Acci.ent Policy !""($ 1nsure.% Acci.ent )s* Suici.e /00"$
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38 38 38 38 33 33 33
1nsure.% Acci.ent )s* Suici.e /00$ 1nsure.% Acci.ent )s* Suici.e /00#$ 1nsurer: 5ffects: Se)eral 1nsurers !""#$ 1nsurer% r. Party Liability /00,$ 1nsurer% r. Party Liability !"""$ 1nsurer% r. Party Liability% =o Fault 1n.e'nity /00($ 1nsurer% r. Party Liability% uitclai' /00($ 1nsurer% Autorie. Dri)er Clause /00/$ 1nsurer% Autorie. Dri)er Clause !""$ 1nsurer% Autorie. Dri)er Clause% )eicle is stolen /00$ 1nsurer% Group 1nsurance% 5'ployer
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Marine nsurance' Peril of the 8hip vs. Peril of the 8ea (!!)
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Mutual 1nsurance Co'pany% =ature & Definition !"",$
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3 3 3 3 37 37 37 37 37 39 39 39 3: 3: 3: 0 0 0
Intelle#tal ro%erty ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 0
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Copyrigt /00#$ Copyrigt% Co''issione. Artist /00#$ Copyrigt% Co''issione. Artist !""($ Copyrigt% 1nfringe'ent /00($ Copyrigt% 1nfringe'ent /003$ Copyrigt% 1nfringe'ent /006$ Copyrigt% 1nfringe'ent !"",$ Copyrigt% Potocopy% wen allowe. /006$ 1nfringe'ent )s* >nfair Co'petition /00,$ 1nfringe'ent )s* >nfair Co'petition !""$ 1nfringe'ent% 7uris.iction !""$ Patent% =on
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0 0 0 0 6 6 6 6 6 6 6 6 2 2 2 8 8
Insolven#y Cor%orate Re#overy ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 8
230H230H
1nsol)ency )s* Suspension of Pay'ent /006$ 1nsol)ency: ;oluntary 1nsol)ency !""#$ 1nsol)ency% Assets )s* Liabilities /006$ 1nsol)ency% Assignees /00,$ 1nsol)ency% 5ffect% Declaration of 1nsol)ency /00/$
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8 8 3 3 3
1nsol)ency% Frau.ulent Pay'ent !""!$ 1nsol)ency% 7uris.iction% Sole Proprietorsip /00"$ 1nsol)ency% obligations tat sur)i)e /003$ 1nsol)ency% ;oluntary 1nsol)ency Procee.ing /00/$ 1nsol)ency% ;oluntary )s* 1n)oluntary Sol)ency /00#$ Law on Corporate +eco)ery !""$ +eabilitation% Stay 8r.er !"",$ Suspension of Pay'ent )s* 1nsol)ency /00#$ Suspension of Pay'ents )s* Stay 8r.er !""$ Suspension of Pay'ents% +eabilitation +ecei)er /000$ Suspension of Pay'ents% +e'e.ies !""$
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Letters o Cre&it '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 9
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Letter of Cre.it: Mortgage !""#$ Letter of Cre.it% Certification fro' Consignee /00$
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%etters of Creit' %ia-ility of a confirming an notifying -an (!!)
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Letters of Cre.it% Liability of a =otifying Bank !""$ Letters of Cre.it% 2ree Distinct Contract +elationsips !""!$
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9 9 : :
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: Maritime Commer#e
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253H253H
''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' : 661H661H
A)erage% Particular A)erage )s* General A)erage !""$ Botto'ry /00($ Carriage of Goo.s: De)iation: Liability !""#$ Carriage of Goo.s% De)iation% ?en Proper !""#$ Carriage of Goo.s% 54ercise 54traor.inary Diligence !""#$ Carter Party /00/$ Carter Party !""($ C8GSA: Prescription of Clai'sActions !""($ C8GSA% Prescription of Clai's /00!$ C8GSA% Prescription of Clai's !"""$ C8GSA% Prescripti)e Perio. /00#$ Doctrine of 1nscrutable Fault /00#$ Doctrine of 1nscrutable Fault /003$ Doctrine of 1nscrutable Fault /006$ Li'ite. Liability +ule /00($ Li'ite. Liability +ule /003$ Li'ite. Liability +ule /000$ Li'ite. Liability +ule !"""$ Li'ite. Liability +ule% Doctrine of 1nscrutable Fault /00/$ Li'ite. Liability +ule% General A)erage Loss !"""$ Li'ite. Liability +ule% General A)erage Loss !"""$
254H254H
255H255H
662H662H
663H663H
256H256H
664H664H
257H257H
665H665H
258H258H
666H666H
259H259H
667H667H
260H260H
668H668H
261H261H
669H669H
262H262H
670H670H
263H263H
671H671H
264H264H
672H672H
265H265H
673H673H
266H266H
674H674H
267H267H
675H675H
268H268H
676H676H
269H269H
677H677H
270H270H
678H678H
271H271H
679H679H
272H272H
273H273H
274H274H
7 Nationalie& A#tivities or Un&erta,ings
682H682H
275H275H
'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 78 683H683H
680H680H
681H681H
: 70 70 70 70 70 76 76 76 72 72 72 72 72 72 72 72 7 7 7
=ationalie. Acti)ities or >n.ertakings /00$ =ationalie. Acti)ities or >n.ertakings /00($ =ationalie. Acti)ities or >n.ertakings /00#$ +etail 2ra.e Law /00"$ +etail 2ra.e Law /00/$ +etail 2ra.e Law /00!$
276H276H
684H684H
277H277H
685H685H
278H278H
686H686H
279H279H
687H687H
280H280H
688H688H
281H281H
689H689H
78 78 73 73 73 73
/etail Trae %a& (!!3)
7
282H282H
+etail 7 +etail 7 +etail 7
283H283H
690H690H
2ra.e
Law
/00,$
2ra.e
Law
/00,$
691H691H
284H284H
692H692H
285H285H
2ra.e
Law%
Consign'ent
/00/$
693H693H
Negotia'le Instrments La! '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 7
286H286H
#on1 Cash #on vs. 8urety #on (200)
287H287H
Cecks: Crosse. Cecks 77 Cecks: Crosse. Cecks )s* Cancelle. Cecks 77 Cecks% Crosse. Ceck 77 Cecks% Crosse. Ceck 77 Cecks% Crosse. Ceck 79 Cecks% Crosse. Ceck 79 Cecks% Crosse. Ceck 79 Cecks% 5ffect% Acceptance by te .rawee bank 79 Cecks% 5ffects% Alterations% Prescripti)e Perio. 79 Cecks% Forge. Ceck% 5ffects 7: Cecks% Liability% Drawee Bank 90 Cecks% Material Alterations% Liability 90 Cecks% Present'ent 90 Cecks% Present'ent 90 Cecks% ;ali.ity% ?ai)er of Banks liability for negligence 90 Defenses% Forgery 96 Forgery% Liabilities% Prior & Subse-uent Parties 96 Forgery% Liabilities% Prior & Subse-uent Parties 96 1nco'plete & Deli)ere. 92 1nco'plete an. Deli)ere.
288H288H
694H694H
7
695H695H
!""#$
696H696H
289H289H
!""($
697H697H
290H290H
/00/$
698H698H
291H291H
/00($
699H699H
292H292H
/00#$
700H700H
293H293H
/00,$
701H701H
294H294H
/00,$
702H702H
295H295H
/006$
703H703H
296H296H
/00,$
704H704H
297H297H
!"",$
705H705H
298H298H
/00#$
706H706H
299H299H
/000$
707H707H
300H300H
/00($
708H708H
301H301H
!""$
709H709H
302H302H
/00/$
710H710H
303H303H
!""($
711H711H
304H304H
/00"$
712H712H
305H305H
/00#$
713H713H
306H306H
!""($
714H714H
307H307H
!""#$
92 1nco'plete 1nstru'ents% 1nco'plete Deli)ere. 1nstru'ents )s* 1nco'plete >n.eli)ere. 1nstru'ent 92 !"",$ 1n.orser: 1rregular 1n.orser )s* General 1n.orser !""#$ 92 =egotiability /00$ 92 =egotiability !""!$ 9 =egotiability% Eol.er in Due Course /00!$ 9 =egotiability% +e-uisites !"""$ 9 =egotiable 1nstru'ent: A'biguous 1nstru'ents /006$ 98 =egotiable 1nstru'ent: Definition & Caracteristics !""#$ 98 =egotiable 1nstru'ent: 1.entification !""#$ 98 =egotiable 1nstru'ent: =egotiable Docu'ent )s* =egotiable 1nstru'ent !""#$ 93 =egotiable 1nstru'ent% =egotiability /003$ 93 =egotiable 1nstru'ents% Bearer 1nstru'ent /006$ 93 =egotiable 1nstru'ents% Bearer 1nstru'ents /003$ 93 93 =egotiable 1nstru'ents% bearer instru'ents% liabilities of 'aker an. in.orsers !""/$ 9 =egotiable 1nstru'ents% inco'plete an. un.eli)ere. instru'ents% ol.er in .ue course !"""$ 9 =egotiable 1nstru'ents% 1nco'plete Deli)ere. 1nstru'ents% Co'parati)e =egligence /003$ 9 =egotiable 1nstru'ents% kin.s of negotiable instru'ent% wor.s of negotiability !""!$ =egotiable 1nstru'ents% +e-uisites /00,$ 97 =otice Disonor /00,$ 97 Parties% Acco''o.ation Party /00"$ 97 Parties% Acco''o.ation Party /00/$ 97 Parties% Acco''o.ation Party /00,$ 97 715H715H
308H308H
716H716H
309H309H
717H717H
310H310H
718H718H
311H311H
719H719H
312H312H
720H720H
313H313H
721H721H
314H314H
722H722H
315H315H
723H723H
316H316H
724H724H
317H317H
725H725H
318H318H
726H726H
319H319H
727H727H
320H320H
728H728H
321H321H
322H322H
729H729H
730H730H
323H323H
731H731H
324H324H
732H732H
325H325H
733H733H
326H326H
734H734H
327H327H
735H735H
328H328H
736H736H
329H329H
737H737H
Parties% Acco''o.ation Party /006$ Parties% Acco''o.ation Party !""$ Parties% Acco''o.ation Party !""$ Parties% Acco''o.ation Party !""#$ Parties% Eol.er in Due Course /00$ Parties% Eol.er in Due Course /00,$ Parties% Eol.er in Due Course /00,$ Parties% Eol.er in Due Course /006$ Parties% Eol.er in Due Course% 1n.orse'ent in blank !""!$ Place of Pay'ent !"""$
330H330H
738H738H
331H331H
739H739H
332H332H
740H740H
333H333H
741H741H
334H334H
742H742H
335H335H
743H743H
336H336H
744H744H
337H337H
745H745H
338H338H
339H339H
746H746H
747H747H
97 99 99 99 99 99 99 9: 9: 9:
'li# Servi#e La! ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 9:
340H340H
748H748H
Certificate of public Con)enience /006$
341H341H
749H749H
Certificate of Pu-lic Convenience' insepara-ility of certificate an vessel (!!2)
342H342H
Certificate of Public Con)enience% +e-uire'ents /00#$ Powers of te Public Ser)ice Co''ission /00$ Public utilities !"""$ +e)ocation of Certificate /00$ +e)ocation of Certificate /00$
343H343H
750H750H
344H344H
751H751H
345H345H
752H752H
753H753H
346H346H
754H754H
347H347H
755H755H
9: :0 :0 :0 :0 :6 :6
Se#rities Reglation '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' :6
348H348H
1nsi.er !""($ 1nsi.er 2ra.ing /00#$ 1nsi.er 2ra.ing% Manipulati)e Practices /00($ Manipulati)e Practices !""/$ Securities +egulation Co.e% Purpose /006$ Securities% Definition /00,$ Securities% Selling of Securities% Meaning !""!$ 2en.er 8ffer !""!$
349H349H
756H756H
757H757H
350H350H
758H758H
351H351H
352H352H
759H759H
760H760H
353H353H
354H354H
761H761H
762H762H
355H355H
356H356H
763H763H
764H764H
:6 :6 :2 :2 :2 :2 :2 :
Trans%ortation La! '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' :
357H357H
765H765H
Boun.ary Syste' !""#$
358H358H
766H766H
Carriage' #reach of Contract' Presumption of
359H359H
Carriage% Breac of Contract% Presu'ption of =egligence /003$ Carriage% Fortuitous 5)ent /00#$
767H767H
360H360H
361H361H
769H769H
Carriage' %ia-ility' %ost #aggage or Acts of Passengers (!!")
362H362H
Carriage% Proibite. & ;ali. Stipulations !""!$ Carriage% ;aluation of Da'age. Cargo /00$ Co''on Carrier /00,$ Co''on Carrier% Breac of Contract% Da'ages !""$ Co''on Carrier% Defenses !""!$ Co''on Carrier% Defenses% Fortuitous 5)ents /00($ Co''on Carrier% Defenses% Li'itation of Liability /006$ Co''on Carrier% Defenses% Li'itation of Liability !""/$ Co''on Carrier% Duration of Liability /00,$
363H363H
771H771H
772H772H
773H773H
366H366H
367H367H
770H770H
364H364H
365H365H
768H768H
774H774H
775H775H
368H368H
776H776H
369H369H
777H777H
370H370H
778H778H
371H371H
779H779H
: : : : :8 :8 :8 :8 :8 :3 :3 :3 :3 :3
Common Carrier' ,uty to 56amine #aggages' /ail&ay an Airline (!!2)
372H372H
Co''on Carrier% 2est /00,$ Co''on Carriers% Defenses /00,$ Co''on Carriers% Liability for Loss /00/$
373H373H
374H374H
375H375H
780H780H
781H781H
782H782H
783H783H
: : : :
Co''on )s* Pri)ate Carrier% Defenses !""!$ Habit Syste' !""#$ Habit Syste'% Agent of te +egistere. 8wner !""#$ Mariti'e Co''erce% Bareboat !""$ Prior 8perator +ule !""$ +egistere. 8wner% Conclusi)e Presu'ption /00"$ 2rans
376H376H
377H377H
784H784H
785H785H
378H378H
379H379H
786H786H
380H380H
787H787H
788H788H
381H381H
789H789H
382H382H
790H790H
:7 :7 :7 :7 :7 :9 :9
Trst Re#ei%ts La! ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' :9
383H383H
791H791H
2rust +eceipts Law% Acts & 8'issions% Co)ere. !"",$ 2rust +eceipts Law% Liability for estafa /00/$ 2rust +eceipts Law% Liability for 5stafa /003$ 2rusts +eceipt Law !""$
384H384H
385H385H
792H792H
386H386H
793H793H
387H387H
794H794H
795H795H
:9 :: :: ::
Usry La! ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' ::
388H388H
796H796H
>sury Law /00$
389H389H
797H797H
::
Ware$ose Re#ei%ts La! ''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 600
390H390H
798H798H
Bill of La.ing /006$ Deli)ery of Goo.s% +e-uisites /006$ Deli)ery of te Goo.s /00/$ Garnis'ent or Attac'ent of Goo.s /000$ =egotiable Docu'ents of 2itle /00!$ 8wnersip of Goo.s Store. /00!$ +igt to te Goo.s !""#$ >npai. Seller% =egotiation of te +eceipt /00$
391H391H
799H799H
392H392H
393H393H
800H800H
801H801H
394H394H
395H395H
802H802H
396H396H
803H803H
397H397H
804H804H
805H805H
398H398H
806H806H
aliity of stipulations e6cusing &arehouseman from negligence (2000)
399H399H
807H807H
600 600 600 600 600 606 606 606 606
Mis#ellaneos '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 602
400H400H
808H808H
5nergy +egulatory Co''ission: 7uris.iction & Power !""($ Four AC1D Proble's of Pilippine 7u.iciary !"",$
401H401H
402H402H
810H810H
=overnment ,eregulation vs. Privati>ation of an nustry (200)
403H403H
Political Law% ?28 /000$ Power of te State: +egulating of Do'estic 2ra.e !""($ 2ariff an. Custo's Co.e: ;iolation of Custo's Laws !""($
404H404H
406H406H
4eneral rin#i%les o Mer#antile La!
811H811H
405H405H
809H809H
812H812H
813H813H
814H814H
602 602 602 602 60 60
...... It is not essential that at least one party to the commercial transaction be a merchant. What is essential is that the transaction eince an intent to en!a!e in commerce or trade.
Commercial Transaction (2003)
What do you understand by the term “commercial transaction”? Is it essential that at least one party to a contract be a merchant in order to consider such a commercial transaction? (4%) SUGGESTED ANSWER:
A “Commercial transaction” is defned as
Joint Account (2000)
What is a "oint account? (#%) SUGGESTED ANSWER:
A "oint account is a transaction o$ merchants here other merchants a!ree to contribute the amount o$ capital a!reed upon& and participatin! in the $aorable or un$aorable
results thereo$ in the proportion they may determine. Joint Account s! "artners#i$ (2000)
'istin!uish "oint account $rom partnership. (%) SUGGESTED ANSWER:
he $olloin! are the distinctions beteen "oint account and partnership* /$ A partnership has a frm name hile a "oint account has none and is conducted in the name o$ the ostensible partner. !$ While a partnership has "uridical personality and may sue or be sued under its frm name& a "oint account has no "uridical personality and can sue or be sued only in the name o$ the ostensible partner. $ While a partnership has a common $und& a "oint account has none. ($ While in a partnership& all !eneral partners hae the ri!ht o$ mana!ement& in a "oint account& the ostensible partner mana!es its business operations. #$ While li+uidations o$ a partnership may& by a!reement& be entrusted to a partner or partners& in a "oint account li+uidation thereo$ can only be done by the ostensible partner.
T#eor% o& Co'nition s! T#eor% o& ani&estation (**+) 2e Ci)il Co.e a.opts te teory of cognition wile te Co.e of Co''erce generally recognies te teory of 'anifestation in te perfection of contracts* Eow .o tese two teories .ifferI SUGGESTED ANSWER:
,nder the theory o$ co!nition& the acceptance is considered to e-ectiely bind the o-eror only $rom the time it came to his noled!e. ,nder the theory o$ mani$estation& the contract is per$ected at the moment hen the acceptance is declared or made by the o-eree.
"an,ing La! ,an-s: A$$lica.ilit%: /orei'n Currenc% De$osit Act Secrec% o& ,an- De$osits (2001)
/i 0ieldin! Corporation fled a complaint a!ainst fe o$ its o-icers $or iolation o$ 1ection 2 o$ the Corporation Code. he corporation claimed that the said o-icers ere !uilty o$ adancin! their personal interests to the pre"udice o$ the corporation& and that they ere !rossly ne!li!ent in handlin! its a-airs. Aside $rom documents and contracts& the corporation also submitted in eidence records o$ the o-icers3 ,.1. 'ollar deposits in seeral bans oerseas 5oston 5an& 5an o$ 1it6erland& and 5an o$ 7e 0or. 8or their part& the o-icers fled a criminal complaint a!ainst the directors o$ /i 0ieldin! Corporation $or iolation o$ 9epublic Act 7o. :4#:& otherise non as the 8orei!n Currency 'eposit Act o$ the ;hilippines. he o-icers alle!ed that their ban deposits ere ille!ally disclosed $or ant o$ a court order& and that such deposits ere not een the sub"ect o$ the case a!ainst them. a$ Will the complaint fled a!ainst the directors o$ /i 0ieldin! Corporation prosper? <=plain. SUGGESTED ANSWER:
7o& because the 8orei!n Currency 'eposit Act (9.A. 7o. :4#:)& includin! its punitie proisions& re$ers to $orei!n currency deposits accounts constituted ithin the ;hilippines. It has no application at all to accounts& een thou!h they are bans& opened and constituted abroad. b$
Was there a iolation o$ the 1ecrecy o$ 5an 'eposits >a (9epublic Act 7o. 24@)? <=plain. (@%)
SU44ESTE) ANSWER(
=o because te puniti)e pro)isions of te Secrecy of Bank Deposits Law +*A* =o* /("#$ inclu.ing te statutory e4e'ptions pro)i.e. terein are not applicable to FCD> accounts e)en wen constitute. locally* Intengan v. Court of Appeals, G.R. No. 128996, February 15, 22$
,an-s: Collateral Securit% (2002)
Andre is en!a!ed in the business o$ buildin! locost housin! units under contracts ith real estate deelopers. /e applied $or a loan o$ ; illion $rom 9eady Credit 5an (the 5an)& hich re+uired Andre to proide collateral security $or it. Andre o-ered to assi!n to the 5an his receiables amountin! to ;4 million $rom /ome 5uilders 'eelopment “I& Andre >ee& hereby assi!n& trans$er and coney& absolutely and unconditionally& to 9eady Credit 5an (hereina$ter called the 5an) all o$ my ri!ht& title and interest in and to my accounts receiable $rom /ome 5uilders 'eelopment Corporation (hereina$ter called the Bbli!or) arisin! $rom deliery o$ housin! units ith a total contract price o$ ;4&&.& the description and contract alue o$ hich are attached hereto as Anne= A (hereina$ter called the 9eceiables).” “In the eent that I shall be unable to pay my outstandin! indebtedness oned to the 5an& the 5an shall hae the ri!ht& ithout any $urther $ormality or act on its part& to collect the 9eceiables $rom the Bbli!or and to apply the proceeds thereo$ toard payment o$ my said indebtedness.” Andre $ailed to pay the loan on its due date on 1eptember 2& ##. When the 5an attempted to collect $rom the Bbli!or& the 5an discoered that the latter had already closed operations and li+uidated all its assets. he 5an sued Andre $or collection& but Andre moed to dismiss the complaint on the !round that the debt had already been paid by reason o$ his e=ecution o$ the a$oresaid 'eed o$ Assi!nment hich& bein! absolute and unconditional& as in essence a dacion en pa!o. he 5an opposed the motion& contendin! that the 'eed o$ Assi!nment as only a security $or a loan. I$ you ere the ud!e& ho ould you resole the motion to dismiss fled by
Corporation (the Bbli!or). he 5an accepted the o-er. Accordin!ly& Andre obtained the loan and he e=ecuted a promissory note undertain! to pay the loan in $ull in one lump sum on 1eptember 2& ##& to!ether ith interest thereon at the rate o$ #% per annum. At the same time& Andre e=ecuted a 'eed o$ Assi!nment in $aor o$ the 5an assi!nin! to the 5an his receiables $rom the Bbli!or. he deed o$ assi!nment read* Andre? <=plain (@%) SU44ESTE) ANSWER(
(Since the question is outside the scope of the Bar Examination, it is recommended that the candidate be given full credit of 5%, whatever may 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 simple absolute and unconditional coneyance embodied in the deed o$ assi!nment ould be operatie& and the assi!nment ould constitute essentially a mode o$ payment or dacion en pa!o. ,an-s: Secrec% o& ,an- De$osits Garnis#ment (200)
C'C maintained a sain!s account ith C5an. Bn orders o$ the 9e!ional rial Court& the 1heri- !arnished ;@& o$ his account& to satis$y the "ud!ment in $aor o$ his creditor& B. C'C complained that the !arnishment iolated the >a on the 1ecrecy o$ 5an 'eposits because the e=istence o$ his sain!s account as disclosed to the public. (@%) Is C'CDs complaint meritorious or not? 9eason brieEy. SU44ESTE) ANSWER(
7o. C'CDs complaint is not meritorious. It as held in China Banking Corporation v. Ortega, 49 SCRA 355 (1973) that peso deposits may be !arnished and the depositary ban can comply ith the order o$ !arnishment ithout iolatin! the >a on the 1ecrecy o$ 5an 'eposits. <=ecution is the !oal o$ liti!ation as it is its $ruit. Farnishment is part o$ the e=ecution process. ,pon serice o$ the notice o$ !arnishment on the ban here the de$endant deposited $unds& such $unds become part o$ the sub"ect matter o$ liti!ation.
,an-s Classi&ications o& ,an-s (2002)
here are si= (:) classes o$ bans identifed in the Feneral 5anin! >a o$ #. 7ame at least $our (4) o$ them and e=plain the distin!uishin! characteristic or $unction o$ each one. (@%) SU44ESTE) ANSWER(
Any $our (4) o$ the $olloin! si= (:) classes o$ bans identifed in the Feneral 5anin! >a o$ ##& to it* /* Universa Banks G hese are those hich used to be called e=panded commercial bans and the operations o$ hich are no primarily !oerned by the Feneral 5anin! >a o$ ##. hey can e=ercise the poers o$ an inestment house and inest in non allied enterprises. hey hae the hi!hest capitali6ation re+uirement. !* Co!!er"ia Banks G hese are ordinary or re!ular commercial bans& as distin!uished $rom a uniersal ban. hey hae a loer capitali6ation re+uirement than uniersal bans and cannot e=ercise the poers o$ an inestment house and inest in non allied enterprises. * #hri$t Banks G hese bans (such as sain!s and mort!a!e bans& stoc sain!s and loan associations& and priate deelopment bans) may e=ercise most o$ the poers and $unctions o$ a commercial ban e=cept that they cannot& amon! others& open current or chec accounts ithout prior onetary 5oard approal& and they cannot issue letters o$ credit. heir operations are !oerned primarily by the hri$t 5ans Act o$ 2HH@ (9A H:). (* R%ra Banks G these are those hich
are or!ani6ed primarily to e=tend loans and other credit $acilities to $armers& fshermen or $arm $amilies& as ell as cooperaties& merchants& and priate and public employees and hose operations are primarily !oerned by the 9ural 5ans Act o$ 2HH# (9A @). #* Cooperative Banks G these are those hich are or!ani6ed primarily to proide fnancial and credit serices to cooperaties and hose operations are primarily !oerned by the Cooperatie Code o$ the ;hilippines (9A :HJ). ,* &sa!i" Banks G these are those hich are or!ani6ed primarily to proide fnancial and credit serices in a manner or transaction consistent ith the Islamic 1hari3ah. At present& only the Al Amanah Islamic Inestment 5an o$ the ;hilippines has been or!ani6ed as an Islamic 5an. ,an-s Conserator s! Receier (2004)
'istin!uish beteen the role o$ a conserator and that o$ a receier o$ a ban. (#.@%) SU44ESTE) ANSWER(
he Conserator is appointed $or a period not e=ceedin! one (2) year& to tae char!e o$ the assets& liabilities& and the mana!ement o$ a ban or a +uasiban in a state o$ continuin! inability& or unillin!ness to maintain a condition o$ li+uidity deemed ade+uate to protect the interest o$ depositors and creditors. Bn the other hand& the 9eceier is appointed to mana!e a ban or +uasiban that is unable to pay its liabilities in
Mercantile Law Bar Examination Q & A (1990-2006)
the ordinary course o$ business& or has insu-icient reali6able assets to meet its liabilities& or cannot continue in business ithout probable losses to its depositors or creditorsK or has ill$ully iolated a fnal cease and desist order& inolin! acts or transactions amountin! to $raud or a dissipation o$ the assets o$ the institution. he main purpose o$ the 9eceier is to recommend the rehabilitation or li+uidation o$ the ban. ,an-s Dili'ence Re5uire6 (**2)
;lacido& a ban depositor& le$t his checboo on his des at his house. ,nnon to him& a isitor at the time& noticin! the same& too a chec there$rom& flled it up in the amount o$ ;&. and succeeded in encashin! the chec on the same day. ;lacido3s account as thereby debited in the same amount. 'iscoerin! the erroneous debit& ;lacido demanded that the ban credit him ith a lie amount. he ban re$used on the !round that ;lacido as ne!li!ent in leain! his checboo on his des so that he could not put up the de$ense o$ $or!ery or ant o$ authority under the 7I>.
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,an-s 7nsolenc% "ro#i.ite6 Transactions (2000)
he onetary 5oard o$ the 51; closed ,rban 5an a$ter it encountered cripplin! fnancial di-iculties that resulted in a ban run. L& one o$ the members o$ the 5B' o$ the ban& attended and stayed throu!hout the entire meetin! o$ the 5oard that as held ell in adance o$ the ban run and be$ore nes had be!un to tricle to the business community about the dire fnancial pit the ban had $allen into. Immediately a$ter the meetin!& L caused the preparation and issuance o$ a mana!er3s chec payable to himsel$ in the sum o$ @ million pesos e+uialent to the amount placed or inested in the ban by a business ac+uaintance. /e no claims that he is eepin! the $unds in trust $or the oner and that he had committed no iolation o$ the Feneral 5anin! Act (9A & as amended) $or hich he should be punished. 'o you a!ree that there has been no iolation o$ the statute? (%) SU44ESTE) ANSWER(
7o. I do not a!ree that there is no iolation o$ the statute (9A & as amended). L iolated 1ec J@ hen he caused the preparation and issuance o$ a mana!er3s chec
he 8acts disclose that een to the naed eye& there ere mared di-erences beteen ;lacido3s si!nature and the one in the chec $or!ed by the isitor. As beteen ;lacido and the ban& ho should bear the loss? <=plain. SU44ESTE) ANSWER(
he ban should bear the loss. A draee ban must e=ercise the hi!hest dili!ence in sa$e!uardin! the accounts o$ its client depositors. he ban is also char!ed ith !enuineness o$ the si!natures o$ its current account holders. 5ut hat can be more striin! is that there ere mared di-erences beteen ;lacido3s si!nature and the one in the chec $or!ed by the isitor. Certainly& ;lacido as not ne!li!ent in leain! his checboo in his on des ( 'B v %i!po 15* SCRA 5*+) Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
payable to himsel$ in the sum o$ ;@ million. his is payin! out or permittin! to be paid out $unds o$ the ban a$ter the latter became insolent. his act is penali6ed by fne o$ not less than ;2&. nor more than ;2&. and by imprisonment $or not less than to nor more than ten years. ,an-s 7nsolenc% Re5uirements (**+)
Fie the basic re+uirements to be complied ith by the 51; be$ore the onetary 5oard can declare a ban insolent& order it closed and $orbid it $rom doin! $urther business in the ;hilippines. SU44ESTE) ANSWER(
5e$ore the onetary 5oard can declare a ban insolent& order it closed and $orbid it $rom doin! $urther business in the ;hilippines& the $olloin! basic re+uirements must be complied ith by the 51;& to it* /* here must be an e=amination by the head o$ the 'epartment o$ 1uperision or his e=aminers or a!ents into the condition o$ the ban. !* he e=amination discloses that the condition o$ the ban is one o$ insolency& or that its continuance in business ould inole probable loss to creditors or depositors. * he head o$ said 'epartment shall in$orm in ritin! the onetary 5oard o$ such $acts. (* ,pon fndin! said in$ormation or statement to be true& the onetary 5oard shall appoint a receier to tae char!e o$ the assets and liabilities o$ the ban.
Version 1990-2003 Arranged by SULAW Class
#*
Within : days& the onetary 5oard shall determine and confrm i$ the ban is insolent& and public interest re+uires& to order the li+uidation o$ the ban.
,an-s Restrictions on 8oan Accommo6ations (2002)
As part o$ the sa$e!uards a!ainst imprudent banin!& the Feneral 5anin! >a imposes limits or restrictions on loans and credit accommodations hich may be e=tended by bans. Identi$y at least to (#) o$ these limits or restrictions and e=plain the rationale o$ each o$ them. (@%) SU44ESTE) ANSWER(
Any to (#) o$ the $olloin! limits or restrictions on loan and credit transactions hich may be e=tended by bans& as part o$ the sa$e!uards a!ainst imprudent banin!& to it* /* SBL Rules G (i.e.& 1in!le 5orroer3s >imit) rules are those promul!ated by the 5an!o 1entral n! ;ilipinas& upon the authority o$ 1ection @ o$ the Feneral 5anin! >a o$ #& hich re!ulate the total amount o$ loans& credit accommodations and !uarantees that may be e=tended by a ban to any person& partnership& association& corporation or other entity. he rules see to protect a ban $rom main! e=cessie loans to a sin!le borroer by prohibitin! it $rom lendin! beyond a specifed ceilin!. Rules !* DOSRI G hese rules promul!ated by the 51;& upon authority o$ 1ection @ o$ the Feneral 5anin! >a o$ #& hich re!ulate the amount o$ credit accommodations that a ban may e=tend to its
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
*
directors& o-icers& stocholders and their related interests (thus& 'B19I). Fenerally& a ban3s credit accommodations to its 'B19I must be in the re!ular course o$ business and on terms not less $aorable to the ban than those o-ered to non 'B19I borroers. 7o commercial ban shall mae any loan or discount on the security o$ shares o$ its on capital stoc.
,an-s Restrictions on 8oan Accommo6ations (2004)
;io is the president o$ Western 5an. /is i$e applied $or a loan ith the said ban to fnance an internet ca$e. he loan o-icer told her that her application ill not be approed because the !rant o$ loans to related interests o$ ban directors& o-icers& and stocholders is prohibited by the Feneral 5anin! >a. <=plain hether the loan o-icer is correct. (@%) SU44ESTE) ANSWER(
1ection : o$ the Feneral 5anin! >a o$ # does not entirely prohibit directors or o-icers o$ the ban& directly or indirectly& $rom borroin! $rom the ban. In this case& ;io is the president o$ Western 5an& hich maes him an o-icer& director and stocholder o$ the said ban. he Feneral 5anin! >a proides $or additional restrictions to the ban be$ore it can lend to its directors or o-icers. A ritten approal o$ the ma"ority ote o$ all the directors o$ the ban& e=cludin! the director concerned& is re+uired. 8urthermore& such dealin!s must be upon terms not less $aorable to the ban than those o-ered to others ( Section 1326, Central Bank's "Manual of Regulations for Banks and Other Financial nter!ediaries, cited in Ranioso # C$, %#R# &o# 11(16, )ece!*er +, 2). A iolation o$ this proision ill cause his or her position to be declared acant and the errin! director or o-icer sub"ected to the penal proisions o$ the 7e Central 5an Act.
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,an-s Sa&et% De$osit ,o9 8ia.ilit%
7 and B; rented a sa$ety deposit bo= at 1I5A7M. he parties si!ned a contract o$ lease ith the conditions that* the ban is not a depository o$ the contents o$ the sa$e and has neither the possession nor control o$ the sameK the ban assumed no interest in said contents and assumes no liability in connection thereith. he sa$ety deposit bo= had to eyholes* one $or the !uard ey hich remained ith the banK and the other $or the rentersD ey. he bo= can be opened only ith the use o$ both eys. he renters deposited certifcates o$ title in the bo=. 5ut later& they discoered that the certifcates ere !one. 7 and B; no claim $or dama!es $rom 1I5A7M. Is the ban liable? <=plain brieEy. (@%) SU44ESTE) ANSWER(
2e bank is liable base. on te .ecisions of te Supre'e Court in "# #gro$ndustrial &evelopment "orp' v' "ourt of #ppeals, )* S"+# - ()**.! and Sia v'
1n tose cases te Supre'e Court rule. tat te renting out of safety .eposit bo4es is a J special /ind of deposit J werein te bank is te .epositary* 1n te absence of any stipulation prescribing te .egree of .iligence re-uire. tat of a goo. fater of a fa'ily is to be "ourt of #ppeals, S"+# ()**.!'
obsered by the depositary. Any stipulation e=emptin! the depositary $rom any liability arisin! $rom the loss o$ the thin! deposited ould be oid $or bein! contrary to la and public policy. he deposit bo= is located in the ban premises and is under the absolute control o$ the ban. ,an-s Secrec% o& ,an- De$osit A8C (2004)
9udy is "obless but is reputed to be a "ueten! operator. /e has neer been char!ed or conicted o$ any crime. /e maintains seeral ban accounts and has purchased @ houses and lots $or his children $rom the >uansin! 9ealty& Inc. 1ince he does not hae any isible "ob& the company reported his purchases to the Antioney >aunderin! Council (A>C). herea$ter& A>C char!ed him ith iolation o$ the Antioney >aunderin! >a. ,pon re+uest o$ the A>C& the ban disclosed to it 9udyDs ban deposits amountin! to ;2 illion. 1ubse+uently& he as char!ed in court $or iolation o$ the Antioney >aunderin! >a. /* Can 9udy moe to dismiss the case on the !round that he has no criminal record? (#.@%) SU44ESTE) ANSWER(
7o. ,nder the Antioney >aunderin! >a& 9udy ould be !uilty o$ a Nmoney launderin! crimeN committed hen the proceeds o$ an Nunla$ul actiity&N lie "ueten! operations& are made to appear as hain! ori!inated $rom le!itimate sources. he money launderin! crime is
separate $rom the unla$ul actiity o$ bein! a "ueten! operator& and re+uires no preious coniction $or the unla$ul actiity (1ee also 1ec. & Anti oney >aunderin! Act o$ #2). !* o raise $unds $or his de$ense& 9udy
sold the houses and lots to a $riend. Can >uansin! 9ealty& Inc. be compelled to trans$er to the buyer onership o$ the houses and lots? (#.@%) SU44ESTE) ANSWER(
>uansin! 9ealty& Inc. is a real estate company& hence it is not a coered institution under 1ection o$ the Anti oney >aunderin! Act. Bnly banin! institutions& insurance companies& securities dealers and broers& pre need companies and other entities administerin! or otherise dealin! in currency& commodities or fnancial deriaties are coered institutions. /ence& >uansin! 9ealty& Inc. may not use the Antioney >aunderin! Act to re$use to trans$er to the buyer onership o$ the houses and lots. In disclosin! 9udyDs ban accounts to the A>C& did the ban iolate any la? (#.@%) *
SU44ESTE) ANSWER(
7o& the ban did not iolate any la. he ban bein! specifed as a Ncoered institutionN under the Anti oney >aunderin! >a& is obli!ed to report to the A>C coered and suspicious transactions& ithout thereby iolatin! any la. his is one o$ the e=ceptions to the 1ecrecy o$ 5an 'eposit Act.
Mercantile Law Bar Examination Q & A (1990-2006)
1upposin! the titles o$ the houses and lots are in possession o$ the >uansin! 9ealty& Inc.& is it under obli!ation to delier the titles to 9udy? (#.@%)
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SU44ESTE) ANSWER(
0es& it has an obli!ation to delier titles to 9udy. As >uansin! 9ealty& Inc. is not a coered institution under 1ection o$ the Antioney >aunderin! Act& it may not inoe this la to re$use deliery o$ the titles to 9udy. ,an-s Secrec% o& ,an- De$osit E9ce$tions (2004)
,nder 9epublic Act 7o.24@ (he 5an 1ecrecy >a)& ban deposits are considered absolutely confdential and may not be e=amined& in+uired or looed into by any person& !oernment o-icial& bureau or o-ice. What are the e=ceptions? (@%) SU44ESTE) ANSWER(
he e=ceptions to the 5an 1ecrecy >a are the $olloin!* /* 1pecial or !eneral e=amination o$ a ban& authori6ed by the 5an!o 1entral n! ;ilipinasD onetary 5oard& in connection ith a ban $raud or serious irre!ularity. !* <=amination by an independent Auditor& hired by the 5an and $or the 5anDs e=clusie use. * 'isclosure ith the 'epositorDs ritten permission. a* In case o$ Impeachment. b* In cases o$ 5ribery or dereliction o$ duty by a ;ublic B-icer& upon order o$ a competent court. c* In cases o$ money depositedOinested hich& in turn& is the sub"ect o$ >iti!ation& upon order o$ a competent Court. (* 'B19I >oans* >oans ith their 5ans o$ 5an 'irectors& B-icers& 1tocholders and related interests. a* >oans in e=cess o$ @% o$ the 5anDs Capital P 1urplus b* he 5orroer aied his ri!ht as re!ards the 1ecrecy o$ 5an 'eposits #* Qiolation o$ the AntiFra$t and Version 1990-2003 Arranged by SULAW Class
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Corrupt ;ractices Act. Coup dD etat >a (9A :H:J& Bct #4&2HH). 5I9 CommissionerDs authority to eri$y a decedentDs Fross aunderin! >a.
/"* ?en te State e4ercisesin)okes its Police Power* (012# BE0E t is suggested that any - of the above be given full credit!
,an-s Secrec% o& ,an- De$osits (**0)
anosa& a nespaper columnist& hile main! a deposit in a ban& oerheard a pretty ban teller in$ormin! a co employee that Fi!i& a ell non public o-icial& has "ust a $e hundred pesos in her ban account and that her ne=t chec ill in all probability bounce. anosa rote this in$ormation in his nespaper column. hus& Fi!i
Version 1990-2006 U pdated by
fled a complaint ith the City 8iscal o$ anila $or unla$ully disclosin! in$ormation about her ban account. a$ Will the said suit prosper? <=plain your anser. b$ 1upposin! that Fi!i is char!ed ith
unla$ully ac+uirin! ealth under 9A 2H and that the fscal issued a su*-oena duces tecu! $or the records o$ the ban account o$ Fi!i. ay Fi!i alidly oppose the said issuance on the !round that the same iolates the la on secrecy o$ ban deposits? <=plain your anser. SU44ESTE) ANSWER(
a) he 1ecrecy o$ 5an 'eposits Act prohibits& sub"ect to its e=clusionary clauses& any person $rom e=aminin!& in+uirin! or looin! into all deposits o$ hateer nature ith bans or banin! institutions in the ;hilippines hich by la are declared “absolutely confdential” in nature. anosa ho merely oerheard hat appeared to be a a!ue remar o$ a 5an employee to a co employee and ritin! the same in his nespaper column is neither the in+uiry nor disclosure contemplated by la. ALTERNATI7E ANSWER(
a$ he
complaint a!ainst anosa ill not prosper because merely ritin! a a!ue remar o$ a 5an employee to a coemployee is not the disclosure contemplated by la. I$ anyone should be liable& it ill be the ban employee ho disclosed the in$ormation. SU44ESTE) ANSWER(
b$ Amon! the instances e=cepted $rom
the coera!e o$ the 1ecrecy o$ 5an 'eposits Act are Anti!ra$t cases. /ence Fi!i may not alidly oppose the issuance o$ a su*-oena duces tecu! $or
Version 1990-2003 Arranged by SULAW Class
the ban records on her. ,an-s Secrec% o& ,an- De$osits (**)
he la (9A :J#) creatin! a Commission to conduct a horou!h 8act8indin! Inesti!ation o$ the 8ailed Coup d3etat o$ 'ec 2HJH& 9ecommend easures to ;reent the Bccurrence o$ 1imilar Attempts At a Qiolent 1ei6ure o$ ;oer and $or Bther ;urposes& proides that the Commission may as the onetary 5oard to disclose in$ormation on andOor to !rant authority to e=amine any ban deposits& trust or inestment $unds& or banin! transactions in the name o$ andOor utili6ed by a person& natural or "uridical& under inesti!ation by the Commission& in any ban or banin! institution in the ;hilippines& hen the Commission has reasonable !round to beliee that said deposits& trust or inestment $unds& or banin! transactions hae been used in support or in $urtherance o$ the ob"ecties o$ the said coup d3etat. 'oes the aboe proision not iolate the >a on 1ecrecy o$ 5an 'eposits (9A 24@)? SU44ESTE) ANSWER(
he >a on 1ecrecy o$ 5an 'eposits is itsel$ merely a statutory enactment& and it may& there$ore& be modifed& or amended (such as by proidin! $urther e=ceptions there$rom)& or een repealed& e=pressly or impliedly& by a subse+uent la. he 1ecrecy o$ 5an 'eposits Act did not amount to a contract beteen the depositors and depository bans ithin the meanin! o$ the non impairment clause o$ the Constitution. <en i$ it did& the police poer o$ the 1tate is superior to the non
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
impairment clause. 9A :J#& creatin! a commission to conduct an inesti!ation o$ the $ailed 2HJH coup d3etat and to recommend measures to preent similar attempts to sei6e poer is a alid e=ercise o$ police poer. ,an-s Secrec% o& ,an- De$osits (**2)
1ocorro receied R2& $rom a $orei!n ban althou!h she as entitled only to R2&.. In an apparent plan to conceal the erroneously sent amount& she opened a dollar account ith her local ban& deposited the R2& and issued 4 checs in the amount o$ R#& and 2 chec $or R2& each payable to di-erent indiiduals ho deposited the same in their respectie dollar accounts ith di-erent local bans. he sender ban then brou!ht a ciil suit be$ore the 9C $or the recoery o$ the erroneously sent amount. In the course o$ the trial& the sender presented testimonies o$ ban o-icials to sho that the $unds ere& in $act& deposited in a ban by 1ocorro and paid out to seeral persons& ho participated in the concealment and dissipation o$ the amount that 1ocorro had erroneously receied. 1ocorro moed to strie out said testimonies $rom the record inoin! the la on secrecy o$ ban deposits. I$ you ere the ud!e& ould you issue an order to strie them out? Why? SU44ESTE) ANSWER(
I ill not strie out the testimonies $rom the record. he testimonies o$ ban o-icials indicatin! here the +uestioned dollar accounts ere opened in depositin! misappropriated sums must be considered as lieise inoled in liti!ation G one hich is amon! the e=cepted cases under the 1ecrecy o$ 5an 'eposits Act (eon Bank v agsino 19- SCRA 33)
,an-s Secrec% o& ,an- De$osits (**)
i!uel& a special customs a!ent is char!ed be$ore the Bmbudsman ith
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hain! ac+uired property out o$ proportion to his salary& in iolation o$ the AntiFra$t and Corrupt ;ractices Act. he Bmbudsman issued a su*-oena duces tecu! to the 5anco de Cinco commandin! its representatie to $urnish the Bmbudsman records o$ transactions by or in the name o$ i!uel& his i$e and children. A second subpoena as issued e=pandin! the frst by includin! the production o$ records o$ $riends o$ i!uel in said ban and in all its branches and e=tension o-ices& specifcally namin! them. i!uel moed to +uash the subpoenas ar!uin! that they iolate the 1ecrecy o$ 5an 'eposits >a. In addition& he contends that the subpoenas are in the nature o$ “fshin! e=pedition” or “!eneral arrants” and are constitutionally impermissible ith respect to priate indiiduals ho are not under inesti!ation. Is i!uel3s contention tenable? SU44ESTE) ANSWER(
7o. i!uel3s contention is not tenable. he in+uiry into ille!ally ac+uired property e=tends to cases here such property is concealed by bein! held by or recorded in the
name o$ other persons. o sustain i!uel3s theory and restrict the in+uiry only to property held by or in the name o$ the !oernment o-icial ould mae aailable to persons in !oernment ho ille!ally ac+uire property an easy means o$ eadin! prosecution. All they hae to do ould be to simply place the property in the name o$ persons other than their spouses and children .Banco Fili-ino Saings s# /urisi!a 161 scra 06 Sec + $nti%raft a4 as a!ended *5 B/ 107
,an-s Secrec% o& ,an- De$osits (**1)
ichael ithdre ithout authority $unds o$ the partnership in the amounts o$ ;@th and ,1R@th $or serices he claims he rendered $or the beneft o$ the partnership. /e deposited the ;@th in his personal peso current account ith ;rosperity 5an and the ,1R@th in his personal $orei!n currency sain!s account ith
0es& as $ar as the peso account is concerned. 1ec # o$ 9A 24@ allos the disclosure o$ ban deposits in case here the money deposited is the sub"ect matter o$ liti!ation. 1ince the case fled a!ainst ichael is aimed at recoerin! the amount he ithdre $rom the $unds o$ the partnership& hich amount he alle!edly deposited in his account& a disclosure o$ his ban deposits ould be proper. 7o& ith respect to the $orei!n currency account. ,nder the 8orei!n Currency >a& the e=emption to the prohibition a!ainst disclosure o$ in$ormation concernin! ban deposits is the ritten consent o$ the depositor. ,an-s Secrec% o& ,an- De$osits (**)
2HHJ (#) An insurance company is deluded into releasin! a chec to A $or ;@th to pay $or reasury 5ills (bills) hich A claims to be en route on board an armored truc $rom a !oernment ban. he chec is deliered to A ho deposits it to his account ith L0S 5an be$ore the insurance company reali6es it is a scam. ,pon such reali6ation& the insurance company fles an action a!ainst A $or recoery o$ the amount de$rauded and obtains a rit o$ preliminary attachment. In addition to the rit& the 5an is also sered a subpoena to e=amine the account records o$ A. he 5an declines to proide any in$ormation in response to the rit and moes to +uash the subpoena inoin! secrecy o$ ban
Mercantile Law Bar Examination Q & A (1990-2006)
deposits under 9A 24@& as amended. Can the 5an "ustifably inoe 9A 24@ and a) not respond to the rit and b) +uash the subpoena $or e=amination? (@%) SU44ESTE) ANSWER(
0es. Whether the transaction is considered a sale or money placement does not mae the money “sub"ect matter o$ liti!ation” ithin the meanin! o$ 1ec # o$ 9A 24@ hich prohibits the disclosure or in+uiry into ban deposit e=cept “in cases here the money deposited or inested is the sub"ect matter o$ liti!ation” nor ill it matter hether the money as “sindled.” ,an-s Secrec% o& ,an- De$osits (2000)
F; is a suspected "ueten! lord ho is rumored to be en"oyin! police and military protection. he eny o$ many dru! lords ho had not escaped the dra!net o$ the la& F; as summoned to a hearin! o$ the Committee on 9aceteerin! and Bther 1yndicated Crimes o$ the /ouse o$ 9epresentaties& hich as conductin! a con!ressional inesti!ation “in aid o$ le!islation” on the inolement o$ police and military personnel& and possibly een o$ local !oernment o-icials& in the ille!al actiities o$ suspected !amblin! and dru! lords. 1ubpoenaed to attend the inesti!ation ere o-icers o$ certain identifed bans ith a directie to them to brin! the records and documents o$ ban deposits o$ indiiduals mentioned in the subpoenas& amon! them F;. F; and the bans opposed the production o$ the bans3 records o$ deposits on the !round that no such in+uiry is alloed under the >a on 1ecrecy o$ 5an 'eposits (9A 24@ as amended). Is the opposition o$ F; and the bans alid? <=plain.
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the Bmbudsman authori6ed under the la to issue a subpoena $or the production o$ the ban record inolin! such disclosure. ,an-s Secrec% o& ,an- De$osits E9ce$tions (200)
he >a on 1ecrecy o$ 5an 'eposits proides that all deposits o$ hateer nature ith bans or banin! institutions are absolutely confdential in nature and may not be e=amined& in+uired or looed into by any person& !oernment o-icial& bureau or o-ice. /oeer& the la proides e=ceptions in certain instances. Which o$ the $olloin! may not be amon! the e=ceptions* /* In cases o$ impeachment. !* In cases inolin! bribery * In cases inolin! 5I9 in+uiry. (* In cases o$ anti!ra$t and corrupt practices. #* In cases here the money inoled is the sub"ect o$ liti!ation. <=plain your anser or choice brieEy. (@%) SU44ESTE) ANSWER(
SU44ESTE) ANSWER(
0es. he opposition is alid. F; is not a public o-icial. he inesti!ation does not inole one o$ the e=ceptions to the prohibition a!ainst disclosure o$ any in$ormation concernin! ban deposits under the >a on 1ecrecy o$ 5an 'eposits. he Committee conductin! the inesti!ation is not a competent court or Version 1990-2003 Arranged by SULAW Class
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,nder 1ection :(8) o$ the 7ational Internal 9eenue Code& the Commissioner o$ Internal 9eenue can in+uire into the deposits o$ a decedent $or the purpose o$ determinin! the !ross estate o$ such decedent. Apart $rom this case& a 5I9 in+uiry into ban deposits cannot be made. hus& e=ception may not alays be applicable.
2urning to e4ception ( an in-uiry into bank .eposits is possible only in prosecutions for une4plaine. wealt un.er te Anti
coered by the said la? 1tate the reason(s) $or your anser. (@%) SU44ESTE) ANSWER(
7o. he notice o$ !arnishment sered on a ban at the instance o$ a creditor is not coered by the >a on 1ecrecy o$ 5an 'eposits. Farnishment is "ust a part o$ the process o$ e=ecution. he moment a notice o$ !arnishment is sered on a ban and there e=ists a deposit by the "ud!ment debtor& the ban is directly accountable to the sheri-& $or the beneft o$ the "ud!ment creditor& $or the hole amount o$ the deposit. In such eent& the amount o$ the deposit becomes& in e-ect& a sub"ect o$ the liti!ation.
()*-5! and Banco ilipino Savings and 6ortgage Ban/
Eowe)er all oter cases of anti
<=ceptions 2& # and @& on the other hand& are proided e=pressly in the >a on 1ecrecy o$ 5an 'epositors. hey are aailable to depositors at all times. ,an-s Secrec% o& ,an- De$osits Garnis#ment (200)
he >a on 1ecrecy o$ 5an 'eposits& otherise non as 9A 24@& is intended to encoura!e people to deposit their money in banin! institutions and also to discoura!e priate hoardin! so that the same may be properly utili6ed by bans to assist in the economic deelopment o$ the country. Is a notice o$ !arnishment sered on a ban at the instance o$ a creditor o$ a depositor
Version 1990-2003 Arranged by SULAW Class
,S" Receiers#i$ Juris6iction (**2)
8amily 5an as placed under statutory receiership and subse+uently ordered li+uidated by the Central 5an (C5) due to $raud and irre!ularities in its lendin! operations hich rendered it insolent. udicial proceedin!s $or li+uidation ere therea$ter commenced by the C5 be$ore the 9C. 8amily 5an opposed the petition. 1hortly therea$ter& 8amily 5an fled in the same court a special ciil action a!ainst the C5 seein! to en"oin and dismiss the li+uidation proceedin! on the !round o$ !rae abuse o$ discretion by the C5. he court poised to* 2) restrain the C5 $rom closin! 8amily 5anK and #) authori6e 8amily 5an to ithdra money $rom its deposits durin! the pendency o$ the case. I$ you ere the ud!e& ould you issue such orders? Why? SU44ESTE) ANSWER(
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
7o. he 9C has no authority to restrain the monetary board o$ the 51; $rom statutory authority to undertae receiership and ultimate li+uidation o$ a ban. Any opposition to such an action could be made to the court itsel$ here assistance is sou!ht. he action o$ the 9C here the proceedin! is pendin! appeal hae to be made in the Court o$ Appeals.
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coered by the >a on 1ecrecy o$ 5an 'eposits. SU44ESTE) ANSWER(
he ;2th sain!s account and the ;#th checin! account are deemed insured by the ;'IC. b$ he ;2th sain!s account and the ;#th checin! account are coered by the >a on 1ecrecy o$ 5an 'eposits. a$
Res$onsi.ilities <.=ecties o& ,S" (**) 8e'al Ten6er (2000)
A$ter many years o$ shoppin! in the etro anila area& housei$e /W has deeloped the sound habit o$ main! cash purchases only& none on credit. In one shoppin! trip to e!a all& she !ot the shoc o$ her shoppin! li$e $or the frst time& a store3s smart sales!irl re$used to accept her coins in payment $or a purchase orth not more than one hundred pesos. /W as payin! seenty pesos in #@ centao coins and tenty fe pesos in 2 centao coins. 1tran!e as it may seem& the sales!irl told /W that her coins ere not “le!al tender.” 'o you a!ree ith the sales!irl in respect o$ her understandin! o$ “le!al tender?” <=plain (#%) SU44ESTE) ANSWER(
7o. he sales!irl3s understandin! that coins are not le!al tender is not correct. Coins are le!al tender in amounts not e=ceedin! f$ty pesos $or denominations $rom tenty fe centaos and aboe& and in amounts not e=ceedin! tenty pesos $or denominations ten centaos and less. "D7C 8a; s! Secrec% o& ,an- De$osits Act (**+)
An employee o$ a lar!e manu$acturin! frm earns a salary hich is "ust a bit more than hat he needs $or a com$ortable liin!. /e is thus able to still maintain a ;2& sain!s account& a ;#& checin! account& a ;& money maret placement and a ;4& trust $und in a mediumsi6e commercial ban. a$ 1tate hich o$ the $our accounts are deemed insured by the ;'IC. b$ 1tate hich o$ the aboe accounts are
What are the responsibilities and primary ob"ecties o$ the 51;? (@%) SU44ESTE) ANSWER(
he 51; shall proide policy directions in the areas o$ money& banin! and credit. It shall hae superision oer the operations o$ bans and e=ercise such re!ulatory poers as proided in the Central 5an Act and other pertinent las oer the operations o$ fnance companies and non ban fnancial institutions per$ormin! +uasi banin! $unctions& such as +uasibans and institutions per$ormin! similar $unctions. he primary ob"ectie o$ the 51; is to maintain price stability conducie to a balanced and sustainable !roth
o$ the economy. It shall promote and maintain monetary stability and conertibility o$ the ;eso. Trut# in 8en6in' Act (**)
'ana Fianina purchased on a : month installment basis the latest model o$ the 7issan 1entra 1edan car $rom the obel Cars Inc. In addition to the adertised sellin! price& the latter imposed fnance char!es consistin! o$ interests& $ees and serice char!es. It did not& hoeer& submit to 'ana a ritten statement settin! $orth therein the in$ormation re+uired by the ruth in >endin! Act (9A :@). 7eertheless& the conditional deed o$ sale hich the parties e=ecuted mentioned that the total amount indicated therein included such fnance char!es. a* /as there been substantial compliance o$ the a$oresaid Act? b* I$ your anser to the $ore!oin! +uestion is in the ne!atie& hat is the e-ect o$ the iolation on the contract? c* In the eent o$ a iolation o$ the Act& hat remedies may be aailed o$ by 'ana? SU44ESTE) ANSWER(
a$
here as no substantial compliance ith the ruth in >endin! Act. he la proides that the creditor must mae a $ull disclosure o$ the credit lost. he statement that the total amount due includes the principal and the fnancial char!es& ithout speci$yin! the amounts due on each portion thereo$ ould be insu-icient and unacceptable.
b$ A iolation o$ the ruth in >endin!
Act ill not adersely a-ect alidity o$ the contract itsel$. c$
the
It ould allo 'ana to re$use payment o$ fnancial char!es or& i$ already paid& to recoer the same. 'ana may also initiate criminal char!es a!ainst the creditor.
ALTERNATI7E ANSWER(
c) (;er Atty omby ;aras i$ u read the proisions closely) ,nder the ruth in >endin! Act& said fnancial char!es are alid& and 'ana may not re$use payment thereo$. Bnly criminal char!es may be initiated a!ainst the creditor. Trut# in 8en6in' Act (2000)
Mercantile Law Bar Examination Q & A (1990-2006)
ithout more& proceeds to arran!e the deliery and installation o$ your ne home theater system. 0ou no you ill receie a statement on your credit card purchases $rom the ban containin! an option to pay only a minimum amount& hich is usually 2O: o$ the total price you ere char!ed $or your purchase. 'id endin! Act (9A :@)? SU44ESTE) ANSWER(
here is no need $or endin! Act. he transaction is not a sale on installment basis.
"l, Sales La! ,ul- Sales 8a; Coere6 Transactions (**)
1tanrus Inc a department store ith outlets in aati& andaluyon!& and Tue6on City& is contemplatin! to re$urbish and renoate its aati store in order to introduce the most modern and state o$ the art e+uipment in merchandise display. o carry out its plan& it intends to sell A>> o$ the e=istin! f=tures and e+uipment (display cases& all decorations& $urniture& counters& etc.) to Crossroads 'epartment 1tore. herea$ter& it ill buy and install ne f=tures and e+uipment and continue operations. Crossroads ants to no $rom you as counsel* /$ Whether the intended sale is “bul sale.” !$ /o can it protect itsel$ $rom $uture claims o$ creditors o$ 1tanrus.
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aier o$ the 5ul 1ales >a by the creditors as shon by erifed statements or to comply ith the re+uirements o$ the 5ul 1ales >a& that is& the seller must noti$y his creditors o$ the terms and conditions o$ the sale& and also& be$ore receiin! $rom the endee any part o$ the purchase price& delier to such endee a ritten sorn statement o$ the names and addresses o$ all his creditors to!ether ith the amount o$ indebtedness due to each (1ec # Act H@#& amended) ,ul- Sales 8a; Coere6 Transactions (2000)
Company L& en!a!ed in the business o$ manu$acturin! car parts and accessories& operates a $actory ith e+uipment& machinery and tools $or this purpose. he manu$actured !oods are sold holesale to distributors and dealers throu!hout the ;hilippines. Company L as amon! the business entities adersely hit by the 2HH Asian business crisis. Its sales dropped ith the decline in car sales and its operatin! costs escalated& hile its creditor bans and other fnancial institutions ti!htened
SU44ESTE) ANSWER(
/$ 0es. he sale inoles all f=tures and
e+uipment& not in the ordinary course o$ trade and the re!ular prosecution o$ business o$ 1tanrus& Inc. (1ec # Act H@#& as amended) !$
Crossroads should re+uire $rom 1tanrus Inc. submission o$ a ritten
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their loan port$olios. Company L as $aced ith the dismal choice o$ either suspendin! its operations or sellin! its business. It chose the latter. /ain! struc a deal ith Company S& a more iable entity en!a!ed in the same business& Company L sold its entire business to the $ormer ithout much $an$are or any $orm o$ publicity. In $act& eidence e=ists that the transaction as $urtiely entered into to aoid the pryin! eyes o$ Company L3s creditors. he creditor bans and other fnancial institutions sued Company L $or iolation o$ the 5ul 1ales >a. 'ecide. (@%) SU44ESTE) ANSWER(
Company L iolated the 5ul 1ales >a hen it sold its entire business to Company S $urtiely to aoid the pryin! eyes o$ its creditors. Its manu$actured !oods are sold holesale to distributors and dealers. he sale o$ all or substantially all o$ its stocs& not in the ordinary course o$ business& constitutes bul sale. he transaction bein! a bul sale& enterin! into such transaction ithout complyin! ith the re+uirements o$ the 5ul 1ales >a& Company L iolated said la. ,ul- Sales 8a; Coere6 Transactions (2004)
;ursuant to a rit o$ e=ecution issued by the 9e!ional rial Court in N<=press 5an . 'on 9ubio&N the sheri- leied and sold at public auction J photocopyin! machines o$ 'on 9ubio. Is the sheri-Ds sale coered by the 5ul 1ales >a? (@%)
Version 1990-2003 Arranged by SULAW Class
SU44ESTE) ANSWER(
7o. he sale by sheri- at public sale is not a sale by a merchant. 1ection J o$ the 5ul 1ales >a itsel$ proides that it has no application to e=ecutors& administrators& receiers& assi!nees in insolency& or public o-icers& actin! under process. he 5ul 1ales >a only applies to the sale or encumbrance o$ a merchant o$ !oods& merchandise or commodity done Nin bulN as defned by the >a itsel$. ,ul- Sales 8a; E9clusions (**3)
In the annual meetin! o$ L0S Corporation& the stocholders unanimously adopted a resolution proposed by the 5B' to sell substantially all the f=tures and e+uipment used in and about its business. he ;resident o$ the Corporation approached you and ased $or le!al assistance to e-ect the sale. /$ What steps should you tae so that the sale may be alid? !$ What are the to instances hen the sale& trans$er& mort!a!e or assi!nment o$ stoc o$ !oods& ares& merchandise& proision& or materials otherise than in the ordinary course o$ trade and the re!ular prosecution o$ the business o$ the endor are not deemed to be a sale or trans$er in bul? SU44ESTE) ANSWER(
/$ he re+uirements o$ the 5ul 1ales >a
must be complied ith. he seller deliers to the purchaser a list o$ his creditors and the purchaser in turn notifes such creditors o$ the proposed sale at a stipulated time in adance.
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!$ I$ the sale and trans$er is made a) by
the endor& mort!a!or& trans$eror or assi!nor ho produces and deliers a ritten aier o$ the proisions o$ the 5ul 1ales >a $rom his creditors as shon by erifed statementK and b) by a endor& mort!a!or& trans$eror or assi!nor ho is an e=ecutor& administrator& receier& assi!nee in insolency& or public o-icer actin! under "udicial process& the sale or trans$er is not coered by the 5ul 1ales >a. ,ul- Sales 8a; <.li'ation o& t#e >en6or (**1)
/ouse o$ ;i66a (;i66a) is the oner and operator o$ a nationide chain o$ pi66a outlets. /ouse o$ >i+uor (>i+uor) is a retailer o$ all inds o$ li+uor. /ouse o$ 8oods (8oods) has o-ered to purchase all o$ the outlets& e+uipment& f=tures and $urniture o$ ;i66a. 8oods also o-ered to purchase $rom >i+uor all o$ its moderately priced stoc constitutin! @% o$ its total inentory. 5oth ;i66a and >i+uor hae creditors. What le!al re+uirements must ;i66a and >i+uor comply ith in order $or 8oods to consummate the transactions? 'iscuss $ully. SU44ESTE) ANSWER(
;i66a and >i+uor must prepare an a-idait statin! the names o$ all their creditors& their addresses& the amounts o$ their credits and their respectie maturities. ;i66a and >i+uor must submit said a-idait to 8oods hich& in turn& should noti$y the creditors about the transaction hich is about to be concluded ith ;i66a and >i+uor. ALTERNATI7E ANSWER(
As $ar as >i+uor is concerned& it must prepare an a-idait statin! the names o$ all its creditors& their addresses& the amounts o$ their credits and their respectie maturities. It must submit said a-idait to its buyer& ho in turn& should noti$y the creditors about the transaction hich is about to be concluded ith his seller. 5ut as $ar as ;i66a is concerned& it is not coered by the 5ul 1ales >a. 1o 8oods
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ithout
,ul- Sales 8a; <.li'ation o& t#e >en6or (**+)
he sole proprietor o$ a mediumsi6e !rocery shop& en!a!ed in both holesale and retail transactions& sells the entire business “loc& stoc and barrel” because o$ his plan to emi!rate abroad ith his $amily. Is he coered by the proisions o$ the 5ul 1ales >a? In the a-irmatie& hat must be done by the parties so as to comply ith the la? SU44ESTE) ANSWER(
0es. his is a sale o$ the stoc o$ !oods& f=tures and entire business& not in the ordinary course o$ business or trade o$ the endor. 5e$ore receiin! $rom the endee any part o$ the purchase price& the endor must delier to such endee a ritten statement& duly sorn& o$ the names and addresses o$ all creditors to hom said endor may be indebted& to!ether ith the amount o$
indebtedness due or oin!& on account o$ the !oods& f=tures or business sub"ect matter o$ the bul sale. ,ul- Sales 8a; <.li'ation o& t#e >en6or (200)
A is a merchant en!a!ed in the sale o$ a ariety o$ !oods and merchandise. 5ecause o$ the economic crisis& he incurred indebtedness to L& 0 and S. herea$ter& A sold to 5 all the stoc o$ !oods and merchandise. a$ What steps should A undertae to e-ect a alid sale in bul o$ his !oods to 5. (#%). SU44ESTE) ANSWER(
A must prepare an a-idait statin! the names o$ all his creditors& in this case& L& 0& and S& their addresses& the amount o$ their credits and their maturity. A should !ie the a-idait to 5 ho& in turn& should $urnish a copy to each creditor and noti$y the creditors that there is a proposed bul sale in order to enable the latter to protect their interests. b$
1uppose A submitted a $alse statement on the schedule o$ his creditors. What is the e-ect o$ such $alse statement as to Qendee 5. (#%)
SU44ESTE) ANSWER(
I$ the endee does not hae noled!e o$ the $alsity o$ the schedule& the sale is alid. /oeer& i$ the endee has noled!e o$ such $alsity& the sale is oid because he is in bad $aith. c$
What is the ri!ht o$ creditors L& 0& and S i$ A $ailed to comply ith the
procedureOsteps re+uired by la under +uestion letter (a) hereo$? (2%) SU44ESTE) ANSWER(
he recourse o$ L& 0& and S is to +uestion the alidity o$ the sale $rom A to 5 so as to recoer the !oods and merchandise to satis$y their credits.
Consmer rote#tion La! etric S%stem 8a; (**)
An!elene is a customer o$ eralco
Mercantile Law Bar Examination Q & A (1990-2006)
hen there is a bona fde and "ust dispute as to the amount due as her electric consumption rate. Is An!elene3s contention alid? SU44ESTE) ANSWER(
7o. An!elene3s only le!al recourse in this case as to pay the electric bill under protest. /er $ailure to do so "ustifed
Cor%oration La!
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;@th. A $e days later& the Corporate 1ecretary o$ 8 in$ormed Fre!orio o$ the decision o$ their 5B' not to rati$y the letter o-er. /oeer& since Fre!orio had already paid the donpayment& 8 deliered @ ba!s o$ $ertili6er hich Fre!orio accepted. 8 made it clear that the deliery should be considered an entirely ne transaction. herea$ter& Fre!orio sou!ht en$orcement o$ the letter o-er. Is there a bindin! contract $or the @& ba!s o$ $ertili6er? <=plain. SU44ESTE) ANSWER(
,
A Morean national "oined a corporation hich is en!a!ed in the $urniture manu$acturin! business. /e as elected to the 5oard o$ 'irectors. o complement its $urniture manu$acturin! business& the corporation also en!a!ed in the lo!!in! business. With the additional lo!!in! actiity& can the Morean national still be a member o$ the 5oard o$ 'irectors? <=plain. (%) SU44ESTE) ANSWER(
0es& "ust as lon! as si=ty percent (:%) o$ the 5oard o$ 'irectors are 8ilipinos. Corporations that are si=ty percent (:%) oned by 8ilipinos can en!a!e in the business o$ e=ploration& deelopment and utili6ation o$ natural resources. (Art. LII& 1ec. #& 2HJ Constitution) he election o$ aliens as members o$ the 5oard B$ 'irectors en!a!in! in partiallynationali6ed actiities is alloed in proportion to their alloable participation or share in the capital o$ such entities. (1ec. #A& Anti 'ummy >a) 7othin! in the $acts shos that more than $orty percent (4%) o$ the 5oard o$ 'irectors are $orei!ners.
7o& there is no bindin! contract $or the @& ba!s o$ $ertili6er. 8irst& the $acts do not indicate that 9odman& the ;resident o$ 8 Co& as authori6ed by the 5B' to enter into the said contract or that he as empoered to do so under some proision o$ the bylas o$ 8 Co. he $acts do not also indicate that 9odman has been clothed ith the apparent poer to e=ecute the contract or a!reements similar to it. 1econd& 8 Co has specifcally in$ormed Fre!orio that it has not ratifed the contract $or the sale o$ @& ba!s o$ $ertili6er and that the deliery to
,
9odman& the ;resident o$ 8 Co& rote a letter to Fre!orio& o-erin! to sell to the latter @& ba!s o$ $ertili6er at ;2 per ba!. Fre!orio si!ned his con$ormity to the lettero-er& and paid a donpayment o$ Version 1990-2003 Arranged by SULAW Class
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Gregorio of #"" bags wic Gregorio accepte. is an entirely new transaction* (9ao :a Sin 2rading v "# 4+ 5.8;
,
A$ter many di-icult years& hich called $or sacrifces on the part o$ the company3s directors& A5C anu$acturin! Inc as fnally earnin! substantial profts. hus& the ;resident proposed to the 5B' that the directors be paid a bonus e+uialent to 2@% o$ the company3s net income be$ore ta= durin! the precedin! year. he ;resident3s proposal as unanimously approed by the 5B'. A stocholder o$ A5C +uestioned the bonus. 'oes he hae !rounds to ob"ect?
$orei!n contact but the pi! sins e=ported ere not sourced $rom A5C. /is $ello directors in A5C complained that he should hae !ien this business to A5C. /o ould you decide on this matter? SU44ESTE) ANSWER(
I ould decide in $aor o$ r 'e 'ios. A5C is en!a!ed in raisin! and sellin! ho!s in the local maret. he company that r 'e 'ios had set up as to en!a!e& as it did& in the e=port o$ pi!s sins. here is thus no conEict o$ interest beteen r. 'e 'ios and A5C ;i!!er Inc so as to mae the case $all ithin the conEict o$ interest situation under the la (1ec 4 Corp Code) 1bservation 2he term =conflict of interest> is susceptible to varied views and interpretations'
SU44ESTE) ANSWER(
0es& the stocholder as a alid and le!al !round to ob"ect to the payment to the directors o$ a bonus e+uialent to 2@% o$ the company3s net income. he la proides that the total annual compensation o$ the directors& in the precedin! year& cannot e=ceed 2% o$ the company3s net income be$ore income ta= (1ec Corp Code). ,
A5C ;i!!er Inc is en!a!ed in raisin! and sellin! ho!s in the local maret. r. 'e 'ios& one o$ its directors hile traelin! abroad& met a leather !oods manu$acturer ho as interested in buyin! pi! sins $rom the ;hilippines. r 'e 'ios set up a separate company and started e=portin! pi! sins to his
Version 1990-2003 Arranged by SULAW Class
,
Chito 1antos is a director o$ both ;latinum Corporation and Mi 1iler Corporation. /e ons 2% o$ the outstandin! capital stoc o$ ;latinum and 4 o$ Mi. ;latinum plans to enter into a contract ith Mi that ill mae both companies earn ery substantial profts. he contract is presented at the respectie board meetin!s o$ ;latinum and Mi. /* In order that the contract ill not be oidable& hat conditions ill hae to be complied ith? <=plain. !* I$ these conditions are not met& ho may
this contract be ratifed? <=plain. SU44ESTE) ANSWER(
/* At the meetin! o$ the 5B' o$ ;latinum
to approe the contract& Chito ould hae to mae sure that
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his presence as director at the meetin! is not necessary to constitute a +uorum $or such meetin!K b$ his ote is not necessary $or the approal o$ the contractK and c$ the contract is $air and reasonable under the circumstances. a$
At the meetin! o$ the 5B' o$ Mi to approe the contract& Chito ould hae to mae sure that a$ there is no $raud inoledK and b$ the contract is $air and reasonable under the circumstances. SU44ESTE) ANSWER(
!* I$ the conditions relatin! to the +uorum
and re+uired number o$ otes are not met& the contract must be ratifed by the ote o$ stocholders representin! at least #O o$ the outstandin! capital stoc in a meetin! called $or the purpose. 8urthermore& the aderse interest o$ Chito in the contract must be disclosed and the contract is $air and reasonable. (1ecs. # and & 5; :J) ,
>eonardo is the Chairman and ;resident& hile 9aphael is a 'irector o$ 7 Corporation. Bn one occasion& 7 Co& represented by >eonardo and A u6on. Is the dealership a!reement alid? <=plain. SU44ESTE) ANSWER(
he dealership a!reement is oidable at the option o$ 7 Co inasmuch as the $acts do not indicate that the same as approed by the 5B' o$ 7 Co be$ore it as si!ned or& assumin! such approal& that it as approed under the $olloin! conditions* /$ hat the presence o$ 9aphael& the oner o$ A
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hat the ote o$ 9aphael as not necessary $or the approal o$ the a!reementK $ hat the a!reement is $air and reasonable under the circumstances (1ec # Corp Code) !$
ALTERNATI7E ANSWER(
he dealership a!reement is alid upon the assumption that the same as approed by the 5B' o$ 7 Co be$ore it as si!ned and that such approal as made under the $olloin! conditions* /$ hat the presence o$ 9aphael& the oner o$ A ali6it% limitin' 5uali&ications o& ,
he 5B' o$ L Co& actin! on a standin! authority o$ the stocholders to amend the bylas& amended its bylas so as to dis+uali$y any o$ its stocholders ho is also a stocholder and director o$ a competitor $rom bein! elected to its 5B'. 0& a stocholder holdin! su-icient assets to assure him o$ a seat in the 5B'& fled a petition ith the 1
7o. here is no ested ri!ht o$ a stocholder to be elected as director. When a person buys stoc in a corporation he does so ith the noled!e that its a-airs are dominated by a ma"ority o$ the stocholders. o this e=tent& the stocholder parted ith his personal ri!ht to re!ulate the disposition o$ his property hich he inested in the capital stoc o$ the corporation and surrendered it to the ill o$ the ma"ority o$ his $ello incorporators or stocholders. Corporations hae the poer to mae by las declarin! a person employed in the serice o$ a rial company to be ineli!ible $or the Corporation3s 5B'. An amendment hich renders a director ineli!ible& or i$ elected& sub"ects him to remoal& i$ he is also a director in a corporation hose business is in competition ith or is anta!onistic to the other corporation is alid. ,%?8a;s >ali6it% limitin' 5uali&ications o& ,
At the annual stocholders3 meetin! o$ 1 Corporation& the stocholders unanimously passed a resolution authori6in! the 5oard o$ 'irectors to amend the corporate bylas so as to dis+uali$y any stocholder ho is also a
director or stocholder o$ a competin! business $rom bein! elected to the 5oard o$ 'irectors o$ 1 Corporation. he by las ere accordin!ly amended. FM& a stocholder o$ 1 Corporation and a ma"ority stocholder o$ a competitor& sou!ht election to the 5oard o$ 'irectors o$ 1 Corporation. /is nomination as denied on the !round that he as ineli!ible to run $or the position. 1eein! a nullifcation o$ the o-endin! dis+ualifcation proision& FM consults you about its alidity under the Corporation Code o$ the ;hils. What ould your le!al adice be? (%) SU44ESTE) ANSWER(
he proision in the amended bylas dis+uali$yin! any stocholder ho is also a director or stocholder o$ a competin! business $rom bein! elected to the 5oard o$ 'irectors o$ 1 Corp is alid. he corporation is empoered to adopt a code o$ bylas $or its !oernment not inconsistent ith the Corp Code. 1uch dis+uali$yin! proision is not inconsistent ith the Corp Code.
,%?8a;s >ali6it% limitin' 5uali&ications o& ,
mem.ers (200)
Mercantile Law Bar Examination Q & A (1990-2006)
Is a byla proision o$ L Corporation “renderin! ineli!ible or i$ elected& sub"ect to remoal& a director i$ he is also a director in a corporation hose business is in competition ith or is anta!onistic to said corporation” alid and le!al? 1tate your reasons. (@%). SU44ESTE) ANSWER(
0es& the byla proision is alid. It is the ri!ht o$ a corporation to protect itsel$ a!ainst possible harm and pre"udice that may be caused by its competitors. he position o$ director is hi!hly sensitie and confdential. o say the least& to allo a person& ho is a director in a corporation hose business is in competition ith or is anta!onistic to L Corporation& to become also a director in L Corporation ould be harborin! a conEict o$ interest hich is harm$ul to the latter .%okong4ei 9r S:C + S 336 .17 S + .1+77#
,%?8a;s >ali6it% limitin' 5uali&ications o& ,
o preent the entry o$ arlo
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and adopt by las as inherent in eery corporation as one o$ its necessary and inseparable le!al incidents. And it is settled throu!hout the ,nited 1tates that in the absence o$ positie le!islatie proisions limitin! it& eery priate corporation has this inherent poer as one o$ its necessary and inseparable le!al incidents& independent o$ any specifc enablin! proision in its charter or in !eneral la& such poer o$ sel$!oernment bein! essential to enable the corporation to accomplish the purposes o$ its creation.N Close Cor$orations Dea6loc-s (**1)
9obert& 9ey and 5en e=ecuted a "oint enture a!reement to $orm a close corporation under the Corp Code the outstandin! capital stoc o$ hich the three o$ them ould e+ually on. hey also proided therein that any corporate act ould need the ote o$ % o$ the outstandin! capital stoc. he terms o$ the a!reement ere accordin!ly implemented and the correspondin! close corporation as incorporated. A$ter years& 9obert& 9ey and 5en could not a!ree on the business in
SU44ESTE) ANSWER(
.-er )ondee7 he 1C reiterated in the case
o$ SMC s# S:C decided in $-ril 11, 1, that it is reco!ni6ed by all authorities that Deery corporation has the inherent poer to adopt bylas D$or its internal !oernment& and to re!ulate the conduct and prescribe the ri!hts and duties o$ its members toards itsel$ and amon! themseles in re$erence to the mana!ement o$ its a-airs.DN At common la& the rule as Nthat the poer to mae 7ersion 1 990+2003 Arrange& 'y SULAW Cass
7ersion 1990+2006 U %&ate& 'y
hich to inest the $unds o$ the corporation. 9obert ants the deadloc broen. /* What are the remedies aailable to 9obert under the Corp code to brea the deadloc? <=plain. !* Are there any remedies to preent the paraly6ation o$ the business aailable to 9obert under ;' H#A hile the petition to brea the deadloc is pendin! liti!ation? <=plain.
f=ed by the bylas or a total price o$ ;2#@& only. While the bylas o$ 1ta. Ana proides that the ri!ht o$ frst re$usal can be e=ercised “at a price not e=ceedin! #@% more than the par alue o$ such shares& the Articles o$ Incorporation simply proides that the stocholders o$ record “shall hae pre$erential ri!ht to purchase said shares.” It is silent as to pricin!.
SU44ESTE) ANSWER(
/* 9obert
can petition the 1
9a$ael inherited $rom his uncle 2& shares o$ 1ta. Ana Corporation& a close corporation. he shares hae a par alue o$ ;2. per share. 9a$ael notifed 1ta. Ana that he as sellin! his shares at ;. per share. here bein! no taers amon! the stocholders& 9a$ael sold the same to his cousin Qicente (ho is not a stocholder) $or ;&. he Corporate 1ecretary re$used to trans$er the shares in Qicente3s name in the corporate boos because Alberto& one o$ the stocholders& opposed the trans$er on the !round that the same iolated the bylas. Alberto o-ered to buy the shares at ;2#.@ per share& as
7ersion 1 990+2003 Arrange& 'y SULAW Cass
Is 9a$ael bound by the pricin! proiso under the bylas o$ 1ta. Ana Corporation? SU44ESTE) ANSWER(
0es. In a close corporation& the restriction as to the trans$er o$ shares has to be statedO annotated in the Articles o$ Incorporation& the 5y>as and the certifcate o$ stoc. his seres as notice to the person dealin! ith such shares lie 9a$ael in this case. With such notice& he is bound by the pricin! stated in the 5ylas. ALTERNATI7E ANSWER(
7o& 9a$ael is not bound by the pricin! proiso under the 5ylas o$ 1ta Ana Corporation. ,nder the corporation la& the restrictions on the ri!ht to trans$er shares must appear in the articles o$ incorporation and in the bylas as ell as in the certifcate o$ stoc& otherise& the same shall not be bindin! on any purchaser thereo$ in !ood $aith. oreoer the restriction shall not be more onerous than !rantin! the e=istin! stocholders or the corporation the option to purchase the shares o$ the trans$errin! stocholder ith such reasonable term or period stated therein.
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/ere& limitin! the price to be paid& hen the ri!ht o$ frst re$usal is e=ercised& to not more than #@% par alue& ithout any +ualifcation hatsoeer& is not in the articles. It is merely stated in the 5ylas. here$ore such limitation shall not be bindin! on the purchaser. .%oSock
Accountant. /e steadily rose $rom the rans until he became A'3s <=ecutie Q;. 1ubse+uently& hoeer because o$ his inolement in certain anomalies& the A' 5B' considered him resi!ned $rom the company due to loss o$ confdence.
? Sons ? Sy 4ui @uat nc v #" )* eb 87 6in +es!
A!!rieed& a!no fled a complaint in the 1
Controers% 7ntra?Cor$orate (**)
5ecause o$ disa!reement ith the 5B' and a threat by the 5B' to e=pel her $or misconduct and ine-iciency& Carissa o-ered in ritin! to resi!n as ;resident and member o$ the 5B'& and to sell to the company all her shares therein $or ;&. /er o-er to resi!n as “e-ectie as soon as my shares are $ully paid.” At its meetin!& the 5B' accepted Carissa3s resi!nation& approed her o-er to sell bac her shares o$ stoc to the company& and promised to buy the stocs on a sta!!ered basis. Carissa as in$ormed o$ the 5B' 9esolution in a letter a!reement to hich she a-i=ed her consent. he Company3s ne ;resident sin!ed the promissory note. A$ter payment ;2& the company de$aulted in payin! the balance o$ ;#&. Carissa ants to sue the Company to collect the balance. I$ you ere retained by Carissa as her layer& here ill you fle the suit? A) >abor ArbiterK b) 9CK or c) 1
he 9C has "urisdiction oer this case hich inoles intracorporate controersy. As o$ #:& the applicable rule is that there is a 9A718<99<' ,9I1'ICIB7 under 1ec. @.# o$ the 19C& the Commission3s "urisdiction oer all cases enumerated under ;' H#A sec. @ has been trans$erred to the Courts o$ !eneral "urisdiction or the appropriate 9e!ional rial Court. Controers% 7ntra?Cor$orate (**4)
In 2H& a!no "oined A' Co as a unior
SU44ESTE) ANSWER(
As o$ #:& the applicable rule is that there is a 9A718<99<' ,9I1'ICIB7 under 1ec. @.# o$ the 19C& the Commission3s "urisdiction oer all cases enumerated under ;' H#A sec. @ has been trans$erred to the Courts o$ !eneral "urisdiction or the appropriate 9 9IA> CB,9. Controers% 7ntra?Cor$orate (**4)
enni$er and Fabriel oned the controllin! stocs in 88 Co and C>B Inc& both $amily corporations. 'ue to serious disa!reements& enni$er assi!ned all her shares in 88 to Fabriel& hile Fabriel assi!ned all his shares in C>B to enni$er. 1ubse+uently& enni$er and C>B fled a complaint a!ainst Fabriel and 88 in the 1B hich Fabriel alle!edly re$used to turn oer& and hich remained in the o-ices o$ 88. Is there an intracorporate controersy in this case? SU44ESTE) ANSWER(
0es& there is an intracorporate controersy in this case. he $act that& hen the complaint a!ainst Fabriel and 88 as fled ith the 1B ere no lon!er stocholders o$ 88 did not diest the 1
Controers% 7ntra?Cor$orate (2004)
;hat is an intracor-orate contro"ers5< .+=7 SU##ES$E% A&SWE':
An intracorporate controersy is a conEict beteen stocholders& members or partners and the corporation& association or partnership re!ardin! the re!ulation o$ the corporation. he controersy must arise out o$ intra corporate or partnership relations o$ the partiesK or beteen such corporation& partnership or
association and the 1tate inso$ar as it concerns their indiidual $ranchises. It is $urther re+uired that the dispute be intrinsically connected ith the re!ulation o$ the corporation .S-eed )istri*uting Cor-#, et al# # Court of $--eals, et al, %#R# &o# 1(301, March 1, 2( ntestate :state of $le>ander ?#?5# Court of $--eals, %#R# &o# 112+2, $-ril 1, 217#
s the Securities and :>change Co!!ission the "enue for actions in"ol"ing intracor-orate contro"ersies< .2=7 SU##ES$E% A&SWE':
7o& pursuant to 1ubsection @.# o$ the 1ecurities 9e!u lation Code& the +uasi "udicial "urisdiction o$ the 1ecurities and <=chan!e Commission to hear corporate cases& includin! intracorporate controersies& under 1ection @ o$ ;res. 'ecree 7o. H#A& has been e=pressly trans$erred to the desi!nated 9e!ional rial Court. ;ursuant to a memorandum circular issued by the 1upreme Court& only particularly desi!nated 9C special commercial courts in each "udicial re!ion hae ori!inal and e=clusie "urisdiction oer such cases .See ntestate :state of $le>ander ?# ?5 # Court of $--eals, %#R# &o# 112+2, $-ril 1, 217#
Controers% 7ntra?cor$orate Juris6iction (**+)
uan as a stocholder o$ L Co. /e oned a total o$ @ shares eidenced by Cert o$ 1toc 7o 22. /e sold the shares to ;edro. A$ter !ettin! paid& uan indorsed and deliered said Certifcate o$ 1toc 7o 22 to ;edro. he $olloin! day& uan ent to the o-ices o$ the corporation and claimed that his Certifcate o$ 1toc 7o 22 as lost and that& despite dili!ent e-orts& the certifcate could
Mercantile Law Bar Examination Q & A (1990-2006)
not be located. he $ormalities prescribed by la $or the replacement o$ the “lost” certifcate ere complied ith. ith. <entually L Co issued in substitution o$ the “lost” certifcate& Cert o$ 1toc 7o ##. uan $orthith trans$erred $or aluable consideration the ne certifcate certifcate to ose ho ne nothin! o$ the preious sale to ;edro. In time& the corporation as con$ronted ith the conEictin! claims o$ ose and ;edro. ;edro. he 5B' o$ L Co inited you to enli!hten enli!hten them on these +uestionsK +uestionsK i6* a$ I$ a suit ere to be initiated in order to resole the controersy beteen ;edro and ose& should the matter be submitted to the 1
a$ he matter should be submitted to the
re!ular courts G specifcally in the 9e!ional rial Court here the principal o-ice o$ the corporation is located. he controersy beteen ;edro and ose is not an intra corporate controersy.
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priest& minister& rabbi or other presidin! elder o$ such reli!ious denomination& sect or or church. Cor$oration: 7ssuance o& s#ares o& stoc- to $a% &or t#e serices (2001)
anice rendered rendered some consultancy consultancy or $or L0S Corporation. /er compensation included shares o$ stoc therein. Can L0S L 0S Corporation issue shares o$ stoc to pay $or the serices o$ anice as its consultant? 'iscuss your anser. anser. (#%) SU44ESTE) ANSWER(
0es& 0es& proided proided the approal approal o$ stocholders stocholders representin! tothirds (#O) o$ the outstandin! capital stoc is obtained. Althou!h Althou!h the $acts indicate indicate that the cons consul ultan tancy cy or or has alread already y been been NrenderedN constitutin! Npreiously contracted debt&N under 1ection H o$ the Corporation Code& the preemptie ri!hts o$ e=istin! stocholders need not be respected Nin payment o$ a preiously contracted debt&N but only ith the indicated stocholdersD approal. ,nder 1ection :# o$ the Corporation Code& consideration $or the issuance o$
b$ I$ there is no oerissuance o$ shares
resultin! $rom the totransactions o$ uan& the corporation corporation should reco!ni6e reco!ni6e both ;edro and ose as ri!ht$ul stocholders. his is ithout pre"udice to the ri!ht o$ the corporation to claim a!ainst uan $or the alue o$ the shares hich uan sold to ose. Cor$oration Sole De&inition (200)
What is a corporation sole? SU44ESTE) ANSWER(
1ection 22 o$ the Corporation Code defnes a Ncorporation soleN as one $ormed $or the the purpos purpose e o$ admini administer sterin! in! and mana!in!& as trustee& the a-airs& property and temporalities o$ any reli!ious denomination& sect or church. It is $ormed by the chie$ archbishop& bishop& Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
stoc may include labor per$ormed $or or serices actually rendered to the corporation. Cor$oration Cor$ora tion:: Ri'# Ri'#tt o& Re$u Re$urc#a rc#ase se o& S#ar S#ares es Tr Trust ust /un6 Doctrine (2001)
,nder hat conditions may a stoc corporation ac+uire its on shares? (#%) SU44ESTE) ANSWER(
1n line wit te trust fun. .octrine tat generally ren.ers it unlawful for te corporation to return assets to te stockol.ers representing capital a corporation 'ay ac-uire its own sares only on ly when he n ther th eree exis ex ists ts in the th e boo/ bo o/ss unres unrestr tric icte ted d retai ret aine ned d earn earnin ings gs to cove coverr the th e repurcha repu rchase se of shares shares'' 2e purpose of te repurcase of sares 'ust be a legiti'ate business purpose of te corporation suc as to: <>II7A< $ractional shares arisin! out o$ stoc diidendsK !* CB>>
Cor$oration: Cor$orati on: Sole "ro$riet "ro$rietors#i$ ors#i$ (200)
0M1 radin! fled a complaint complaint $or specifc per$ormance ith dama!es a!ainst ;WC Corporation $or $ailure to delier cement ordered by plainti-. In its anser& ;WC denied liability on the !round& inter alia&
Version 1990-2003 Arranged by SULAW Class
that 0M1 has no personality to sue& not bein! incorporated& and that the ;resident o$ ;WC as not authori6ed to enter into a contract ith plainti- by the ;WC 5oard o$ 'irectors& hence the contract is ultra ires. 0M1 radin! replied that it is a sole proprietorship oned by 0M1& and that the ;residen ;residentt o$ ;WC had made it appear in seeral letters letters presented presented in eidence that he had authority to si!n contracts on behal$ o$ the 5oard o$ 'irectors 'irectors o$ ;WC. Will the suit suit prosper or or not? 9eason brieEy. brieEy. (@%) SU44ESTE) ANSWER(
0es 0es the suit ill prosper prosper. As a sole proprietorship& the proprietor o$ 0M1 radin! has the capacity to act and the personality to sue ;WC. It is not necessary $or 0M1 radin! to be incorporated be$ore it can sue. Bn the other hand& ;WC is estopped $rom assertin! that its ;resident had no authority to enter into the contract& considerin! that& in seeral o$ ;WCDs letters& it had clothed its ;resident ith apparent authority to deal ith 0M1 radin!. Cor$oration Cor$orati on Article Articless o& 7ncor$orat 7ncor$oration ion (**0)
he articles o$ re!istered in the $olloin! proisions a$ “8irst Article. corporation shall Company.”
incorporation to be 1
b$ “hird Article. he principal o-ice o$
such corporation shall be located in 9e!ion III& in such municipality therein as its 5oard o$ 'irectors may desi!nate.”
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Examination Q & A (1990-2006)
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What are your comments and su!!ested chan!es to the proposed articles?
stocholders representin! at least to thirds (#O) o$ the transact transactions ions not bein! bein! Nin the ordinar ordinary y course o$ business&N and one Nthereby the corporation ould be rendered incapable o$ continuin! the business or accomplishin! the purpose $or hich it as incorporated.N
SU44ESTE) ANSWER(
ALTERNATI7E ALTERNATI7E ANSWER(
c$ “1eenth Article. he capital stoc o$ the
corporation is Bne illion (;2&&) ;hilippine Currency.”
;esos
a$
Bn the 8irst Article& I ould su!!est that the corporate name indicate the $act o$ incorporation by usin! either “oho aretin! Corporation” or “oh aretin! Company& Company& Incorporated.”
b$
he hird Article should indicate the City City or the the unici unicipal palit ity y and the the ;roince ;roince in the ;hilippines& ;hilippines& and not merely the re!ion or as its 5B' may later desi!nate& to be its place o$ principal o-ice.
c$
he 1eenth Article must additionally point out the number o$ shares into hich hich the capital capital stoc stoc is diide diided& d& as ell as the par alue thereo$ or a statement that said stoc or a portion thereo$ are ithout par alue. (1ec 24 P 2@ Corp Code)
Cor$oration ,ul- Sales 8a; (2001)
'iine Corporation is en!a!ed in the manu$acture o$ !arments $or e=port. In the course o$ its business& it as able to obtain loans $rom indiiduals and fnancin! institutions. /oeer& due to the drop in the demand $or !arments in the international maret& 'iine Corporation could not meet its obli!ations. It decided to sell all its e+uipment such as sein! machines& permapress machines& hi!h speed seers& cuttin! tables& ironin! tables& etc.& as ell as its supplies and materials to op Frade 8ashion Corporation& its competitor. (@%) /$ /o ould you classi$y the transaction? SU44ESTE) ANSWER(
he transactions ould constitute a sale o$ Nsubstantially all o$ the assets o$ 'iine Corporation complyin! ith the test under 1ec. 4 o$ the Corporation Code& the
It is a sale and trans$er in bul in contemplation o$ the 5ul 1ales >a. ,nder 1ec. # o$ the 5ul 1ales >a& a bul sale includes any sale& trans$er& mort!a!e& or assi!nment o$ all& or substantially all& o$ the business or trade thereto$ore conducted by the endor& mort!a!or& trans$eror& or assi!nor. his is e=actly hat happened in the case at bar. !$
Can 'iine Corporation sell a$oresaid items to its competitor& Frade 8ashion Corporation? What the re+uirements to alidly sell items? <=plain.
the op are the
SU44ESTE) ANSWER(
8or such a transaction to be alid& it re+uires not only the $aorable resolution o$ the 5oard o$ 'irectors o$ 'iine Corporation& but also the ratifcatory ote o$
outstan.ing capital stock as 'an.ate. un.er Sec* (" of te Corporation Co.e* 2e sale woul. be )oi. in case of failure to 'eet te twin appro)als* (slamic &irectorate of the 3hilippines 3hilippines v' "ourt of of #ppeals, #ppeals, 4'+' 0o' ))78*7 ))78*7,, 6ay ), ), ALTERNATI7E ANSWER( )**7! ALTERNATI7E
'iine Corporation can sell the items to its competitor& op Frade 8ashion Corporation. /oeer& 'iine Corporation must comply ith 1ections & 4 and @ o$ the 5ul 1ales >a& namely* (2) delier sorn statement o$ the names and addresses o$ all the creditors to hom the endor or mort!a!or mort!a!or may be indebted indebted to!ether ith the amount o$ indebtedness due or oin! to each o$ the said creditorsK (#) apply the purchase or mort!a!e money to the prorata payment o$ bona fde claims o$ the creditorsK and () mae a $ull detailed inentory o$ the stoc o$ !oods& ares& merchandise& proisions or materials& in bul& and noti$y eery creditor at least ten (2) days be$ore trans$errin! possession.
ALTERNATI7E ALTERNATI7E ANSWER(
,nder the 5ul 1ales >a& i$ the proceeds are notK applied proportionately toards the settlement o$ the accounts o$ the corporate debts& to hae the sale o$ the sub"ect matters to op Frade 8ashion Corp.& as bein! N$raudulent and oidN and obtain satis$action $rom the properties hich are deemed to still be oned by 'iine Corporation in spite o$ deliery to the buyer. he creditors can collect on the credit a!ainst 'iine Corporation& and i$ it cannot pay& the creditors can apply $or attachment on the property $raudulently sold. (See 'eope v. apo/, apo/, 0.R. o. 4**3, Septe!er +1, 194+) ($
In case 'iine Corporation iolated the la& hat remedies are aailable to op Frade 8ashion Corporation a!ainst 'iine Corporation?
SU44ESTE) ANSWER(
1f te sale by Di)ine Corporation .i. not obtain te re-uire. two
2op Gra.e Fasion Corporation can a)e te purcase .eclare. )oi. an. reco)er te purcase price pai. as well as .a'ages against te .irectors an. officers wo un.ertook un.ertook te transaction transaction in )iolation )iolation of te law* )**7!
$
/o ould you protect the interests o$ the creditors o$ 'iine Corporation?
SU44ESTE) ANSWER(
Considerin! that 'iine Corporation has entered a de $acto sta!e o$ dissolution ith the ceasin! o$ its operations& I ould inoe on behal$ o$ the creditors the protection under 1ec. 2## o$ the Corporation Code& that the proceeds o$ the sale should frst be applied toards the settlement o$ the obli!ations o$ the corpor corporatio ation& n& be$ore be$ore any amount amount can be paid to the stocholders.
ALTERNATI7E ALTERNATI7E ANSWER(
8or iolation o$ the 5ul 1ales >a& the principal o-icers o$ the 'iine Corporation can be held criminally liable. In addition& op Frade can sue 'iine Corporation $or dama!es. Qiolation o$ the 5ul 1ales >a ould render such a sale $raudulent and oid. 1ince op Frade ould be compelled to return the !oods to 'iine Corporation&
Mercantile Law Bar Examination Q & A (1990-2006)
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op Frade can compel 'iine Corporation to return the purchase price and pay dama!es. Cor$oration Conersion o& Stoc- Cor$oration (200) Cor$oration ,%?la;s (200)
1uppose that the bylas o$ L Corp& a minin! frm proides that “he directors shall be relieed $rom all liability $or any contract entered into by the corporation ith any frm in hich the directors may be interested.” hus& director A ac+uired claims hich oerlapped ith L3s claims and ere necessary $or the deelopment and operation o$ L3s minin! properties. a$ Is the byla proision alid? Why? (%) b$ What happens i$ director A is able to consummate his minin! claims oer and aboe that o$ the corporation3s claims? (#%) SU44ESTE) ANSWER(
a$
7o. It is in iolation o$ 1ection # o$ the Corp Code.
b$ A should account to the corporation $or
the profts hich he reali6ed $rom the transaction. /e !rabbed the business opportunity $rom the corporation. (1ection 4& Corp Code)
L company is a stoc corporation composed o$ the 9eyes $amily en!a!ed in the real estate business. 5ecause o$ the re!ional crisis& the stocholders decided to conert their stoc corporation into a charitable nonstoc and nonproft association by amendin! the articles o$ incorporation. a$ Could this be le!ally done? Why? (%) b$ Would your anser be the same i$ at the inception& L Company is a nonstoc corporation? Why? (#%) SU44ESTE) ANSWER(
a$ 0es&
it can be le!ally done. In conertin! the stoc corporation to a non stoc corporation by a mere amendment o$ the articles o$ incorporation& the stoc corporation is not distributin! any o$ its assets to the stocholders. Bn the contrary& the stocholders are deemed to hae aied their ri!ht to share in the profts o$ the corporation hich is a !ain not a loss to the corporation.
Cor$oration Commencement Cor$orate E9istence (2003) /*
When does a corporation corporate e=istence?
ac+uire
SU44ESTE) ANSWER(
!*
C50 P Co.& Inc.& re!istered ith the 1ecurities and <=chan!e Commission its articles o$ incorporation. It $ailed& hoeer& $or one reason or another& to hae its bylas fled ith& and re!istered by& the Commission. It neertheless transacted and did business as a corporation $or sometime. A suit as commenced by its minority stocholders assailin! the continued e=istence o$ C50 P Co.& Inc.& because o$ the nonadoption and re!istration o$ its bylas. Would the action prosper? Why? (:%)
SU44ESTE) ANSWER(
Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
b$ 7o& my anser ill not be the same.
Cor$oration Dissolution et#o6s o& 8i5ui6ation (200)
In a nonstoc corporation& the members are not entitled to share in the profts o$ the corporation because all present and $uture profts belon! to the corporation. In conertin! the non stoc corporation to a stoc corporation by a mere amendment o$ the Articles o$ Incorporation& the non stoc corporation is deemed to hae distributed an asset o$ the corporation G i.e. its profts& amon! its members& ithout a prior dissolution o$ the corporation. ,nder 1ec 2##& the nonstoc corporation must be dissoled frst.
L Corporation shortened its corporate li$e by amendin! its Articles o$ Incorporation. It has no debts but ons a prime property located in Tue6on City. /o ould the said property be li+uidated amon! the fe stocholders o$ said corporation? 'iscuss to methods o$ li+uidation. (@%)
(1bservation 2he question is rather vague more particularly question )b' 2he question does not specify that the conversion is from a non$ stoc/ corporation to a stoc/ corporation' 2he candidate is li/ely to be confused because of the words =if at the inception, A "o is a nonstoc/ corporation'> @ence, any answer along the same line should be treated with liberality!
Cor$oration De /acto Cor$oration (**)
A corporation as created by a special la. >ater& the la creatin! it as declared inalid. ay such corporation claim to be a de $acto corporation? SU44ESTE) ANSWER(
7o. A priate corporation may be created only under the Corporation Code. Bnly public corporations may be created under special la. Where a priate corporation is created under a special la& there is no attempt at a alid incorporation. 1uch corporation cannot claim a de $acto status.
Version 1990-2003 Arranged by SULAW Class
SU44ESTE) ANSWER(
he prime property o$ L Corporation can be li+uidated amon! the fe stocholders a$ter the property has been coneyed by the corporation to the fe stocholders& by diidin! or partitionin! it amon! themseles in any to o$ the $olloin! ays* /$ by ;/01ICA> 'IQI1IB7 or ;A9IIB7 based on the proportion o$ the alues o$ their stocholdin!sK or !$ 1<>>I7F /< ;9B;<90 to a third
person and diidin! the proceeds amon! the fe stocholders in proportion to their stocholdin!sK or $ a$ter the determination o$ the alue o$
the property& by A11IF7I7F or 9A718<99I7F /< ;9B;<90 to one stocholder ith the obli!ation on the part o$ said stocholder to pay the other $our stocholders the amountOs in proportion to the alue o$ the stocholdin! o$ each. Cor$oration 7ncor$oration Re5uirements (2004)
What is the minimum and ma=imum number o$ in corporators re+uired to incorporate a stoc corporation?
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
Is this also the same minimum and ma=imum number o$ directors re+uired in a stoc corporation? (#.@%)
Page
($
SU44ESTE) ANSWER(
,nder 1ection 2 o$ the Corporation Code& any number o$ natural persons not less than fe (@) but not more than f$teen (2@)& all o$ le!al a!e and a ma"ority o$ hom are residents o$ the ;hilippines& may $orm a priate corporation $or any la$ul purpose. his is the same minimum and ma=imum number o$ directors re+uired in a stoc corporation under 1ection 24(:) o$ the Corporation Code.
#$
,$ 3$
6$
Cor$oration 7ncor$oration Resi6enc% Re5uirements (2004)
ust all incorporators and directors be residents o$ the ;hilippines? (#.@%) SU44ESTE) ANSWER(
7ot all directors and incorporators need to be residents o$ the ;hilippines. ,nder 1ection 2 o$ the Corporation Code& only a ma"ority o$ the incorporators need to be residents o$ the ;hilippines. As proided in 1ection # o$ the same Code& only a ma"ority o$ the members o$ the 5oard o$ 'irectors need to be residents o$ the ;hilippines. Cor$oration 7ncor$oration Re5uisites (2002)
0ou hae been ased to incorporate a ne company to be called 815 1ain!s P ort!a!e 5an& Inc. >ist the documents that you must submit to the 1ecurities and <=chan!e Commission (1
he documents to be submitted to the 1ecurities and <=chan!e Commission (1
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onetary 5oard o$ the 51;K Qerifcation slip $rom the records o$ the 1etter undertain! to chan!e the proposed name i$ already adopted by another corporation& partnership or associationK 5an certifcate o$ deposit concernin! the paidup capitalK >etter authori6in! the 1
Cor$oration eetin's ,n.er te Articles of 1ncorporation of Manila 1n.ustrial Corp its principal place of business sall be in Pasig MM* 2e principal corporate offices are at te 8rtigas
Center& ;asi!& hile its $actory processin! leather products& is in anila. he corporation holds its annual stocholders3 meetin! at the anila /otel in anila and its 5B' meetin! at a hotel in aati . he bylas are silent as to the place o$ meetin!s o$ the stocholders and directors. /$ Who shall preside at the meetin! o$ the directors? !$ Can in!& a stocholder& ho did not attend the stocholders3 annual meetin! in anila& +uestion the alidity o$ the corporate resolutions passed at such meetin!? $ Can the same stocholder +uestion the alidity o$ the resolutions adopted by the 5B' at the meetin! held in aati? SU44ESTE) ANSWER(
/$ he
;resident presides oer the meetin! o$ the directors& i$ there is no position o$ Chairman proided in the 5y >as. I$ there is the position o$ Chairman proided in the 5y>as& the Chairman presides oer the meetin! o$ the 'irectors (1ec @4 Corp Code) !$ 7o. he la proides that the annual
stocholders3 meetin! shall be held in the city or municipality here the principal o-ice o$ the Corporation is located. 8or this purpose& the la also proides that etro anila is considered a city or municipality. 1ince the principal place o$ business o$ IC is ;asi!& & the holdin! o$ the annual stocholders meetin! in anila is proper. (1ec @2 Corp)
$ 7o. he la allos the 5B' to hold
its meetin! anyhere in the ;hilippines. he holdin! o$ the 5B' meetin! in aati as proper and the alidity o$ the resolutions adopted by the 5oard in that meetin! cannot be +uestioned. (1ec @ Corp code) Cor$oration Nationalit% o& Cor$oration (**)
What is the nationality o$ a corporation or!ani6ed and incorporated under the las o$ a $orei!n country& but oned 2% by 8ilipinos? (#%) SU44ESTE) ANSWER(
,nder the control test o$ corporate nationality& this $orei!n corporation is o$ 8ilipino 7ationality. Where there are !rounds $or piercin! the eil o$ corporate entity& that is& disre!ardin! the fction& the corporation ill $ollo the nationality o$ the controllin! members or stocholders& since the corporation ill then be considered as one and the same. Cor$oration Non?Stoc- Cor$oration (**3)
he A5 emorial 8oundation as incorporated as a nonproft& nonstoc corporation in order to establish and maintain a library and museum in honor o$ the deceased parents o$ the incorporators. Its Articles o$ Incorporation proided $or a board o$ trustees composed o$ @ incorporators& hich authori6ed to admit ne members. he Articles o$ Incorporation also allo the $oundation to receie donations $rom members. As o$ an & 2HH& : members had been admitted by the 5B.
Mercantile Law Bar Examination Q & A (1990-2006)
Page
/$ Can
the 8oundation use the $unds donated to it by its members $or purchase o$ $ood and medicine $or distribution to the ictims o$ the ;inatubo eruption? !$ Can the 8oundation operate a specialty restaurant that caters to the !eneral public in order to au!ment its $unds? $ Bne o$ the ori!inal trustees died and the other to resi!ned because they immi!rated to the ,1. /o ill the acancies in the 5B be flled? SU44ESTE) ANSWER(
/$ 0es& (1ec :(H) o$ the Corp Code) as
lon! as the reasonable.
amount
o$
donation
is
!$ I$ the purposes o$ the corporation are
limited to the establishment and maintenance o$ the library and museum as stated in the problem& the $oundation cannot operate a specialty restaurant that caters to the !eneral public. In such case& the action o$ the $oundation ill be ultra ires. ALTERNATI7E ANSWER(
!$ I$ the act o$ the corporation is "ustifed
by the secondary purpose o$ the corporation hich includes the act o$ operatin! a restaurant& the $oundation ill be ithin its poer to do so.
!$
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'escribe the procedure in securin! these approals.
SU44ESTE) ANSWER(
2. ,nless the poer plant and the concrete road pro"ect are reasonable necessary to the manu$acture o$ cement by 1tii (and they do not appear to be so)& then the approal o$ said pro"ects by a ma"ority o$ the 5B' and the ratifcation o$ such approal by the stocholders representin! at least #O o$ the outstandin! capital stoc ould be necessary. As $or the +uarry operations $or limestone& the same is an indispensable in!redient in the manu$acture o$ cement and may& there$ore& be considered reasonably necessary to accomplish the primary purpose o$ 1tii. In such case& only the approal o$ the 5B' ould be necessary (1ec 4# 5; :J) ALTERNATI7E ANSWER(
2. he ma"ority ote o$ the 5B' is necessary. he inestment in a) a poer plant pro"ect& b) a concrete road pro"ect& and c) +uarry operations o$ limestone used in the manu$acture o$ cement& is ithin the e=press or implied poer o$ the corporation& or at least the same is
$ 1ince there are only # o$ the members
o$ the 5B remainin! and there is no +uorum& the acancies ill hae to be flled up in a special meetin! o$ the members (sec #H Corp) Cor$oration "o;er to 7nest Cor$orate /un6s &or ot#er "ur$ose (**1)
1tii Cement Co as or!ani6ed primarily $or cement manu$acturin!. Anticipatin! substantial profts& its ;resident proposed that 1tii inest in a) a poer plant pro"ect& b) a concrete road pro"ect& and c) +uarry operations $or limestone in the manu$acture o$ cement. /$ What corporate approals or otes are needed $or the proposed inestments? <=plain. Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
incidental to& or necessary e=istence o$ the corporation.
$or
the
SU44ESTE) ANSWER(
#.a) he procedure in securin! the approal o$ the 5B' is as $ollos* a* a notice o$ the 5B' should be sent to all the directors. he notice should state the purpose o$ the meetin!. b* At the meetin!& each o$ the pro"ect should be approed by a ma"ority o$ the 5B' (not merely a ma"ority o$ those present at the meetin!) #.b) he procedure in securin! the approal o$ the stocholders is as $ollos* a* Written notice o$ the proposed inestment and the time and place o$ the stocholders3 meetin! should be sent to each stocholder at his place o$ residence as shon on the boos o$ the corporation and deposited to the addressee in the post o-ice ith posta!e prepaid& or sered personally. b* At the meetin!& each o$ the pro"ects should be approed by the stocholders representin! at least #O o$ the outstandin! capital stoc. (1ec 4# 5; :J) Cor$oration "o;er to 7nest Cor$orate /un6s in anot#er Cor$oration (**4)
When may a corporation inest its $unds in another corporation or business or $or any other purposes? SU44ESTE) ANSWER(
A corporation may inest its $unds in
Version 1990-2003 Arranged by SULAW Class
another corporation or business or $or any other purpose other than the primary purpose $or hich it as or!ani6ed hen the said inestment is approed by a ma"ority o$ the 5B' and such approal is ratifed by the stocholders representin! at least #O o$ the outstandin! capital stoc. Written notice o$ the proposed inestment and the date& time and place o$ the stocholders3 meetin! at hich such proposal ill be taen up must be sent to each stocholder. (1ec 4# Corp Code) Cor$oration Recoer% o& oral Dama'es (**)
In a complaint fled a!ainst L0S Corporation& >u6on radin! Corporation alle!ed that its ;resident P Feneral ana!er& ho is also a stocholder& su-ered mental an!uish& $ri!ht& social humiliation and serious an=iety as a result o$ the tortuous acts o$ L0S Corporation. In its counterclaim& L0S Co claimed to hae su-ered moral dama!es due to besmirched reputation or !oodill as a result o$ >u6on radin! Co3s complaint. /$ ay >u6on radin! Co recoer dama!es based on the alle!ations o$ the complaint? (#%) !$ ay L0S Co recoer moral dama!es? (%) SU44ESTE) ANSWER(
7o. A corporation& bein! an artifcial person hich has no $eelin!s& emotions or senses& and hich cannot e=perience physical su-erin! or mental an!uish& is not entitled to moral dama!es. ALTERNATI7E ANSWER(
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
0es. When a "uridical person has a !ood reputation that is debased& resultin! in social humiliation& moral dama!es may be aarded. oreoer& !oodill can be considered an asset o$ the corporation. !A"# N$!#% 1n t&e case of F&N In'. vs A(#C, )anuary 1*, 25B t&e SC rule. t&at%
857I contends that Aumber Co. . ;75& et al. to "usti$y the aard o$ moral dama!es. /oeer& the CourtDs statement in ambulao that Na corporation may hae a !ood reputation hich& i$ besmirched& may also be a !round $or the aard o$ moral dama!esN is an obiter dictum. 7eertheless& A
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Cor$oration Se$arate Juri6ical "ersonalit% (**1)
9onald 1ham doin! business under the name o$ 1/A9B7 achineries (1hamron) sold to urtle ercantile (urtle) a diesel $arm tractor. In payment& urtle3s ;resident and ana!er 'ic 1eldon issued a chec $or ;@th in $aor o$ 1hamron. A ee later& urtle sold the tractor to 5riccio Industries (5riccio) $or ;:th. 5riccio discoered that the en!ine o$ the tractor as reconditioned so he re$used to pay urtle. As a result& 'ic 1eldon ordered “1top ;ayment” o$ the chec issued to 1hamron. 1hamron sued urtle and 'ic 1eldon. 1hamron obtained a $aorable "ud!ment holdin! code$endants urtle and 'ic 1eldon "ointly and seerally liable. Comment on the decision o$ the trial court. 'iscuss $ully. SU44ESTE) ANSWER(
he trial court erred in holdin! 'ic 1eldon& ;resident and F o$ urtle& "ointly and seerally liable ith urtle. In issuin! the chec issued to 1hamron and& therea$ter&
stoppin! payment thereo$& 1eldon as actin! in his capacity as an o-icer o$ urtle. /e as not actin! in his personal capacity. 8urthermore& no $acts hae been proided hich ould indicate that the action o$ 1eldon as dictated by an intent to de$raud 1hamron by himsel$ or in collusion ith urtle. /ain! acted in hat he considered as his duty as an o-icer o$ the corporation& 1eldon should not be held personally liable. Cor$oration Se$arate Juri6ical "ersonalit% (**4)
;9 Co ons a beach resort ith seeral cotta!es. aime& the ;resident o$ ;9& occupied one o$ the cotta!es $or residential purposes. A$ter aime3s term e=pired& ;9 anted to recoer possession o$ the cotta!e. aime re$used to surrender the cotta!e& contendin! that as a stocholder and $ormer ;resident& he has a ri!ht to possess and en"oy the properties o$ the corporation. Is aime3s contention correct? <=plain. SU44ESTE) ANSWER(
aime3s contention is not correct. aime may on shares o$ stoc in ;9 Corp but such onership does not entitle him to the possession o$ any specifc property o$ the corporation or a defnite portion thereo$. 7either is he a cooner o$ corporate property. ;roperties re!istered in the name o$ the corporation are oned by it as an entity separate and distinct $rom its stocholders.
Stockol.ers like 7ai'e only own sares of stock in te corporation* Suc sares of stock .o not represent specific corporate
property*
(+ebecca Boyer$+oxas v "# 4+ );;8--
Cor$oration Se$arate Juri6ical "ersonalit% (**4)
9ichard ons H% o$ the shares o$ the capital stoc o$ FB Co. Bn one occasion& FB represented by 9ichard as ;resident and Feneral ana!er e=ecuted a contract to sell a subdiision lot in $aor o$ omas. 8or $ailure o$ FB to deelop the subdiision& omas fled an action $or rescission and dama!es a!ainst FB and 9ichard. Will the action prosper? <=plain. SU44ESTE) ANSWER(
he action may prosper a!ainst FB but defnitely not a!ainst 9ichard. 9ichard has a le!al personality separate and distinct $rom that o$ FB. I$ he sin!ed the contract to sell& he did so as the ;resident and Feneral ana!er o$ FB and not in his personal capacity. ere onership by 9ichard o$ H% o$ the capital stoc o$ FB is not o$ itsel$ su-icient !round to disre!ard his separate le!al personality absent a shoin!& $or e=ample that he acted maliciously or in bad $aith .:/% Const Co C$ %R 1332 9n 22,2 21s237
Cor$oration Se$arate Juri6ical "ersonalit% (***)
As a result o$ perennial business losses& a corporation3s net orth has been iped out. In $act& it is no in ne!atie territory. 7onetheless& the stocholders did not lie to !ie up. Creditorbans& hoeer& do not share the confdence o$ the stocholders and re$use to !rant more loans. a$ What tools are aailable to the stocholders to replenish capital? (%)
Mercantile Law Bar Examination Q & A (1990-2006)
b$ Assumin!
that the corporation continues to operate een ith depleted capital& ould the stocholders or the mana!ers be solidarily liable $or the obli!ations incurred by the corporation? <=plain. (%)
SU44ESTE) ANSWER(
a$ In the $ace o$ the re$usal o$ the creditor
bans to !rant more loans& the $olloin! are tools aailable to the stocholders to replenish capital& to it* /$ additional subscription to shares o$ stoc o$ the corporation by stocholders or by inestorsK !$ adances by the stocholders to the corporationK $ payment o$ unpaid subscription by the stocholders. SU44ESTE) ANSWER(
b$
7o. As a !eneral rule& the stocholders or the mana!ers cannot be held solidarily liable $or the obli!ations incurred by the corporation. he corporation has a separate and distinct personality $rom that o$ the stocholders or mana!ers. he latter are presumed to be actin! in !ood $aith in continuin! the operation o$ the corporation. he obli!ations incurred by the corporation are those o$ the corporation hich alone is liable there$or. /oeer& hen the corporation is already insolent& the directors and o-icers become trustees o$ the business and assets o$ the corporation $or the beneft o$ the creditors and are liable $or ne!li!ence or mismana!ement.
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put a stop to it and ased arulas president and !eneral mana!er& 0& ho is a stocholder& to pay the bac rentals amountin! to a hundred thousand pesos or to acate the premises at the end o$ the month. arulas neither paid its debt nor acated the premises. L sued arulas and 0 $or collection o$ the unpaid rentals& plus interest and costs o$ liti!ation. Will the suit prosper a!ainst L? A!ainst 0? (@%) SU44ESTE) ANSWER(
0es& the suit ill prosper a!ainst arulas. It is the one rentin! the o-ice and store space& as lessee& $rom the oner o$ the buildin!& L& as lessor. 5ut the suit a!ainst 0 ill not prosper. 0& as president and !eneral mana!er& and also stocholder o$ arulas Creatie echnolo!y& Inc.& has a le!al personality separate and distinct $rom that o$ the corporation. he liability o$ the corporation is that o$ the corporation and not that o$ its o-icers and stocholders ho are not liable $or corporate liabilities. Cor$oration Se$arate Juri6ical "ersonalit% (2000)
7ine indiiduals $ormed a priate corporation pursuant to the proisions o$ the Corporation Code o$ the
Cor$oration Se$arate Juri6ical "ersonalit% (2000)
arulas Creatie echnolo!y Inc.& an ebusiness enterprise en!a!ed in the manu$acture o$ computer media accessoriesK rents an o-ice and store space at a commercial buildin! oned by L. 5ein! a startup company& arulas en"oyed some leniency in its rent paymentsK but a$ter three years& L Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
;hilippines (5; :J). Incorporator 1 as elected director and president G !eneral mana!er. ;art o$ his emolument is a 8ord <=pedition& hich the corporation ons. A$ter a $e years& 1 lost his corporate positions but he re$used to return the motor ehicle claimin! that as a stocholder ith a substantial e+uity share& he ons that portion o$ the corporate assets no in his possession. Is the contention o$ 1 alid? <=plain (@%) SU44ESTE) ANSWER(
7o. he contention o$ 1 is not alid. he 8ord <=pedition is oned by the corporation. he corporation has a le!al personality separate and distinct $rom that o$ its stocholder. What the corporation ons is its on property and not the property o$ any stocholder een ho substantial the e+uity share that stocholder ons.
payment o$ the unpaid subscription. Qictor +uestioned the seto-. /$ ay AIA setothe unpaid subscription ith ictor3s claim $or salaries? !$ Would your anser be the same i$ indeed there had been a call $or the unpaid subscription? SU44ESTE) ANSWER(
/$ 7o.
AIA cannot seto- the unpaid subscription ith Qictor3s claim $or salaries. he unpaid subscription is not yet due as there is no call. !$ 0es. he reason is that Qictor is entitled
to the payment o$ his salaries hich AIA has no ri!ht to ithhold in payment o$ unpaid subscription. o do so ould iolate >abor >as .$-odaco &RC 12 S ((27
Cor$oration Stoc- Cor$oration (200) Cor$oration Set?<&& Un$ai6 Su.scri$tion (**)
Qictor as employed in AIA Corporation. /e subscribed to 2&@ shares o$ the corporation at ;2 per share or a total o$ ;2@&. /e made an initial don payment o$ ;&@.. /e as appointed ;resident and Feneral ana!er. 5ecause o$ his disa!reement ith the 5B'& he resi!ned and demanded payment o$ his unpaid salaries& his cost o$ liin! alloance& his bonus& and reimbursement o$ his !asoline and representation e=penses. AIA Corporation admits that it oed Qictor ;4&. but told him that this ill be applied to the unpaid balance o$ his subscription in the amount o$ ;2&. here as no call or notice $or the
Version 1990-2003 Arranged by SULAW Class
“L0” is a recreational club hich as or!ani6ed to operate a !ol$ course $or its members ith an ori!inal authori6ed capital stoc o$ ;2. he articles o$ incorporation nor the bylas did not proide $or distribution o$ diidends althou!h there is a proision that a$ter its dissolution& the assets shall be !ien to a charitable corporation. Is “L0” a stoc corporation? Fie reasons $or your anser? (@%) SU44ESTE) ANSWER(
L0 is a stoc corporation because it is or!ani6ed as a stoc corporation and there is no prohibition in its Articles o$ Incorporation or its bylas $or it to declare diidends. When a corporation is or!ani6ed as a stoc corporation and its articles o$ Incorporation or 5y>as
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
are silent& the corporation is deemed to hae the poer to declare diidends under 1ec 4. 1ince it has the poer to declare diidends& L0 is a stoc corporation. he proision o$ the Articles o$ Incorporation that at dissolution the assets o$ the corporation shall be !ien to a charitable corporation does not prohibit the corporation $rom declarin! diidends be$ore dissolution. Cor$oration >ali6it% o& Cor$orate Acts (**)
he stocholders o$ ;eople ;oer Inc (;;I) approed to resolutions in a special stocholders3 meetin!* a$ 9esolution increasin! the authori6ed capital stoc o$ ;;IK and b$ 9esolution authori6in! the 5B' to issue& $or cash payment& the ne shares $rom the proposed capital stoc increase in $aor o$ outside inestors ho are nonstocholders. he $ore!oin! resolutions ere approed by stocholders representin! HH% o$ the total outstandin! capital stoc. he sole dissenter as immy orato ho oned 2% o$ the stoc. /* Are the resolutions bindin! on the corporation and its stocholders includin! immy orato& the dissentin! stocholder? (%) !* What remedies& i$ any& are aailable to orato? (#%) SU44ESTE) ANSWER(
/* 7o. he resolutions are not bindin! on
the corporation and its stocholders includin! immy orato. While these resolutions ere approed by the stocholders& the directors3 approal& hich is re+uired by la in such case& does not e=ist. !* immy
orato can petition the 1
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Cor$oration >ali6it% o& Cor$orate Acts (2002)
Which o$ the $olloin! corporate acts are alid& oid& or oidable? Indicate your anser by ritin! the para!raph number o$ the +uery& $olloed by your correspondin! anser as “Qalid&” “Qoid&” or “Qoidable&” as the case may be. I$ your anser is “Qoid&” e=plain your anser. In case o$ a “Qoidable” anser& speci$y hat conditions must be present or complied ith to mae the corporate act alid. (@%) /$ L> 8oods Corporation& hich is en!a!ed in the $ast $ood business& entered into a contract ith its ;resident ose Cru6& hereby the latter ould supply the corporation ith its meat and poultry re+uirements. SU44ESTE) ANSWER(
Qoidable G A contract o$ the corporation ith one or more o$ its directors or trustees or o-icers is oidable& at the option o$ such corporation (1ec #& Corporation Code). !$
he 5oard o$ 'irectors o$ L> 8oods Corporation declared and paid cash diidends ithout approal o$ the stocholders.
SU44ESTE) ANSWER(
Qalid $
L> 8oods Corporation !uaranteed the loan o$ its sister company L> eat ;roducts& Inc.
SU44ESTE) ANSWER(
Qoid G his is an ultra ires act on part o$ L> 8oods Corporation& and is not one o$ the poers proided $or in 1ec. : o$ the Corporation Code. Cor$oration >oluntar% Dissolution (2002)
7ame three () methods by hich a stoc corporation may be oluntarily dissoled. <=plain each method. (@%)
amendment o$ incorporation.
the
articles
o$
Cor$oration >otin' Trust A'reement (**2)
A distressed company e=ecuted a otin! trust a!reement $or a period o$ three years oer :% o$ its outstandin! paid up shares in $aor o$ a ban to hom it as indebted& ith the 5an named as trustee. Additionally& the Company mort!a!ed all its properties to the 5an. 5ecause o$ the insolency o$ the Company& the 5an $oreclosed the mort!a!ed properties& and as the hi!hest bidder& ac+uired said properties and assets o$ the Company.
SU44ESTE) ANSWER(
he three () methods by hich a stoc corporation may be oluntarily dissoled are* /$ Qoluntary 'issolution here no creditors are a-ected. his is done by a ma"ority ote o$ the directors& and resolution o$ at least #O ote o$ stocholders& submitted to the 1ecurities and <=chan!e Commission. !$ Qoluntary dissolution here creditors are a-ected. his is done by a petition $or dissolution hich must be fled ith the 1ecurities and <=chan!e Commission& si!ned by a ma"ority o$ the members o$ the board o$ directors& erifed by the president or secretary& and upon a-irmatie ote o$ stocholders representin! at least #O o$ the outstandin! capital stoc. $ 'issolution by shortenin! o$ the corporate term. his is done by
he threeyear period prescribed in the Qotin! rust A!reement hain! e=pired& the company demanded the turnoer and trans$er o$ all its assets and properties& includin! the mana!ement and operation o$ the Company& claimin! that under the Qotin! rust A!reement& the 5an as constituted as trustee o$ the mana!ement and operations o$ the Company. 'oes the demand o$ the Company tally ith the concept o$ a Qotin! rust A!reement? <=plain brieEy. SU44ESTE) ANSWER(
he demand o$ the company does not tally ith the concept o$ a Qotin! rust A!reement. he Qotin! rust A!reement merely coneys to the trustee the ri!ht to ote the shares o$ !rantorOs. he conse+uence o$ $oreclosure o$ the mort!a!ed properties ould be alien to the Qotin! rust A!reement and its e-ects.
Mercantile Law Bar Examination Q & A (1990-2006)
N.TE( (per % ondee) $*e a+ si, py proides t*at a oting tr.st agree, ent is an agree, ent in +riting +*ereby one or , ore sto/0*oders o a /orporation /onsentto transer *is or t*eirs*ares to a tr.stee in order to estin t*e atteroting or ot*er rig*ts pertaining to said s*ares or a period not e/eeding ie years .pon t*e .i, ento stat.tory /onditions and s./* ot*er ter, s and /onditions spe/iied in t*e agree, ent $*e ie year-period , ay be etended in /ases +*ere t*e oting tr.st is ee/.ted p.rs.ant to a oan agree, ent +*ereby t*e period is , ade /ontingent .pon 1. pay, entot*e oan
U nderse/tion !9 ot*e C orporation C ode4 s.pra4 a oting tr.st agree, ent , ay /oner .pon a tr.stee not ony t*e sto/0*oder5s oting rig*ts b.taso ot*errig*ts pe rtaining to *is s*ares as ong as t*e oting tr.stagree, entis notentered 61or t*e p.rpose o /ir/., enting t*e a+ against, onopoies and iega/o, binations in restrainto1 trade or .sed 1or p.rposes ora.d6 (se/tion !94 !t* paragrap* ot*e C orporation C ode) $*.s4 t*e traditiona /on/ept o a oting tr.st agree, ent pri, ariy intended to singe o.t a sto/0*oder5s rig*t to ote ro, *is ot*er rig*ts as s./* and , ade irreo/abe 1or a i, ited d.ration , ay in pra/ti/e be/o, e a ega dei/e +*ereby a trans1er o t*e sto/0*oders s*ares is ee/ted s.b7e/tto t*e spe/ii/ proision ot*e oting tr.stagree, ent
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committed the breach o$ trust a!ainst the interests o$ the o$ 'irectors $or the latter to sue. /ere& such a demand ould be $utile& since the directors ho comprise the ma"ority (namely& 55& CC& '' and <<) are the ones !uilty o$ the ron! complained o$. 1econd& AA appears to be stocholder at the time the alle!ed misappropriation o$ corporate $unds.
2ir. te suit is brougt on bealf an. for te benefit of M8P Corporation* 1n tis connection it was el. in "onmart (3hils'! nc' v' Securities and Exchange "ommission, )*8 S"+# 7. ()**)!
tat to grant to te corporation concerne. te rigt of wit.rawing or .is'issing te suit at te instance of te 'a9ority stockol.ers an. .irectors wo te'sel)es are te persons allege. to a)e
$*e ee/.tion o a oting tr.st agree, ent4 t*ereore4 , ay /reate a di/*oto, y bet+ee n t*e e8.itabe or benei/ia o+ners*ip ot*e /orporate s*ares oa sto/0*oder4 on t*e one *and4 and t*e ega tite t*ereto on t*e ot*er *and (Lee vs !A" #e$ %" 1992)
Deriatie Suit: Re5uisites (200)
AA& a minority stocholder& fled a suit a!ainst 55& CC& ''& and <<& the holders o$ ma"ority shares o$ B; Corporation& $or alle!ed misappropriation o$ corporate $unds. he complaint aerred& inter alia& that B; Corporation is the corporation in hose behal$ and $or hose beneft the deriatie suit is brou!ht. In their capacity as members o$ the 5oard o$ 'irectors& the ma"ority stocholders adopted a resolution authori6in! B; Corporation to ithdra the suit. ;ursuant to said resolution& the corporate counsel fled a otion to 'ismiss in the name o$ the B; Corporation. 1hould the motion be !ranted or denied? 9eason brieEy. (@%) SU44ESTE) ANSWER(
7o. All the re+uisites $or a alid deriatie suit e=ist in this case. 8irst& AA as e=empt $rom e=haustin! his remedies ithin the corporation& and did not hae to mae a demand on the 5oard Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
corporation ould be to emasculate the ri!ht o$ minority stocholders to see redress $or the corporation. 8ilin! such action as a deriatie suit een by a lone stocholder is one o$ the protections e=tended by la to minority stocholders a!ainst abuses o$ the ma"ority. Deriatie Suit: Watere6 Stoc- (**3)
A became a stocholder o$ ;rime 9eal
Can L +uestion the ri!ht o$ A to sue him in behal$ o$ the corporation on the !round that A has only one share in his name?
$
Cannot the shares issued to L be considered as atered stoc?
SU44ESTE) ANSWER(
/$ As a !eneral rule& A cannot brin! a
deriatie suit in the name o$ the corporation concernin! an act that too
Version 1990-2003 Arranged by SULAW Class
place be$ore he became a stocholder. /oeer& i$ the act complained o$ is a continuin! one& A may do so. !$ 7o. In a deriatie suit& the action is
institutedO brou!ht in the name o$ a corporation and relie$s are prayed $or therein $or the corporation& by a minority stocholder. he la does not +uali$y the term “minority” in terms o$ the number o$ shares oned by a stocholder brin!in! the action in behal$ o$ the corporation. .SMC @han 16 SCR$ ((+7
$ 7o. WA<9<' 1/A9<1 are those sold
by the corporation $or less than the parOboo alue. In the instant case& it ill depend upon the alue o$ serices rendered in relation to the total par alue o$ the shares. Deriatie Suit Close Cor$oration Cor$orate <$$ortunit% (2001)
alyn& 1chiera and a6 are the directors o$ ;atio Inestments& a close corporation $ormed to run the ;atio Ca$e& an al $resco co-ee shop in aati City. In #& ;atio Ca$e be!an e=periencin! fnancial reerses& conse+uently& some o$ the checs it issued to its beera!e distributors and employees bounced. In Bctober #& 1chiera in$ormed alyn that she $ound a location $or a second ca$e in a!ui! City. alyn ob"ected because o$ the dire fnancial condition o$ the corporation.
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
1ometime in April #4& alyn learned about 8ort ;atio Ca$e located in a!ui! City and that its deelopment as undertaen by a ne corporation non as 8ort ;atio& Inc.& here both 1chiera and a6 are directors. alyn also $ound that 1chiera and a6& on behal$ o$ ;atio Inestments& had obtained a loan o$ ;@&. $rom ;5Com 5an& $or the purpose o$ openin! 8ort ;atio Ca$e. his loan as secured by the assets o$ ;atio Inestments and personally !uaranteed by 1chiera and a6.
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nulli$y the +uestioned inestments. Would her action pertain to the close corporation& the standin! to sue and to recoer remains ith the close corporation and not ith alyn. here$ore& it is still necessary to fle a deriatie suit on behal$ o$ the close corporation& althou!h the proceedin!s ould be !oerned under the Interim 9ules o$ ;rocedure $or Intra Corporate 'isputes. $ Assumin!
that a deriatie suit is properK may the action continue i$ the corporation is dissoled durin! the pendency o$ the suit? <=plain.
SU44ESTE) ANSWER(
alyn then fled a corporate deriatie action be$ore the 9e!ional rial Court o$ aati City a!ainst 1chiera and a6& alle!in! that the to directors had breached their fduciary duties by misappropriatin! money and assets o$ ;atio Inestments in the operation o$ 8ort ;atio Ca$e. (@%) /$ 'id 1chiera and a6 iolate the principle o$ corporate opportunity? <=plain. SU44ESTE) ANSWER(
0es. Althou!h alyn re$used the business be$ore& neertheless& usin! the resources and credit standin! o$ the company& 1chiera and a6 clearly demonstrated that the business could hae been success$ully pursued in the name o$ the close corporation. ore importantly& 1chiera and a6 are !uilty o$ diertin! the resources o$ the close corporation to another entity& e+uialent to $raud and bad $aith. !$
Was it proper $or alyn to fle a deriatie suit ith a prayer $or in"unctie relie$? <=plain.
SU44ESTE) ANSWER(
Althou!h it is a close corporation& neertheless the principles o$ separate "uridical personality still apply. he business o$ the corporation is still separate and distinct $rom the proprietary interests o$ its stocholders and directors. Conse+uently& since the business opportunity and the resourceDs used
0es& $or in spite o$ the dissolution o$ any corporation& it remains a "uridical person $or purpose o$ dissolution $or three years $rom the date o$ dissolution& precisely one o$ the purposes is to allo the indin!up o$ its a-airs& includin! the termination o$ pendin! suits. Deriatie Suit inorit% Stoc-#ol6er (2003)
Fina 1eilla& a minority stocholder o$ 5ayan Corporation& $elt that arious inestments o$ the company3s capital ere ultra ires i$ not& indeed& made in iolation o$ la. 1he fled a deriatie suit seein! to
prosper? Why? SU44ESTE) ANSWER(
0es& she is already a stocholder at the time the alle!ed misappropriation o$ corporate $unds. And that flin! such action as a deriatie suit een by a lone stocholder is one o$ the protections e=tended by la to minority stocholders a!ainst abuses o$ the ma"ority. 7eertheless& Fina must frst e=haust any administratie remedies be$ore her suit be consider in court. Distinction: De &acto Cor$oration s! Cor$oration .% Esto$$el (200)
Is there a di-erence beteen a de $acto corporation and a corporation by estoppel? <=plain brieEy. (#%) SU44ESTE) ANSWER(
A '< 8ACB CB9;B9AIB7 is one hich actually e=ists $or all practical purposes as a corporation but hich has no le!al ri!ht to corporate e=istence as a!ainst the 1tate. It is essential to the e=istence o$ a de $acto corporation that there be (2) a alid la under hich a corporation mi!ht be incorporated& (#) a bona fde attempt to or!ani6e as a corporation under such la& and () actual use or e=ercise in !ood $aith o$ corporate poers con$erred upon it by la. A CB9;B9AIB7 50 <1B;;<> e=ists hen persons assume to act as a corporation noin! it to be ithout authority to do so. In this case& those persons ill be liable as !eneral
partners $or all debts& liabilities and dama!es incurred or arisin! as a result o$ their actions. Distinction: Dii6en6s s! "ro&it: Cas# Dii6en6 s! Stoc- Dii6en6 (2001)
'istin!uish diidend $rom proftK diidend $rom stoc diidend. (#%)
cash
SU44ESTE) ANSWER(
;9B8I1 are residual amounts representin! return o$ capital a$ter deductin! all corporate costs and e=penses $rom reenues. he accumulated profts& $rom year to year& represent the corporate retained earnin!s $rom hich the diidends can be declared. CA1/ 'IQI'<7'1 represent an actual distribution o$ accumulated profts to the stocholders as a return on their inestments. 'eclaration o$ cash diidends re+uires only the approal o$ the ma"ority o$ the 5oard o$ 'irectors in a proper resolution. 1BCM 'IQI'<7'1 are simply trans$ers o$ retained earnin!s to capital stoc& thereby increasin! the number o$ shares o$ stocs o$ each stocholder ith no re+uired cash contribution. A tothirds ote o$ the stocholders& coupled ith a ma"ority ote o$ the 5oard o$ 'irectors& is needed to declare stoc diidends.
Distinction "riate s! "u.lic Cor$oration (200) Distinguis clearly a pri)ate corporation fro' a public corporation SU44ESTE) ANSWER(
Mercantile Law Bar Examination Q & A (1990-2006)
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A ;9IQA< CB9;B9AIB7 is one $ormed $or some priate purpose& beneft or end& hile a in a meetin! duly called $or the purpose. ;,5>IC CB9;B9AIB7 is $ormed $or the (1ec. 4& Corporation Code) !oernment o$ a portion o$ the 1tate $or the !eneral !ood or el$are. he true test Dii6en6s: Sources o& Dii6en6s Trust /un6 Doctrine is the purpose o$ the corporation. I$ the (2001) corporation is created $or political or 8rom hat $unds are cash and stoc public purpose connected ith the diidends sourced? <=plain hy. (#%) administration o$ !oernment& then it is a SU44ESTE) ANSWER( public corporation. I$ not& it is a priate All cas an. stock .i)i.en.s are always pai. corporation althou!h the hole or out of te unrestricte. retaine. earnings also substantially the hole interest in the calle. surplus profit$ of te corporation* 1f te corporation belon!s to the 1tate. A public corporation as no unrestricte. retaine. corporation is created by special le!islation earnings te .i)i.en.s woul. a)e to be or act o$ Con!ress. A priate corporation source. fro' te capital stock* 2is is illegal* must be or!ani6ed under the Corporation 1t )iolates te J2+>S2 F>=D D8C2+1=5J Code. tat pro)i.es tat te capital stock of te
Distinction Stoc- s! Non?Stoc- Cor$oration (200) Distinguis clearly a stock corporation fro' a non
A stoc corporation is one that has capital stoc diided into shares and is authori6ed to distribute to the holders o$ such shares diidends or allotments o$ the surplus profts on the basis o$ the shares held. All other corporations are nonstoc corporations.
corporation is a trust fun. to be kept intact .uring te life of te corporation for te benefit of te cre.itors of te corporation* ("ommissioner of nternal$ +evenue v' "ourt of #ppeal, 4'+' 0o' );857-,
Dii6en6s: Declaration o& Dii6en6s (2001)
,nder hat circumstances may corporation declare diidends? (#%)D
a
SU44ESTE) ANSWER(
7o $orm o$ diidends can be declared and paid by the corporation e=cept $rom unrestricted retained earnin!s appearin! on its boos. 'iidends must be paid in amounts proportional to all stocholders on the basis o$ outstandin! stoc held by them. Cash or property diidends& can be declared $rom such unrestricted retained earnin!s by a proper resolution o$ the 5oard o$ 'irectors. 1toc diidends& hoeer& must be declared by a proper resolution o$ the 5oard o$ 'irectors $rom e=istin! unrestricted retained earnin!s and ratifed by stocholders representin! at least tothirds (#OJ) o$ the outstandin! capital stoc o$ the corporation& obtained Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
Dii6en6s Declaration o& Dii6en6s (**0)
At least #O o$ the stocholders o$ 1olar Corporation& meetin! upon the recommendation o$ the 5B'& declared a @% stoc diidend durin! their annual meetin!. he notice o$ the annual stocholders3 meetin! did not mention anythin! about a stoc diidend declaration. he matter as taen up only under the item “other business” in the a!enda o$ the meetin!. C.M. 1ena& a stocholder& ho receied his copy o$ the notice but did not attend the meetin!& subse+uently learned about the @% stoc diidend declaration. /e desires to hae the stoc diidend declaration cancelled and set aside& and ishes to retain your serices as a layer $or the purpose. Will you accept the case? 'iscuss ith reasons. SU44ESTE) ANSWER(
I ill not accept the case. 1ec 4 o$ the Corp Code states that no stoc diidend shall be issued ithout the approal o$ the stocholders representin! not less than #O o$ the outstandin! capital stoc at a re!ular or special meetin! duly called $or that purpose. Con$ormably ith 1ec @ o$ the Corp Code& a ritten notice o$ the holdin! o$ the re!ular meetin! sent to the shareholders ill su-ice. he notice itsel$ specifed the said sub"ect matter. ALTERNATI7E ANSWER(
0es& I ill accept the case. he problem does not indicate that there is action by the 5B' hich is also necessary $or the declaration o$ @% stoc diidend.
Dii6en6s Declaration o& Dii6en6s (**)
'urin! the annual stocholders meetin!& 9i6a& a stocholder proposed to the body that a part o$ the corporation3s unresered earned surplus be capitali6ed and stoc diidends be distributed to the stocholders& ar!uin! that as oners o$ the company& the stocholders& by a ma"ority ote& can do anythin!. As chairman o$ the meetin!& ho ould you rule on the motion to declare stoc diidends? SU44ESTE) ANSWER(
As the chairman o$ the meetin!& I ould rule a!ainst the motion considerin! that a declaration o$ stoc diidends should initially be taen by the 5B' and therea$ter to be concurred in by a #O ote o$ the stocholders (1ec 4 Corp Code). here is no prohibition& hoeer& a!ainst the stocholders3 resolin! to recommend to the 5B' that it consider a declaration o$ stoc diidends $or concurrence therea$ter by the stocholders. Dii6en6s Declaration o& Dii6en6s (200)
8or the past three years o$ its commercial operation& L& an oil company& has been earnin! tremendously in e=cess o$ 2% o$ the corporation3s paidin capital. All o$ the stocholders hae been claimin! that they share in the profts o$ the corporation by ay o$ diidends but the 5oard o$ 'irectors $ailed to li$t its fn!er. a$ Is Corporation L !uilty o$ iolatin! a la? I$ in the a-irmatie& state the basis (#%) SU44ESTE) ANSWER(
Corporation L is !uilty o$ iolatin! 1ection 4 o$ the Corp Code. his proision prohibits stoc corporations
Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
$rom retainin! surplus profts in e=cess o$ 2% o$ their paidin capital. b$ Are there instances hen a corporation
shall not be held liable $or not declarin! diidends? (%) SU44ESTE) ANSWER(
he instances hen a corporation shall not be held liable $or not declarin! diidends are* /$ hen "ustifed by defnite corporate e=pansion pro"ects or pro!rams approed by the 5B'K or !$
$
hen the corporation is prohibited under any loan a!reement ith any fnancial institution or creditor& hether local or $orei!n& $rom declarin! diidends ithout its or his consent& and such consent has not yet been securedK or hen it can be clearly shon that such retention is necessary under special circumstances obtainin! in the corporation& such as hen there is need $or special resere $or probable contin!encies.
Dii6en6s Ri'#t ana'in' Cor$oration (**)
A5C ana!ement Inc. presented to the '<8 inin! Co& the dra$t o$ its proposed ana!ement Contract. As an incentie& A5C included in the terms o$ compensation that A5C ould be entitled to 2% o$ any stoc diidend hich '<8 may declare durin! the li$etime o$ the ana!ement Contract. Would you approe o$ such proision? I$ not& hat ould you su!!est as an alternatie? SU44ESTE) ANSWER(
I ould not approe a proposed stipulation in the mana!ement contract that the mana!in! corporation& as an additional compensation to it& should be entitled to 2% o$ any stoc diidend that may be declared. 1tocholders are the only ones entitled to receie stoc diidends .&ielsen A Co e-anto Mining 26 s 067 I ould add that the unsubscribed
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capital stoc o$ a corporation may only be issued $or cash or property or $or serices already rendered constitutin! a demandable debt (1ec :# Corp Code). As an alternatie& I ould su!!est that the mana!in! corporation should instead be !ien a net proft participation and& i$ it later so desires& to then conert the amount that may be due thereby to e+uity or shares o$ stoc at no less than the par alue thereo$. Doctrine o& Cor$orate <$$ortunit% (2001)
5rieEy discuss the doctrine o$ corporate opportunity. (#%) SU44ESTE) ANSWER(
In brie$& the doctrine dis+ualifes a director& trustee or o-icer $rom appropriatin! $or his personal beneft a transaction or opportunity that pertains to the corporation& and hich under the duty o$ loyalty he should frst brin! to the corporation $or its use or e=ploitation. he doctrine o$ corporate opportunity is an en$orcement o$ the duty o$ loyalty o$ corporate directors and o-icers. When a director& trustee or o-icer attempts to ac+uire or
ac+uires& in iolation o$ his duty& an interest aderse to the corporation in respect o$ any matter hich has been reposed in him in confdence& he shall be liable as a trustee $or the corporation and must account $or the profts hich otherise ould hae accrued to the corporation. <+uity imposes liability upon him not to deal $or his on beneft. (1ec. 2& Corporation Code) ,nder 1ec. 4 o$ the Corporation Code here a director& by irtue o$ his o-ice& ac+uires $or himsel$ a business opportunity hich should belon! to the corporation& thereby obtainin! profts to the pre"udice o$ such corporation& he must account to the latter $or all such profts by re$undin! the same& unless his act has been ratifed by a ote o$ the stocholders onin! or representin! at least tothirds (#OJ) o$ the outstandin! capital stoc.
the lease. L0S Corp. countered that ithstandin! the lapse o$ its corporate term it still has the ri!ht to rene the lease because no +uo arranto proceedin!s $or inoluntary dissolution o$ L0S Corp. has been instituted by the B-ice o$ the 1olicitor Feneral. Is the contention o$ L0S Corp. meritorious? <=plain brieEy. (@%) SU44ESTE) ANSWER(
L0S CorporationDs contention is not meritorious. 5ased on the rulin! o$ the 1upreme Court in /hili--ine &ational Bank s# CF of Ri8al, 2 SCR$ .127# L0S Corp. as dissoled ipso $acto upon the e=piration o$ its ori!inal term. It ceased to be a body corporate $or the purpose o$ continuin! the business $or hich it as or!ani6ed& e=cept only $or purposes connected ith its indin! up or li+uidation. <=tendin! the lease is not an act to ind up or li+uidate L0S Corp.Ds a-airs. It is contrary to the idea o$ indin! up the a-airs o$ the corporation.
E&&ect: E9$iration o& Cor$orate Term (200)
L0S Corporation entered into a contract o$ lease ith A5C& Inc.& oer a piece o$ real estate $or a term o$ # years& reneable $or another # years& proided that L0SDs corporate term is e=tended in accordance ith la. 8our years a$ter the term o$ L0S Corporation e=pired& but still ithin the period alloed by the lease contract $or the e=tension o$ the lease period& L0S Corp. notifed A5C& Inc.& that it is e=ercisin! the option to e=tend the lease. A5C& Inc.& ob"ected to the proposed e=tension& ar!uin! that since the corporate li$e o$ L0S Corp. had e=pired& it could no lon!er opt to rene
E&&ects er'er o& Cor$orations (***)
o corporations a!reed to mer!e. hey then e=ecuted an a!reement speci$yin! the suriin! corporation and the absorbed corporation. ,nder the a!reement o$ mer!er dated 7oember @& 2HHJ& the suriin! corporation ac+uired all the ri!hts& properties and liabilities o$ the absorbed corporation. /$ What ould happen to the absorbed corporation? ust the absorbed corporation undertae dissolution and the indin! up procedures? <=plain your anser. (%) SU44ESTE) ANSWER(
Mercantile Law Bar Examination Q & A (1990-2006)
7o. here is no need $or the absorbed corporation to undertae dissolution and indin! up procedure. As a result o$ the mer!er& the absorbed corporation is automatically dissoled and its assets and liabilities are ac+uired and assumed by the suriin! corporation. !$
;endin! approal o$ the mer!er by the 1
SU44ESTE) ANSWER(
7o. he mer!er does not become e-ectie until and unless approed by the 1
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E&&ects Win6in' U$ "erio6 o& a Cor$oration (**+)
he corporation& once dissoled& therea$ter continues to be a body corporate $or three years $or purposes o$ prosecutin! and de$endin! suits by and a!ainst it and o$ enablin! it to settle and close its a-airs& culminatin! in the fnal disposition and distribution o$ its remainin! assets. I$ the year e=tended li$e e=pires ithout a trustee or receier bein! desi!nated by the corporation ithin that period and by that time (e=piry o$ the year e=tended term)& the corporate li+uidation is not yet oer& ho& i$ at all& can a fnal settlement o$ the corporate a-airs be made? SU44ESTE) ANSWER(
he li+uidation can continue ith the indin! up. he members o$ the 5B' can continue ith the indin! o$ the corporate a-airs until fnal li+uidation. hey can act as trustees or receiers $or this purpose.
$ A case as fled a!ainst a customer to
collect on the promissory note issued by him a$ter the date o$ the mer!er a!reement. he customer raised the de$ense that hile the receiables as o$ the date o$ the mer!er a!reement as trans$erred to the suriin! corporation& those receiables hich ere created a$ter the mer!er a!reement remained to be oned by the absorbed corporation. hese receiables ould be distributed to the stocholders con$ormably ith the dissolution and li+uidation procedures under the 7e Corporation Code? 'iscuss the merits o$ this ar!ument. (%)
E&&ects Win6in' U$ "erio6 o& a Cor$oration (2000)
he 1
SU44ESTE) ANSWER(
Whether the receiable as incurred by the absorbed corporation be$ore or a$ter the mer!er a!reement& or be$ore or a$ter the approal thereo$ by the 1
Version 1990-2006 U pdated by
Code. As shortened& the corporation continued its business operations until ay & 2HH& the last day o$ its corporate e=istence. ;rior to said date& there ere a number o$ pendin! ciil actions& o$ aryin! nature but mostly money claims fled by creditors& none o$ hich as e=pected to be completed or resoled ithin fe years $rom ay & 2HH. I$ the creditors had sou!ht your pro$essional help at that time about hether or not their cases could be pursued beyond ay & 2HH& hat ould hae been your adice? (#%) SU44ESTE) ANSWER(
he cases can be pursued een beyond ay & 2HH& the last day o$ the corporate e=istence o$ F/T Corp. he Corporation is not actually dissoled upon the e=piration o$ its corporate term. here is still the period $or li+uidation or indin! up. U nder Se/tion 122 o t*e C orporation C ode4 a /orporation +*ose /orporate eisten/e is ter, inated in any , anner /ontin.es to be a body /orporate 1or t*ree (3) years a1terits disso.tion orp.rposes o prose/.ting and deending s.its by and againstitand to enabe itto sette and /ose its aairs4 /., inating in t*e disposition and distrib.tion o its re, aining assets t, ay4 d.ring t*e t*ree-yearter, 4 appointa tr.stee ora re/eier+*o , ay a/tbeyond t*atperiod N.TE(
$*e ter, ination o t*e ie o a /orporate entity does notby itse1 /a.se t*e etin/tion or di, in.tion o t*e rig*ts and iabiities o s./* entity 2: 91 t*e t*ree-yearetended ie *as epired +it*o.t a tr.stee or re/eier *aing bee n epressy designated by t*e /orporation4 +it*in t*atperiod4 t*e board o
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dire/tors (or tr.stees) itse14 , ay be per, itted to so /ontin.e as 6tr.stees6 by ega i, pi/ation to /o, pete t*e /orporate i8.idation (&E&'-!LA
&*L&&+E'" +!" vs ,*E !-., # A&&EAL'" /0. +o 1% +ovem$er 2%" 200%3)
/orei'n Cor$oration @Doin' ,usiness in t#e "#ili$$ines (**)
When is a $orei!n corporation deemed to be “doin! business in the ;hilippines?” (%) SU44ESTE) ANSWER(
A $orei!n corporation is deemed to be “doin! business in the ;hilippines” i$ it is continuin! the body or substance o$ the business or enterprise $or hich it as or!ani6ed. It is the intention o$ an entity to continue the body o$ its business in the country. he !rant and e=tension o$ H day credit terms o$ a $orei!n corporation to a domestic corporation $or eery purchase shos an intention to continue transactin! ith the latter. /orei'n Cor$oration @Doin' ,usiness in t#e "#ili$$ines Acts or Actiities (2002)
Fie at least three () e=amples o$ the acts or actiities that are specifcally identifed under our $orei!n inestment las as constitutin! “doin! business” in the ;hilippines (%) SU44ESTE) ANSWER(
Any three () o$ the $olloin! acts or actiities constitute “doin! business” in the ;hilippines under our $orei!n inestment las* /* 1olicitin! orders
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Mercantile Law Bar Examination Q & A (1990-2006)
Page
Bpenin! o-ices by hateer name ;articipatin! in the mana!ement& superision or control o$ any domestic entity (*
/orei'n Cor$oration @Doin' ,usiness in t#e "#ili$$ines Test (2002)
What is the le!al test $or determinin! i$ an unlicensed $orei!n corporation is doin! business in the ;hilippines? (#%) SU44ESTE) ANSWER(
he test is hether or not the unlicensed $orei!n corporation has per$ormed an act or acts that imply a continuity o$ commercial dealin!s or arran!ements& and contemplate to that e=tent the per$ormance o$ acts or ors& or the e=ercise o$ some o$ the $unctions normally incident to& and in pro!ressie prosecution o$& commercial !ain or o$ the purpose and ob"ect o$ the business corporation. Joint >enture Cor$oration (**4)
ay a corporation enter into a enture?
"oint
SU44ESTE) ANSWER(
A corporation may enter into a "oint enture. /oeer& inasmuch as the term U"oint enture3 has no precise le!al defnition& it may tae arious $orms. It could tae the $orm o$ a simple poolin! o$ resources (not inolin! incorporation) beteen to or more corporations $or a specifc pro"ect& purpose or undertain!& or $or a limited time. It may inole the creation o$ a more $ormal structure and& hence& the $ormation o$ a corporation. I$ the "oint enture ould inole the creation o$ a partnership& as the term is understood under the Ciil Code& then a corporation cannot be a party to it.
39 of 103
8ia.ilities ,
When may a corporate director& trustee& or o-icer be held personally liable ith the corporation? SU44ESTE) ANSWER(
A corporate director& trustee or o-icer may be held personally liable ith the corporation under the $olloin! circumstances* /$ When he assents to a patently unla$ul act o$ the corporationK !$ When he acts in bad $aith or ith !ross ne!li!ence in directin! the a-airs o$ the corporation& or in conEict ith the interest o$ the corporation resultin! in dama!es to the corporation& its stocholders or other personsK $ When he consents to the issuance o$ atered stocs or ho& hain! noled!e thereo$& does not $orthith fle ith the corporate secretary his ritten ob"ection theretoK ($ When he a!rees to hold himsel$ personally and solidarily liable ith the corporationK or
#$ ?en e is 'a.e by a specific pro)ision of law to personally answer for te corporate action* (2ramat 6ercantile nc v "# 4+ )));;8, 0ov 7, * .8s)!
8ia.ilities Stoc-#ol6ersB DirectorsB <&&icers (**+)
A& 5& and C are shareholders o$ L0S Co. A has an unpaid subscription o$ ;2th& 53s shares are $ully paid up& hile C ons only nominal but $ully paid up shares and is a director and o-icer. L0S becomes insolent& and it is established that the insolency is the result o$ $raudulent practices ithin the company. I$ you ere counsel $or a creditor o$ L0S& ould you adise le!al action a!ainst A& 5& and C? SU44ESTE) ANSWER(
a$ As to AVan action can be brou!ht
a!ainst A $or ;2th hich is the amount o$ unpaid subscription. 1ince the corporation is insolent& the limit o$ the stocholder3s liability to the creditor is only up to the e=tent o$ his unpaid subscription. b$ As to 5Vthere is no cause o$ action
a!ainst 5 because he has already $ully paid $or his subscription. As stated earlier& the limit o$ the stocholder3s liability to the creditor o$ the corporation& hen the latter becomes insolent& is the e=tent o$ his subscription. c$ As
to CVan action can be fled a!ainst C& not as stocholder because he has already paid up the shares& but in his capacity as director and o-icer because o$ the corporation3s insolency bein! the result o$ $raudulent practices ithin the company. 'irectors are liable
"ointly and seerally $or dama!es sustained by the corporation& stocholders or other persons resultin! $rom !ross ne!li!ence or bad $aith in directin! the a-airs o$ the corporation. (1ec 2 Corp Code) "iercin' t#e Cor$orate >eil (**)
r. ;ablo& a rich merchant in his early $orties& as a de$endant in a lasuit hich could sub"ect him to substantial dama!es. A year be$ore the court rendered "ud!ment& ;ablo sou!ht his layer3s adice on ho to plan his estate to aoid ta=es. /is layer su!!ested that he should $orm a corporation ith himsel$& his i$e and his children (all students and still unemployed) as stocholders and then trans$er all his assets and liabilities to this corporation. r ;ablo $olloed the recommendation o$ his layer. 2 year later& the court rendered "ud!ment a!ainst ;ablo and the plainti- sou!ht to en$orce this "ud!ment. he sheri-& hoeer& could not locate any property in the name o$ ;ablo and there$ore returned the rit o$ e=ecution unsatisfed. What remedy& i$ any& is aailable to the plainti-? SU44ESTE) ANSWER(
he plainti- can aail himsel$ o$ the doctrine o$ piercin! the eil o$ corporate fction hich can be inoed hen a corporation is $ormed or used in aoidin! a "ust obli!ation. While it is true that a $amily corporation may be or!ani6ed to pursue an estate ta=K plannin!& hich is not per se ille!al or unla$ul .)el-her ?rades Cor- $C 10 SCR$ 3(7 the $actual settin!s& hoeer& indicate the e=istence o$ a lasuit that could sub"ect ;ablo to a
Mercantile Law Bar Examination Q & A (1990-2006)
substantial amount o$ dama!es. It ould thus be di-icult $or ;ablo to conincin!ly assert that the incorporation o$ the $amily corporation as intended merely as a case o$ “estate ta= plannin!.” .?an Boon Bee 9arencio (133 39une++7
"iercin' t#e Cor$orate >eil (**4)
< Co sold its assets to Inc a$ter complyin! ith the re+uirements o$ the 5ul 1ales >a. 1ubse+uently& one o$ the creditors o$ < Co tried to collect the amount due it& but $ound out that < Co had no more assets le$t. he creditor then sued Inc on the theory that Inc is a mere alter e!o o$ < Co. Will the suit prosper? <=plain. SU44ESTE) ANSWER(
he suit ill not prosper. he sale by < Co o$ its assets to Inc does not result in the trans$er o$ the liabilities o$ the latter to& nor in the assumption thereo$ by& the $ormer. he $acts !ien do not indicate that such trans$er or assumption too place or as stipulated upon by the parties in their a!reement. 8urthermore& the sale by < Co o$ its assets is a sale o$ its property. It does not inole the sale o$ the shares o$ stoc o$ the corporation belon!in! to its stocholders. here is there$ore no mer!er or consolidation that too place. < Co continues to e=ist and remains liable to the creditor.
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0 of 103
the debts o$ L Corporation. he doctrine o$ piercin! the eil o$ corporation fction applies to this case. he to corporations hae the same board o$ directors and 0 Corporation oned substantially all o$ the stocs o$ L Corporation& hich $acts "usti$y the conclusion that the latter is merely an e=tension o$ the personality o$ the $ormer& and that the $ormer controls the policies o$ the latter. Added to this is the $act that 0 Corporation controls the fnances o$ L Corporation hich is merely an ad"unct& business conduit or alter e!o o$ 0 Corporation .CR &orton A arrison Co 11 S 1( .16(77
"iercin' t#e Cor$orate >eil (200)
/o does one pierce the eil o$ corporate fction? SU44ESTE) ANSWER(
he eil o$ corporate fction may be pierced by proin! in court that the notion o$ le!al entity is bein! used to de$eat public conenience& "usti$y ron!& protect $raud& or de$end crime or the entity is "ust an instrument or alter e!o or ad"unct o$ another entity or person. "iercin' t#e Cor$orate >eil (2004)
407H407H
"iercin' t#e Cor$orate >eil (200)
;lainti-s fled a collection action a!ainst L Corporation. ,pon e=ecution o$ the court3s decision& L Corporation as $ound to be ithout assets. herea$ter plainti-s fled an action a!ainst its present and past stocholder 0 Corporation hich oned substantially all o$ the stocs o$ L Corporation. he to corporations hae the same board o$ directors and 0 Corporation fnanced the operations o$ L Corporation. ay 0 Corporation be held liable $or the debts o$ L Corporation? Why? (@%) SU44ESTE) ANSWER(
0es& 0 Corporation may be held liable $or Version 1990-2003 Arranged by SULAW Class
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What is the doctrine o$ Npiercin! the eil o$ corporate entity?N <=plain.
corporation
SU44ESTE) ANSWER(
he doctrine o$ Npiercin! the eil o$ corporate entity&N is the doctrine that allos the courts to loo behind the separate "uridical personality o$ a corporation and treat the corporation as an association o$ persons and thereby mae the indiidual actors personally liable $or corporate liabilities. he fction o$ corporate identity is disre!arded and the indiiduals comprisin! it can be treated identically. he stocholders can be held directly liable $or corporate obli!ations& een to the e=tent o$ their personal assets .Conce-t Builders # &RC, Mara*e, et al, %#R# &o# 1+3(, Ma5 2, 167.
#o 2hat "ir"%!stan"es 3o"trine app/4 (+.5)
2i
he doctrine is applicable hen notion o$ le!al entity is used to V /$ 'e$eat public conenience. !$ usti$y ron!. $ ;rotect $raud.
($ #$
Defen. cri'e
the the
9u.g'ent
cre.it
6$
5scape liability arising fro' a .ebt (#rcilla v' "ourt of #ppeals, 4'+' 0o' 88))., 1ctober ., )**!'
0$
A)oi. inclusion of corporate assets as part of te estate of te .ece.ent ("ease v' "ourt of #ppeals, 4'+' 0o' F$.58-), 1ctober )8, )*7*!'
2) o promote ob"ecties
or
to
shield
un$air
(Dillanueva v' #dre, 4'+' 0o' 8;8-., #pril 7, )*8*!'
"re?em$tie Ri'#t (200)
1uppose that L Corporation has already issued the 2 ori!inally authori6ed shares o$ the corporation so that its 5B' and stocholders ish to increase L3s authori6ed capital stoc. A$ter complyin! ith the re+uirements o$ the la on increase o$ capital stoc& L issued an additional 2 shares o$ the same alue. a$ Assume that the stocholder A presently holds # out o$ the 2 ori!inal shares. Would A hae a preemptie ri!ht to # o$ the ne issue o$ 2 shares? Why? (%)
0o' )*.-, #pril )7, ;;! *
b$ When should stocholder A e=ercise the
Siel. a )iolation of te proscription against foru' sopping (irst 3hilippine
preemptie ri!ht? (#%)
?ork ine-uities a'ong 'e'bers of te corporation internally in)ol)ing no rigts of te public or tir. persons (Secosa v' @eirs ofErwin Suare rancisco, 4'+' 0o' )5-);,
3$
a
(30B v' #ndrada Electric, 4'+'
nternational Ban/ v' "ourt of #ppeals, 4'+' 0o' ).75.7,
,$
like
(Sibagat 2imber "orp' v' 4arcia, 4'+' 0o' ))5-, &ecember )), )**!'
5)a.e te lawful obligations of te
Version 1990-2003 Arranged by SULAW Class
SU44ESTE) ANSWER(
a$ 0es& A ould hae a preemptie ri!ht to
# o$ the ne issue o$ 2 shares. A is a stocholder o$ record holdin! # shares in L Corpo. Accordin! to the Corp Code& each stocholder has the pre emptie ri!ht to all issues o$ shares made by the corporation in proportion to
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Mercantile Law Bar Examination Q & A (1990-2006)
the number o$ shares he holds on record in the corporation. b$ ;reemptie ri!ht must be e=ercised in
accordance ith the Articles o$ Incorporation or the 5y>as. When the Articles o$ Incorporation and the 5y>as are silent& the 5B' may f= a reasonable time ithin hich the stocholders may e=ercise the ri!ht. "re?Em$tie Ri'#t s! A$$raisal Ri'#t (***)
A5C Corporation has an authori6ed capital stoc o$ ;2 diided into @& common shares and @& pre$erred shares. At its inception& the Corporation o-ered $or subscription all the common shares. /oeer& only 4& shares ere subscribed. 9ecently& the directors thou!ht o$ raisin! additional capital and decided to o-er to the public all the authori6ed shares o$ the Corporation at their maret alue. a$ Would r. L& a stocholder holdin! 4& shares& hae preemptie ri!hts to the remainin! 2& shares? (#%) b$ Would r. L hae preemptie ri!hts to the @& pre$erred shares? (#%) c$ Assumin! that the e=istin! stocholders are entitled to pre emptie ri!hts& at hat price ill the shares be o-ered? (#%) .$ Assumin! a stocholder disa!rees ith the issuance o$ ne shares and the pricin! $or the shares& may the stocholder inoe his appraisal ri!hts and demand payment $or his shareholdin!s? (#%) SU44ESTE) ANSWER(
a. 0es. r. L& a stocholder holdin! 4& shares& has preemptie ri!ht to the remainin! 2& shares. All stocholders o$ a stoc corporation shall en"oy pre emptie ri!ht to subscribe to all issues or disposition o$ shares o$ any class& in proportion to their respectie shareholdin!s. ALTERNATI7E ANSWER:
a* 7o& r L does not hae preemptie
ri!ht oer the remainin! 2& shares because these shares hae already been
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o-ered at incorporation and he chose not to subscribe to them. /e& there$ore& has aied his ri!ht thereto and the corporation may o-er them to anyone. SU44ESTE) ANSWER(
b* 0es. r. L ould hae preemptie ri!hts
to the @& pre$erred shares. All stocholders o$ a stoc corporation shall en"oy preemptie ri!ht to subscribe to all issues or disposition o$ shares o$ any class& in proportion to their respectie shareholdin!s. ALTERNATI7E ANSWER(
b* 0es& r. L has preemptie ri!ht oer the
@& pre$erred shares because they ere not o-ered be$ore by the corporation $or subscription. SU44ESTE) ANSWER(
c* he shares ill be o-ered to e=istin!
stocholders& ho are entitled to preemptie ri!ht& at a price f=ed by the 5B'& hich shall not be less than the par alue o$ such shares.
SU44ESTE) ANSWER(
.* 7o& the stocholder may not e=ercise
appraisal ri!ht because the matter that he dissented $rom is not one o$ those here ri!ht o$ appraisal is aailable under the corporation code. SEC Juris6iction Trans&erre6 Juris6iction (**4)
What is the ori!inal "urisdiction o$ the 1
and
e=clusie
SU44ESTE) ANSWER(
he 1
Stoc-#ol6er Delin5uent Un$ai6 Su.scri$tion (**+)
he 5B' o$ a corporation& by a ote o$ ten in $aor o$ one a!ainst& declared due and payable all unpaid subscription to the capital stoc. he lone dissentin! director $ailed to pay on due date& i.e.& 2H 1ept 2HH& his unpaid subscription. Bther than the shares herein he as unable to complete payment& he did not on any share in the corporation. Bn # 1ept 2HH& he as in$ormed by the 5B' that& unless due payment is meanhile receied& he* a$ could no lon!er sere as a director o$ the corporation $orthith* b$ ould not be entitled to the cash and stoc diidends hich ere declared and payable on #4 1ep 2HHK and c$ could not ote in the stocholders meetin! scheduled to tae place on #: 1ept 2HH. Was the action o$ the 5B' on each o$ the $ore!oin! matters alid? SU44ESTE) ANSWER(
a$ 7o.
he period o$ days ithin hich the stocholder can pay the unpaid subscription had not yet e=pired. b$ 7o. he delin+uency did not deprie the
stocholder o$ his ri!ht to receie diidends declared. /oeer& the cash diidend declared may be applied by the corporation to the unpaid subscription. (1ec 2 Corp Code)
Mercantile Law Bar Examination Q & A (1990-2006)
he period o$ days ithin hich the stocholder can pay the unpaid subscription had not yet e=pired.
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c$ 7o.
Stoc-#ol6ers: "reem$tie Ri'#t (200)
he 5oard o$ 'irectors o$ A5C& Inc.& a domestic corporation& passed a resolution authori6in! additional issuance o$ shares o$ stocs ithout notice nor approal o$ the stocholders. 'L& a stocholder& ob"ected to the issuance& contendin! that it iolated his ri!ht o$ pre emption to the unissued shares. Is his contention tenable? <=plain brieEy. (@%) SU44ESTE) ANSWER(
0es. 'LDs contention is tenable. ,nder 1ection H o$ the Corporation Code& all stocholders o$ A5C& Inc. en"oy preemptie ri!ht to subscribe to all issues o$ shares o$ any class& includin! the reissuance o$ treasury shares in proportion to their respectie shareholdin!s. Stoc-#ol6ers A$$raisal Ri'#t (2003)
In hat instances may the ri!ht o$ appraisal be aailed o$ under the Corporation Code?
Stoc-#ol6ers Remoal o& <&&icers ,
In 2HHH& Corporation A passed a board resolution remoin! L $rom his position as mana!er o$ said corporation. he bylas o$ A corporation proides that the o-icers are the president& icepresident& treasurer and secretary. ,pon complaint fled ith the 1
7o. 1tocholders3 approal is necessary only $or the remoal o$ the members o$ the 5B'. 8or the remoal o$ a corporate o-icer or employee& the ote o$ the 5B' is su-icient $or the purpose.
Stoc-#ol6ers Remoal inorit% Director (**) Assu'ing tat te 'inority block of te K Corporation is able to elect only / .irector an. terefore
SU44ESTE) ANSWER(
1
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the ma"ority stocholders can alays muster a #O ote& ould you allo the ma"ority stocholders to remoe the one director representin! the minority? SU44ESTE) ANSWER(
7o. I ill not allo the ma"ority stocholders to remoe the director. While the stocholders may& by a #O ote& remoe a director& the la also proides& hoeer& that his ri!ht may not& ithout "ust cause& be e=ercised so as to deprie the minority o$ representation in the 5B' .Sec 2+ Corcode %ot s $goncillo 0-3(+7
Stoc-#ol6ers Ri'#ts (**4)
What are the ri!hts o$ a stocholder? SU44ESTE) ANSWER(
he ri!hts o$ a stocholder are as $ollos* /$ he ri!ht to ote& includin! the ri!ht to appoint a pro=yK !$ he ri!ht to share in the profts o$ the corporation& includin! the ri!ht to declare stoc diidendsK $ he ri!ht to a proportionate share o$ the assets o$ the corporation upon li+uidationK ($ he ri!ht o$ appraisalK #$ he preemptie ri!ht to sharesK ,$ he ri!ht to inspect corporate boos and recordsK 3$ he ri!ht to elect directorsK 6$ 1uch other ri!hts as may contractually be !ranted to the stocholders by the corporation or by special la.
Stoc-#ol6ers >otin' "o;er o& Stoc-#ol6ers (**0) Mercy subscribe. to /""" sares
Version 1990-2003 Arranged by SULAW Class
of stock of +osario Corporation* Se pai. !#N of sai. subscription* During te stockol.ers 'eeting can Mercy )ote all er subscribe. saresI 54plain* SU44ESTE) ANSWER(
0es& ercy can ote all her subscribed shares. 1ection # o$ the Corporation Code states that holders o$ subscribed shares not $ully paid hich are not delin+uent shall hae all the ri!hts o$ a stocholder. Stoc-s 7ncrease o& Ca$ital Stoc- (200)
1uppose L Corporation has an authori6ed capital stoc o$ ;2 diided into 2& shares o$ stoc ith par alue o$ ;2 each. a$ Fie to ays hereby said authori6ed capital stoc may be increased to about ;2.@. (%) b$ Fie three practical reasons $or a corporation to increase its capital stoc (#%) SU44ESTE) ANSWER(
a$ o ays o$ increasin! the Authori6ed
Capital 1toc o$ L corporation to ;2.@ are* /$ Increase the number o$ shares $rom 2& to 2@& shares ith the same par alue o$ ;2. each. !$ Increase par alue o$ 2& shares to ;2@. each. b$ hree practical reasons $or a
corporation to increase its capital stoc are* /$ to !enerate more orin! capitalK
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
to hae more shares ith hich to pay $or the ac+uisition o$ more assets lie ac+uisition o$ company car& stocs& house& machinery or businessK and $ to hae e=tra share ith hich to coer or meet the re+uirement $or declaration o$ stoc diidend. !$
Stoc-s SaleB Trans&er o& Certi&icates o& Stoc- (**4)
Arnold has in his name 2& shares o$ the capital stoc o$ A5C Co as eidenced by a stoc certifcate. Arnold deliered the stoc certifcate to 1teen ho no claims to be the real oner o$ the shares& hain! paid $or Arnold3s subscription. A5C re$used to reco!ni6e and re!ister 1teen3s onership. Is the re$usal "ustifed? <=plain. SU44ESTE) ANSWER(
A5C3s re$usal to reco!ni6e and re!ister 1teen3s onership is "ustifed. he $acts indicate that the stoc certifcate $or the 2& shares in +uestion is in the name o$ Arnold. Althou!h the certifcate as deliered by Arnold to 1teen& the $acts do not indicate that the certifcate as duly endorsed by Arnold at the time it as deliered to 1teen or that the procedure $or the e-ectie trans$er o$ shares o$ stoc set out in the bylas o$ A5C Co& i$ any& as obsered. 1ince the certifcate as not endorsed in $aor o$ 1teen (or anybody else $or that matter)& the only conclusion could be no other than that the shares in +uestion still belon! to Arnold. .Ra8on $C %R (36 Mar 16,2 2s23(7
Stoc-s SaleB Trans&er o& Certi&icates o& Stoc- (200)
A is the re!istered oner o$ 1toc Certifcate 7o. 22. /e entrusted the possession o$ said certifcate to his best $riend 5 ho borroed the said endorsed certifcate to support 53s application $or passport (or $or a purpose other than trans$er). 5ut 5 sold the certifcate to L& a bona fde purchaser ho relied on the endorsed certifcates and belieed him to be the oner thereo$. a$ Can A claim the shares o$ stoc $rom L?
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<=plain (%) b$ Would your anser be the same i$ A lost the stoc certifcate in +uestion or i$ it as stolen $rom him? (#%) SU44ESTE) ANSWER(
a$ 7o.
Assumin! that the shares ere already trans$erred to 5& A cannot claim the shares o$ stoc $rom L. he certifcate o$ stoc coerin! said shares hae been duly endorsed by A and entrusted by him to 5. 5y his said acts& A is no estopped $rom claimin! said shares $rom L& a bona fde purchaser ho relied on the endorsement by A o$ the certifcate o$ stoc. b$ 0es. In the case here the certifcate o$
stoc as lost or stole $rom A& A has a ri!ht to claim the certifcate o$ stoc $rom the thie$ ho has no ri!ht or title to the same. “Bne ho has lost any moable or has been unla$ully depried thereo$& may recoer it $rom the person in possession o$ the same.” (Art @@H 7CC)
Stoc-s SaleB Trans&er o& Certi&icates o& Stoc(200) Four 'onts before is .eat PK assigne. /"" sares of stock registere. in is na'e in fa)or of is wife an. is
children. hey then brou!ht the deed o$ assi!nment to the proper corporate o-icers $or re!istration ith the re+uest $or the trans$er in the corporationDs stoc and trans$er boos o$ the assi!ned shares& the cancellation o$ the stoc certifcates in ;LDs name& and the issuance o$ ne stoc certifcates in the names o$ his i$e and his children as the ne oners. he o-icers o$ the Corporation denied the re+uest on the !round that another heir is contestin! the alidity o$ the deed o$ assi!nment. ay the Corporation be compelled by mandamus to re!ister the shares o$ stoc in the names o$ the assi!nees? <=plain brieEy. (@%) SU44ESTE) ANSWER(
0es. he corporation may be compelled by mandamus to re!ister the shares o$ stoc in the name o$ the assi!nee. he only le!al limitation imposed by 1ection : o$ the Corporation Code is hen the Corporation holds any unpaid claim a!ainst the shares intended to be trans$erred. he alle!ed claim o$ another heir o$ ;L is not su-icient to deny the issuance o$ ne certifcates o$ stoc to his i$e and children. It ould be otherise i$ the trans$ereeDs title to the shares has no prima $acie alidity or is uncertain. Trust /un6 Doctrine (**2)
A Corporation e=ecuted a promissory note bindin! itsel$ to pay its ;residentO'irector& ho had tendered his resi!nation& a certain sum in payment o$ the latter3s shares and interests in the
company. he corporation de$aulted in payin! the $ull amount so that said $ormer ;resident fled suit $or collection o$ the balance be$ore the 1
a) A stoc corporation may only ac+uire its on shares o$ stoc i$ the trust $und doctrine is not impaired. his is to say& $or instance& that it may purchase its on shares o$ stoc by utili6in! merely its surplus profts oer and aboe the subscribed capital o$ the corporation. ALTERNATI7E ANSWER(
a$ (an anser enumeratin! the instances
or cases under the Corporation Code here the Corp allos the ac+uisition o$ shares such as in the stocholder3s e=ercise o$ appraisal ri!ht& $ailure o$ bids in the sale o$ delin+uent shares& etc.) SU44ESTE) ANSWER(
b$ he
arran!ement beteen the corporation and its ;resident to the e=tent that it calls $or the payment o$ the latter3s shares is coered by the trust $und doctrine. he only e=ceptions $rom the trust $und doctrine are the redemption o$ redeemable shares and& in the case o$ close corporation& hen there should be a deadloc and the 1
Mercantile Law Bar Examination Q & A (1990-2006)
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Bn 'ecember :& 2HJJ& A& an incorporator and the Feneral ana!er o$ the ;a"e ulti 8arms Cre&it Transa#tions Co& resi!ned as F and sold to the corporation his shares o$ stocs in the Chattel Mortgage vs. After$ncurre +-ligations (!!) o corporation $or ;th& the boo alue secure the payment o$ an earlier loan o$ thereo$& payable as $ollos* a) ;2th as ;#& as ell as subse+uent loans hich don paymentK b) ;2th on or be$ore 2 her $riend 7oreen& ould e=tend to her& uly2HJHK and c) the remainin! balance o$ Maren e=ecuted in $aor o$ 7oreen a ;2th on or be$ore 1ep 2HJH. A chattel mort!a!e oer her (Maren) car. Is the mort!a!e alid? promissory note& ith an acceleration SU44ESTE) ANSWER( clause& as e=ecuted by the corporation $or A chattel mort!a!e cannot e-ectiely the unpaid balance. secure a$ter incurred obli!ations. While a stipulation to include a$ter incurred he corporation $ailed to pay the frst obli!ations in a chattel mort!a!e is itsel$ installment on due date. A then sued ;a"e not inalid& the obli!ation cannot& hoeer& on the promissory note in the 9C. be deemed automatically secured by that a$ 'oes the court hae "urisdiction oer mort!a!e until a$ter a ne chattel the case? b$ Would your anser be the same i$ A mort!a!e or an addendum to the ori!inal instead sold his shares to his $riend chattel mort!a!e is e=ecuted to coer the abel and the latter fled a case obli!ation a$ter it has been actually ith the 9C a!ainst the corporation incurred. Accordin!ly& unless such to compel it to re!ister the sale and supplements are made& the chattel to issue ne certifcates o$ stoc in mort!a!e in the problem !ien ould be her name? deemed to secure only the loan o$ ;#& SU44ESTE) ANSWER(
a$ he 9C has "urisdiction oer the case.
.Sec 0 $ct 100 Belgian Catholic Missionaries Magallanes /ress (-6(7
he 1C said that a corporation may only buy its on shares o$ stoc i$ it has enou!h surplus profts there$ore. b$ y anser ould be the same. An action
to compel a corporation to re!ister a sale and to issue ne certifcates o$ stoc is itsel$ an intracorporate matter that e=clusiely lies ith the 9C. he 9C has "urisdiction oer the cases hich inoles intracorporate controersy. As o$ #:& the applicable rule is that there is a 9A718<99<' ,9I1'ICIB7 under 1ec. @.# o$ the 19C& the Commission3s "urisdiction oer all cases enumerated under ;' H#A sec. @ has been trans$erred to the Courts o$ !eneral "urisdiction or the appropriate 9e!ional rial Court. TA;E N.TE(
7ersion 1 990+2003 Arrange& 'y SULAW Cass
7ersion 1990+2006 U %&ate& 'y
C#attel ort'a'e s! A&ter?7ncurre6 <.li'ations (***) 8n Dece'ber / /00, Borrower e4ecute. a cattel 'ortgage in fa)or of te Bank to secure a loan of PM* 1n .ue ti'e te loan was pai.* Bn 'ecember 2& 2HH& 5orroer obtained another loan $or ;# hich the 5an !ranted under the same security as that hich secured the frst loan. 8or the second loan& 5orroer merely deliered a promissory noteK no ne chattel mort!a!e a!reement as e=ecuted as the parties relied on a proision in the 2HH: chattel mort!a!e a!reement hich included $uture debts as amon! the obli!ations secured by the mort!a!e. he proision reads* “In case the ort!a!or e=ecutes subse+uent promissory note or notes either as a reneal& as an e=tension& or as a ne loan& this mort!a!e shall also stand as security $or the payment o$ said promissory note or notes ithout necessity o$ e=ecutin! a ne contract and this mort!a!e shall hae the same $orce and e-ect as i$ the said promissory note or notes ere e=istin! on date hereo$.” As 5orroer $ailed to pay the second loan& the 5an proceeded to $oreclose the Chattel ort!a!e.5orroer sued the 5an claimin! that the mort!a!e as no lon!er in $orce. 5orroer claimed that a $resh chattel mort!a!e should hae been e=ecuted hen the second loan as !ranted. a$ 'ecide the case and ratiocinate. (4%)
7ersion 1 990+2003 Arrange& 'y SULAW Cass
b$
1uppose the chattel mort!a!e as not re!istered& ould its alidity and e-ectieness be impaired? <=plain. (4%)
SU44ESTE) 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$ter incurred obli!ations. he a-idait o$ !ood $aith re+uired under the chattel mort!a!e la e=pressly proides that “the $ore!oin! mort!a!e is made $or securin! the obli!ation specifed in the conditions hereo$& and $or no other purpose.” he a$terincurred obli!ation not bein! specifed in the a-idait& is not secured by mort!a!e. b* 0es. he chattel mort!a!e is not alid
as a!ainst any person& e=cept mort!a!or& his e=ecutors administrators.
the and
C#attel ort'a'e /oreclosure (**+)
9it6 bou!ht a ne car on installments hich proided $or an acceleration clause in the eent o$ de$ault. o secure payment o$ the unpaid installments& as and hen due& he constituted to chattel mort!a!es& i.e.& one oer his ery old car and the other coerin! the ne car that he had "ust bou!ht as a$oresaid& on installments. A$ter 9it6 de$aulted on three installments& the sellermort!a!ee $oreclosed on the old car. he proceeds o$ the $oreclosure ere not enou!h to satis$y the due obli!ationK hence& he similarly sou!ht to $oreclose on the ne car.
7ersion 1990+2006 U %&ate& 'y
Mercantile Law Bar Examination Q & A (1990-2006)
Would the sellermort!a!ee be le!ally "ustifed in $oreclosin! on this second chattel mort!a!e? SU44ESTE) ANSWER(
7o. he to mort!a!es ere e=ecuted to secure the payment o$ the unpaid installments $or the purchase o$ a ne car. When the mort!a!e on the old car as $oreclosed& the sellermort!a!ee is deemed to hae renounced all other ri!hts. A $oreclosure o$ additional property& that is& the ne car coered by the second mort!a!e ould be a nullity. C#attel ort'a'e <;ners#i$ o& T#in' ort'a'e6 (**0)
Sonee& ho lies in 5ulacan& bou!ht a 2HJJ model oyota Corolla sedan on uly 2& 2HJH $rom Anadelaida& ho lies in Tue6on City& $or ;th& payin! ;2@th as donpayment and promisin! to pay the balance in e+ual +uarterly installments be!innin! Bctober 2& 2HJH. Anadelaida e=ecuted a deed o$ sale o$ the ehicle in $aor o$ Sonee and& to secure the unpaid balance o$ the purchase price& had Sonee e=ecute a deed o$ chattel mort!a!e on the ehicle in Anadelaida3s $aor. en days a$ter the e=ecution o$ the aboementioned documents& Sonee had the car trans$erred and re!istered in her name. Contemporaneously& Anadelaida had the chattel mort!a!e on the car re!istered in the Chattel ort!a!e 9e!istry o$ the B-ice o$ the 9e!ister o$ 'eeds o$ Tue6on City. In 1ep 2HJH& Sonee sold the sedan to imbo ithout tellin! the latter that the car as mort!a!ed to Anadelaida. When Sonee $ailed to pay the frst installment on Bctober 2& 2HJH& Anadelaida ent to see Sonee and discoered that the latter had sold the car to imbo. a$ imbo re$used to !ie up the car on the !round that the chattel mort!a!e e=ecuted by Sonee in $aor o$ Anadelaida is not alid because it as e=ecuted be$ore the car as re!istered in Sonee3s name& i.e.& be$ore Sonee became the re!istered oner
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o$ the car. Is the said ar!ument meritorious? <=plain your anser. b$ imbo also ar!ued that een i$ the chattel
mort!a!e is alid& it cannot a-ect him because it as not properly re!istered ith the !oernment o-ices here it should be re!istered. What !oernment o-ice is imbo re$errin! to? SU44ESTE) ANSWER(
a$ imbo3s
ar!ument is not meritorious. Sonee became the oner o$ the property upon delieryK re!istration is not essential to est that onership in the buyer. he e=ecution o$ the chattel mort!a!e by the buyer in $aor o$ the seller& in $act& can demonstrate the estin! o$ such onership to the mort!a!or. b$ imbo as re$errin! to the 9e!ister o$
'eeds o$ 5ulacan here Sonee as a resident. he Chattel ort!a!e >a re+uires the re!istration to be made in the B-ice o$ the 9e!ister o$ 'eeds o$ the proince here the mort!a!or resides and also in hich the property is
situated as ell as the >B here the ehicle is re!istered. (1ec 4 Chattel ort!a!e >a) Cre6it Transactions (***)
Qarious buyers o$ lots in a subdiision brou!ht actions to compel either or both the deeloper and the ban to lease and delier $ree and clear the titles to their respectie lots. he problem arose because notithstandin! prior sales mostly on installments G made by the deeloper to buyers& deeloper had mort!a!ed the hole subdiision to a commercial ban. he mort!a!e as duly e=ecuted and re!istered ith the appropriate !oernmental a!encies. /oeer& as the lot buyers ere completely unaare o$ the mort!a!e lien o$ the ban& they reli!iously paid the installments due under their sale contracts. As the deeloper $ailed to pay its loan& the mort!a!e as $oreclosed and the hole subdiision as ac+uired by the ban as the hi!hest bidder. a$ ay the ban dispossess prior purchasers o$ indiidual lots or& alternatiely& re+uire them to pay a!ain $or the paid lots? 'iscuss (%) b$ What are the ri!hts o$ the ban is is those buyers ith remainin! unpaid installments? 'iscuss. (%) 9ecommendation* 1ince the sub"ect matter o$ these to (#) +uestions is not included ithin the scope o$ the
5ar Tuestions in ercantile >a& as it is ithin Ciil >a& it is su!!ested that hateer anser is !ien by the e=aminee& or the lac o$ anser should be !ien $ull credit. I$ the e=aminee !ies a !ood anser& he should be !ien additional credit. SU44ESTE) ANSWER(
a* 7o. he ban may not dispossess the
prior purchasers o$ the indiidual lots& much less re+uire them to pay $or the said lots. he ban has to respect the ri!hts o$ the prior purchasers o$ the indiidual lots. he purchasers hae the option to pay the installments o$ the mort!a!ee. b* he ban has to respect the ri!hts o$
the buyers ith remainin! unpaid installments. he purchaser has the option to pay the installments to the mort!a!ee ho should apply the payments to the mort!a!e indebtedness. ort'a'e (***)
'ebtor purchased a parcel o$ land $rom a realty company payable in fe yearly installments. ,nder the contract o$ sale& title to the lot ould be trans$erred upon $ull payment o$ the purchase price. 5ut een be$ore $ull payment& debtor constructed a house on the lot. 1ometime therea$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 proper chattel mort!a!e re!istry.
Mercantile Law Bar Examination Q & A (1990-2006)
8ie years later a$ter completin! payment o$ the purchase price& debtor obtained title to the lot. And een as the chattel mort!a!e on the house as still subsistin!& debtor mort!a!ed to a ban the lot and improement thereon to secure a loan. his real estate mort!a!e as duly re!istered and annotated at the bac o$ the title. 'ue to business reerses& debtor $ailed to pay his creditors. he chattel mort!a!e as $oreclosed hen the debtor $ailed to reimburse the surety company $or payments made on the bond. In the $oreclosure sale& the surety company as aarded the house as the hi!hest bidder.
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parties may treat it as a personal property and constitute a chattel mort!a!e thereon. 1uch mort!a!e shall be alid and bindin! but only on the parties. It ill not bind or a-ect third parties. b$ he lendin! inestor has a better claim
to the house. he real estate mort!a!e coerin! the house and lot as duly re!istered and binds the parties and third persons. Bn the other hand& the chattel mort!a!e on the house securin! the credit o$ the surety company did not a-ect the ri!hts o$ third parties such as the lendin! inestor despite re!istration o$ the chattel mort!a!e. c$ 7o. he chattel mort!a!e oer the house
Bnly a$ter the $oreclosure sale did the surety company learn o$ the real estate mort!a!e in $aor o$ the lendin! inestor on the lot and the improement thereon. Immediately& it fled a complaint prayin! $or the e=clusion o$ the house $rom the real estate mort!a!e. It as submitted that as the chattel mort!a!e as e=ecuted and re!istered ahead& it as superior to the real estate mort!a!e.
hich as $oreclosed did not a-ect the ri!hts o$ third parties lie the lendin! inestor. 1ince the third parties are not bound by the chattel mort!a!e& they are not also bound by any en$orcement o$ its proisions. he $oreclosure o$ such chattel mort!a!e did not bolster or add anythin! to the position o$ the surety company. ort'a'e s! 8e% (2003)
Bn the su!!estion that a chattel mort!a!e on a house a real property as a nullity& the surety company countered that hen the chattel mort!a!e as e=ecuted& debtor as not yet the oner o$ the lot on hich the house as built. Accordin!ly& the house as a personal property and a proper sub"ect o$ a chattel mort!a!e. a* 'iscuss the alidity o$ the position taen by the surety company. (%) b* Who has a better claim to the house& the surety company or the lendin! inestor? <=plain (%) c* Would the position o$ the surety company be bolstered by the $act that it ac+uired title in a $oreclosure sale conducted by the ;roincial 1heri-. <=plain (%) SU44ESTE) ANSWER(
a$ he house is alays a real property een
thou!h it as constructed on a land not belon!in! to the builder. /oeer& the Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
o pay $or her loan obtained $rom 1tela& >i6a constituted in 1tela3s $aor a chattel mort!a!e oer an electric !enerator. Cecil& a creditor o$ >i6a& leied on attachment the !enerator. 1tela fled a third party claim. Cecil opposed the claim. 9ule on their conEictin! claims. SU44ESTE) ANSWER(
ort'a'e E9tra=u6icial /oreclose (2004)
A real estate mort!a!e may be $oreclosed "udicially or e=tra"udicially. In hat instance may a mort!a!ee e=tra"udicially $oreclose a real estate mort!a!e? (@%) SU44ESTE) ANSWER(
When a sale is made under a special poer inserted or attached to any real estate mort!a!e& therea$ter !ien as security $or the payment o$ money or the $ulfllment o$ any other obli!ation& then the mort!a!ee may e=tra"udicially $oreclose the real estate mort!a!e (1ec. 2& Act 7o. 2@& as amended). ort'a'e /oreclosure (2003)
ay the sale at public auction by a ban o$ a property mort!a!ed to it be nullifed because the price as e=tremely lo? Why? SU44ESTE) ANSWER(
ort'a'e /oreclosure (2003)
5ecause o$ $ailure o$ anette and eanne to pay their loan to L 5an& the latter $oreclosed on the mort!a!e constituted on their property hich as put up by them as security $or the payment o$ the loan. he price paid $or the property at the $oreclosure sale as not enou!h to
Version 1990-2003 Arranged by SULAW Class
li+uidate the obli!ation. he ban sued $or defciency. In their anser& anette and eanne did not deny the e=istence o$ the loan nor the $act o$ their de$ault. hey& hoeer& interposed the de$enses that the price at the auction as e=tremely lo and that their loan& despite the loan documents& as a lon!term loan hich had not yet matured. I$ you ere the "ud!e& ho ould you rule on the case? Why? (:%) SU44ESTE) ANSWER(
ort'a'e /oreclosure o& 7m$roements (***)
5orroer obtained a loan a!ainst the security o$ a mort!a!e on a parcel o$ land. While the mort!a!e as subsistin!& borroer leased $or f$ty years the mort!a!ed property to >and 'eelopment Company (>'C). he mort!a!ee as duly adised o$ the lease. herea$ter& >'C constructed on the mort!a!ed property an o-ice condominium. 5orroer de$aulted on his loan and mort!a!ee $oreclosed the mort!a!e. At the $oreclosure sale& the mort!a!ee as aarded the property as the hi!hest bidder. he correspondin! Certifcate o$ 1ale as e=ecuted and a$ter the lapse o$ one year& title as consolidated in the name o$ mort!a!ee. ort!a!ee then applied ith the 9C $or the issuance o$ a rit o$ possession not only oer the land but also the condominium buildin!. he mort!a!ee contended that the mort!a!e included all accessions& improements and accessories $ound on the mort!a!ed property.
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
>'C countered that it had built on the mort!a!ed property ith the prior noled!e o$ mort!a!ee hich had receied $ormal notice o$ the lease. a$ /o ould you resole the dispute beteen the mort!a!ee and >'C? (%) b$ Is the mort!a!ee entitled to the lease rentals due $rom >'C under the lease a!reement? (%) Re'o++enat-on% Since the subGect matter of these two (! questions is not included within the scope of the Bar Huestions in 6ercantile Faw, as it is within "ivil Faw, it is suggested that whatever answer is given by the examinee, or the lac/ of answer should be given full credit' f the examinee gives a good answer, he should be given additional credit' SU44ESTE) ANSWER(
a. he mort!a!ee has a better ri!ht than >'C. he mort!a!e e=tends to the improements introduced on the land& ith the declarations& amplifcations& and limitations established by la& hether the estate remains in the possession o$ the mort!a!or or passes into the hands o$ a third person (Art #2# 7CC). he notice !ien by >'C to the mort!a!ee as not enou!h to remoe the buildin! $rom coera!e o$ 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!. 1ince 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 ac+uired the property as the hi!hest bidder. /ence& the mort!a!ee steps into the shoes o$ the mort!a!or and ac+uires the ri!hts o$ the lessor under Art 2:J o$ the 7CC. his proision !ies the lessor the ri!ht to appropriate the condominium buildin! but a$ter payin! the lessee hal$ o$ the alue o$ the buildin! at that time. 1hould the lessor re$use to reimburse said amount& the lessee may remoe the improement een thou!h the land ill su-er dama!e thereby. 1st Alternative Ans!er(
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b. he lease rentals belon! to the mort!a!or. /oeer& a. he mort!a!ee has a better ri!ht to the buildin!. ,nder Art #2# o$ the 7CC& the mort!a!e e=tends to all improements on the mort!a!ed property re!ardless o$ ho and hen the improements ere introduced. >'C cannot complain otherise& because it ne that the property it as leasin! as mort!a!ed hen it built the condominium. 2n& alternative Ans!er(
a. Assumin! that the o-ice condominium as duly constituted under the Condominium >a& be$ore >'C could alidly constitute the same as a condominium& it should cause to be recorded in the re!ister o$ deeds o$ the proince or city here the land is situated an enablin! or master deed shoin!& amon! others& a certifcate o$ the re!istered oner and o$ all re!istered holders o$ any lien or encumbrance on the property that they consent to the re!istration o$ the deed. (1ec 4. 9A 4#:). I$ the mort!a!ee !ae its consent thereto& then >'C should preail. I$ no consent as !ien& the condominium as included in the mort!a!e. SU44ESTE) ANSWER(
the mort!a!e e=tends to rentals not yet receied hen the obli!ation becomes due and the mort!a!ee may ran a$ter the said rentals $or the payment o$ the mort!a!e debt. ort'a'e /oreclosure E&&ect o& mere ta-in' .% cre6itor? mort'a'or o& $ro$ert% (**2)
L P Co obtained a loan $rom a local ban in the amount o$ ;@th& mort!a!in! as security there$ore its real property. 1ubse+uently& the company applied ith the same ban $or a >etter o$ Credit (>C) $or R#th in $aor o$ a $orei!n ban to coer the importation o$ machinery. o !uarantee payment o$ the obli!ation under the >C& the company and its ;resident and reasurer e=ecuted a surety a!reement in the local ban3s $aor. he machinery arried and as released to the company under a trust receipt a!reement. As the company de$aulted in the payment o$ its obli!ations& the ban too possession o$ the imported machinery. At the same time& it sou!ht to $oreclose the mort!a!ed property and to hold the company as ell as its ;resident and reasurer& liable under the 1urety A!reement. 'id the tain! o$ possession o$ the machinery by the ban result in the 2) $ull payment o$ the obli!ations o$ the company and its o-icers& and #) $oreclosure o$ the mort!a!e? SU44ESTE) ANSWER(
/$ he
tain! o$ possession o$ the machinery by the ban did not result in $ull payment o$ the obli!ations oin! $rom the company and its o-icers. he tain! o$ such possession must be considered merely as a measure in order to protect or $urther sa$e!uard the ban3s security interest. )acion en -ago can only be considered as hain! taen place hen a creditor accepts and appropriates the onership o$ the !oods in payment o$ a due obli!ation. ./&B /ineda 1 s 17 !$ he
mere tain! o$ possession o$ mort!a!ed assets does not amount to $oreclosure. 8oreclosure re+uires a sale at public auction. he $oreclosure& there$ore& has not as yet been e-ected. ort'a'e Re6em$tion "erio6 /oreclose6 "ro$ert% (2002)
;rimetime Corporation (the 5orroer) obtained a ;2 illion& feyear term loan $rom ,niersal 5an (the 5an) in 2HH:. As security $or the loan and as re+uired by the 5an& the 5orroer !ae the $olloin! collateral security in $aor o$ the 5an* /$ a real estate mort!a!e oer the land and buildin! oned by the 5orroer and located in Tue6on CityK !$ the "oint and seeral promissory note o$ ;r. ;rimo imbol& the ;resident o$ the 5orroerK and $ a real estate mort!a!e oer the residential house and lot oned by r. imbol& also located in Tue6on City.
Mercantile Law Bar Examination Q & A (1990-2006)
5ecause o$ business reerses& neither the 5orroer nor r. imbol as able to pay the loan. In une #2& the 5an e=tra"udicially $oreclosed the to real estate mort!a!es& ith the 5an as the only bidder in the $oreclosure sale. Bn 1eptember 2:& #2& the certifcates o$ sale o$ the to properties in $aor o$ the 5an ere re!istered ith the 9e!ister o$ 'eeds o$ Tue6on City. en months later& both the 5orroer and r. imbol ere able to raise su-icient $unds to redeem their respectie properties $rom the 5an& but the 5an re$used to permit redemption on the !round that the period $or redemption had already e=pired& so that the 5an no has absolute onership o$ both properties. he 5orroer and r. imbol came to you today& 1eptember 2@& ##& to fnd out i$ the position o$ the 5an is correct. What ould be your anser? 1tate your reasons (@%). SU44ESTE) ANSWER(
/*
With respect to the real estate mort!a!e oer the land and buildin! oned by the 5orroer& ;rimetime Corporation& a "uridical body& the period o$ redemption is only three () months& hich period already e=pired.
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mort!a!e deed& Carmaers& Inc.& assi!ned the instruments sans recourse to Adelantado 8inance Corporation. Chari de$aulted in her obli!ations. Could Adelantado 8inance corporation tae action a!ainst both Carmaers Inc.& and Chari? Why? (:%) SU44ESTE) ANSWER(
"re&erence o& Cre6its (2002)
As o$ une 2& ##&
!* As to the real estate mort!a!e oer
the residential house and lot oned by r. imbol& the period o$ redemption is one (2) year $rom the date o$ re!istration o$ the certifcate o$ sale& hich period has not yet e=pired in this case.
ort'a'e Reme6ies (2003)
Carmaers& Inc.& sold a motor ehicle on installment basis to Chari ;aredes. he transaction as reEected on a promissory note e=ecuted by Chari in $aor o$ Carmaers. he note as secured by a mort!a!e oer the car. Contemporaneous ith the e=ecution o$ the note and the Version 1990-2003 Arranged by SULAW Class
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#$ Inte!rity 5an G hich !ranted
loan in #2 in the amount o$ ;@&. he loan as not secured by any asset o$
he claim o$ /andyman Fara!e $or ;2& has a specifc lien on the car repaired. he remainin! $our (4) claims hae pre$erence or priority a!ainst each other
Version 1990-2003 Arranged by SULAW Class
in the $olloin! order* /$ 7o. 4 G claim o$ the 5I9 $or unpaid alue added ta=es !$ 7o. G claim o$ oselyn 9eyes $or ,nla$ul termination $ 7o. 2 G claim o$ Ace e+uipment 1upplies as an unpaid sellerK and ($ 7o. @ G claim o$ Inte!rity 5an.
"romissor% Note: 8ia.ilit% (200)
L& 0 and S si!ned a promissory note in $aor o$ A statin!* “We promise to pay A on 'ecember 2& #2 the sum o$ ;@&.” When the note $ell due& A sued L and 0 ho put up the de$ense that A should hae impleaded S. Is the de$ense alid? Why? (@%) SU44ESTE) ANSWER(
he de$ense is not alid. he liability o$ L& 0& and S under the promissory note is "oint. 1uch bein! the case& S is not an indispensable party. he $act that A did not implead S ill not preent A $rom collectin! the proportionate share o$ L and 0 in the payment o$ the loan.
(1bservation Even if the liability of A, 9, and I is solidary, the defense would still not be valid! Reme6ies Aaila.le to ort'a'ee?Cre6itor (**4)
8indin! a #4month payment plan attractie& An"o purchased a amara 8L $rom oyota TC. /e paid a donpayment o$ ;2th and obtained fnancin! $or the balance $rom IB, Co. /e e=ecuted a chattel mort!a!e
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oer the ehicle in $aor o$ IB,. When An"o de$aulted& IB, $oreclosed the chattel mort!a!e& and sou!ht to recoer the defciency. ay IB, still recoer the defciency? <=plain. SU44ESTE) ANSWER(
IB, may no lon!er recoer the defciency. ,nder Art 24J4 o$ the 7CC& in a contract o$ sale o$ personal property the price o$ hich is payable in installments& the endor may& amon! seeral options& $oreclose the chattel mort!a!e on the thin! sold& i$ one has been constituted& should the endee3s $ailure to pay coer to or more installments. In such case& hoeer& the endor shall hae no $urther action a!ainst the purchaser to recoer any unpaid balance o$ the price and any a!reement to the contrary is oid. While the !ien $acts did not e=plicitly state that An"o3s $ailure to pay coered # or more installments& this may sa$ely be presumed because the ri!ht o$ IB, Co to $oreclose the chattel mort!a!e under the circumstances is premised on An"o3s $ailure to pay # or more installments. he $oreclosure ould not hae been alid i$ it ere not so. (he !ien $acts did not also state e=plicitly hether An"o3s de$ault as a payment de$ault or a de$ault arisin! $rom a breach o$ a ne!atie pled!e or breach o$ a arranty. In such case& hoeer& IB, Company ould not hae been able to $oreclose the chattel mort!a!e alidly as such $oreclosure& under the circumstances contemplated by the la& could only be e-ected $or a payment de$ault coerin! to or more installments) .uis Ridad Fili-inas nest!ent and Finance Co %R 3+6 9an2,+3 12s2(67 Reme6ies Aaila.le to ort'a'ee?Cre6itor (200)
'ebtor “A” issued a promissory note in the amount o$ ;2 in $aor o$ commercial ban 0 secured by mort!a!e o$ his properties orth ;. When A $ailed to pay his indebtedness& despite demands made by ban 0& the latter instituted a collection suit to en$orce payment o$
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the ;2 account. 1ubse+uently& ban 0 also fled $oreclosure proceedin!s a!ainst A $or security !ien $or the account. I$ you ere the "ud!e& ho ould you resole the to cases? (@%) SU44ESTE) ANSWER(
he case $or collection ill be alloed to proceed. 5ut the $oreclosure proceedin!s hae to be dismissed. In institutin! $oreclosure proceedin!s& a$ter flin! a collection case inolin! the same account or transaction& ban 0 is !uilty o$ splittin! a cause o$ action. he loan o$ ;2 is the principal 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 flin! o$ the collection case bars the subse+uent flin! o$ the $oreclosure proceedin!s. Reme6ies Secure6 De.t (**)
o secure the payment o$ his loan o$ ;#th& A e=ecuted in $aor o$ the An!eles 5anin! Co in 2 document& a real estate mort!a!e oer lots re!istered in his name and a chattel mort!a!e oer his cars and 2 Isu6u car!o truc.
,pon his $ailure to pay the loan on due date& the ban $oreclosed the mort!a!e on the lots& hich ere subse+uently sold $or only ;HHth at the $oreclosure sale. herea$ter& the ban fled an ordinary action $or the collection o$ the defciency. A contended that the mort!a!e contract he e=ecuted as indiisible and conse+uently& the ban had no le!al ri!ht to $oreclose only the real estate mort!a!e and leae out the chattel mort!a!e& and then sue him $or a supposed defciency "ud!ment. I$ you ere the ud!e& ould you sustain the contention o$ A? SU44ESTE) ANSWER(
I$ I ere the ud!e& I ould dismiss the action as bein! premature since the proper remedy ould be to complete the $oreclosure o$ the mort!a!es and only therea$ter can there by an action $or collection o$ any defciency. In Calte> $C .%R (3, 20 $ug +7& the remedies on a secured debt& said the court& are either an action to collect or to $oreclose a contract o$ real security. hese remedies are alternatie remedies& althou!h an action $or any defciency is not precluded& sub"ect to certain e=ceptions such as those stated in Art 24J4 o$ the Ciil Code& by a $oreclosure on the mort!a!es. While the $actual settin!s in the case o$ Suria $C .3 9une +7 are not similar to the $acts !ien in the problem& the 1C implied that $oreclosure as a remedy in secured obli!ations must frst be aailed o$ by a creditor in pre$erence to other remedies that mi!ht also be inoed by him. ALTERNATI7E ANSWER(
he indiisibility o$ a contract o$ real security& such as a real estate mort!a!e or a chattel mort!a!e& only means that a diision or a partial payment o$ a secured obli!ation does not arrant a correspondin! diision or proportionate reduction o$ the security !ien. A creditor in such secured debts may pursue the remedy o$ $oreclosure& in part or in $ull& or fle an ordinary action $or collection on any amount due. A $aorable "ud!ment can arrant an issuance o$ a rit o$ e=ecution on any property& not e=empt $rom e=ecution& belon!in! to the "ud!ment debtor. here should be no le!al obstacle $or a creditor to aie& in $ull or in part& his ri!ht to $oreclosure on contracts o$ real security.
Insran#e La! ,ene&iciar%: E&&ects: 7rreoca.le ,ene&iciar% (2001)
What are the e-ects o$ an irreocable desi!nation o$ a benefciary under the Insurance Code? <=plain. (#%) SUGGESTED ANSWER:
he irreocable desi!nation !ies the benefciary a ested ri!ht oer >i$e Insurance. he Insured cannot act to diest the irreocable benefciary& in hole or in part& ithout the benefciaryDs consent. o be specifc*
/$ 2e beneficiary .esignate. in a life insurance contract cannot be cange. witout te consent of te beneficiary because e as a )este. interest in te policy (3hilamlife v' 3ineda, 4'+' 0o' 5)-,
Mercantile Law Bar Examination Q & A (1990-2006)
)*8*, citing 4crcio v' Sun Fife, 4'+' 0o' .7;., September 8, )*5C and 4o v' +edfern, 4'+' 0o' 77;5, #pril 5, )8)!C
!$ =eiter can te 1nsure. take te cas surren.er )alue assign or e)en borrow on sai. policy witout te beneficiaryOs consent (0ario v' 3hilamlife, 4'+' 0o' 7*-,
$ 2e 1nsure. cannot a.. anoter beneficiary because tat woul. re.uce te a'ount wic te first beneficiary 'ay reco)er an. terefore a.)ersely affect is )este. rigt (4o v' +edfem, 4'+' 0o' 77;5, #pril 5, )*)!C
($ ,nless the policy allos& the Insured
cannot een desi!nate another benefciary should the ori!inal benefciary predecease him. /is estate ac+uires the benefciaryDs ested ri!ht upon his deathK and
#$ 2e 1nsure. cannot allow is cre.itors to attac or e4ecute on te policy* (3hilamlife v' 3ineda, 4'+' 0o' 5)-,
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,ene&iciar% 8i&e 7nsurance "ro#i.ite6 ,ene&iciaries (**)
uan de la Cru6 as issued ;olicy 7o. JJJJ o$ the idland >i$e Insurance Co on a hole li$e plan $or ;#& on Au!ust 2H& 2HJH. uan is married to Cynthia ith hom he has three le!itimate children. /e& hoeer& desi!nated ;urita& his commonla i$e& as the reocable benefciary. uan re$erred to ;urita in his application and policy as the le!al i$e. years later& uan died. ;urita fled her claim $or the proceeds o$ the policy as the desi!nated benefciary therein. he ido& Cynthia& also fled a claim as the le!al i$e. o hom should the proceeds o$ the insurance policy be aarded? (@%) SUGGESTED ANSWER:
he proceeds o$ the insurance policy shall be aarded to the <1A< o$ uan de la Cru6. ;urita& the common lai$e& is dis+ualifed as the benefciary o$ the deceased because o$ illicit relation beteen the deceased and ;urita& the desi!nated benefciary. 'ue to such illicit
,ene&iciar%: Ri'#ts 7rreoca.le ,ene&iciar% (2001)
acob obtained a li$e insurance policy $or ;2 illion desi!natin! irreocably 'iata& a $riend& as his benefciary. acob& hoeer& chan!ed his mind and ants 0ob and o"o& his other $riends& to be included as benefciaries considerin! that the proceeds o$ the policy are su-icient $or the three $riends. Can acob still add 0ob and o"o as his benefciaries? <=plain. (#%) SUGGESTED ANSWER:
7o& acob can no lon!er add 0ob and o"o as his benefciaries in addition to 'iata. As the irreocable benefciary& 'iata has ac+uired aested ri!ht oer acobDs li$e insurance policy. Any additional benefciaries ill reduce the amount hich 'iata& as the frst benefciary& may recoer& hich ill adersely a-ect her ested ri!ht. .%o # Redfern, %#R# &o# (0, $-ril 20, 1(17
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relation& ;urita cannot be a donee o$ the deceased. /ence& she cannot also be his benefciary. Concealment aterial Concealment (200)
A applied $or a nonmedical li$e insurance. he insured did not in$orm the insurer that one ee prior to his application $or insurance& he as e=amined and confned at 1t. >ue3s /ospital here he as dia!nosed $or lun! cancer. he insured soon therea$ter died in a plane crash. Is the insurer liable considerin! that the $act concealed had no bearin! ith the cause o$ death o$ the insured? Why? (@%) SUGGESTED ANSWER:
7o. he concealed $act is material to the approal and issuance o$ the insurance policy. It is ell settled that the insured need not die o$ the disease he $ailed to disclose to the insurer. It is su-icient that his nondisclosure misled the insurer in $ormin! his estimate o$ the riss o$ the proposed insurance policy or in main! in+uiries. Concealment aterial Concealment: 7ncontesta.ilit% Clause (**)
Bn 1eptember #& 2HH& an too a li$e insurance policy $rom ;hilam. he policy as issued on 7oember :& 2HH. /e died on April #:& 2HH# o$ hepatoma. he insurance company denied the benefciaries3 claim and rescinded the policy by reason o$ alle!ed misrepresentation and concealment o$ material $acts made by an in his application. It returned the premiums paid.
Version 1990-2003 Arranged by SULAW Class
he benefciaries contend that the company had no ri!ht to rescind the contract as rescission must be done “durin! the li$etime” o$ the insured ithin to years and prior to the commencement o$ the action. Is the contention o$ the benefciaries tenable? SUGGESTED ANSWER:
7o. he incontestability clause does not apply. he insured dies ithin less than to years $rom the issuance o$ the policy on 1eptember #& 2HH. he insured died on April #:& 2HH#& or less than # years $rom 1eptember #& 2HH. he ri!ht o$ the insurer to rescind is only lost i$ the benefciary has commenced an action on the policy. here is no such action in this case. .?an C$ 1( s 1(37
Concealment aterial Concealment: 7ncontesta.ilit% Clause (**4)
uan procured a “nonmedical” li$e insurance $rom Food >i$e Insurance. /e desi!nated his i$e& ;etra& as the benefciary. i$e. 'iscoerin! uan3s preious hospitali6ation& Food >i$e re"ected ;etra3s claim on the !round o$ concealment and misrepresentation. ;etra sued Food >i$e& inoin! !ood $aith on part o$ uan.
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Will ;etra3s suit prosper? <=plain. SUGGESTED ANSWER:
7o& ;etra3s suit ill not prosper (assumin! that the policy o$ li$e insurance has been in $orce $or a period o$ less than # years $rom the date o$ its issue). he matters hich uan $ailed to disclose as material and releant to the approal and issuance o$ the insurance policy. hey ould hae a-ected Food >i$e3s action on his application& either by approin! it ith the correspondin! ad"ustment $or a hi!her premium or re"ectin! the same. oreoer& a disclosure may hae arranted a medical e=amination o$ uan by Food >i$e in order $or it to reasonably assess the ris inoled in acceptin! the application. In any case& !ood $aith is no de$ense in concealment. he aier o$ a medical e=amination in the Unonmedical3 li$e insurance $rom Food >i$e maes it een more necessary that uan supply complete in$ormation about his preious hospitali6ation $or such in$ormation constitutes an important $actor hich Food >i$e taes into consideration in decidin! hether to issue the policy or not. .See Sunlife $ssurance Co of Canada C$ %R 10130, 9une 22, 10 2(0 s 26+7
I$ the policy o$ li$e insurance has been in $orce $or a period o$ # years or more $rom the date o$ its issue (on hich point the !ien $acts are a!ue) then Food >i$e can no lon!er proe that the policy is oid ab initio or is rescindible by reason o$ the $raudulent concealment or misrepresentation o$ uan ( 1ec 4J Ins Code) Concealment aterial Concealment: 7ncontesta.ilit% Clause (**+)
he assured ansers “7o” to the +uestion in the application $or a li$e policy* “Are you su-erin! $rom any $orm o$ heart illness?” In $act& the assured has been a heart patient $or many years. Bn 1ep 2HH2& the assured is illed in a plane crash. he insurance company denies the claim $or insurance proceeds and returns
the premiums paid. Is the decision o$ the insurance company "ustifed? SUGGESTED ANSWER:
Assumin! that the incontestability clause does not apply because the policy has not been in $orce $or # years& $rom the date o$ issue& durin! the li$etime o$ the insured& the decision o$ the insurance company not to pay is "ustifed. here as $raudulent concealment. It is not material that the insured died o$ a di-erent cause than the $act concealed. he $act concealed& that is heart ailment& is material to the determination by the insurance company hether or not to accept the application $or insurance and to re+uire the medical e=amination o$ the insured. /oeer& i$ the incontestability clause hich applies to the insurance policy coerin! the li$e o$ the insured had been in $orce $or # years $rom issuance thereo$& the insurance company ould not be "ustifed in denyin! the claim $or proceeds o$ the insurance and in returnin! the premium paid. In that case& the insurer cannot proe the policy oid ab initio or rescindible by reason o$ $raudulent concealment or misrepresentation o$ the insured.
Concealment aterial Concealment 7ncontesta.ilit% Clause (**)
Atty 9oberto too out a li$e insurance policy $rom the 'ana Ins Co ('IC) on 2 1ep 2HJH. Bn 2 Au! 2HH& 9oberto died. 'IC re$used to pay his benefciaries because it discoered that 9obert had misrepresented certain material $acts in his application. he benefciaries sued on the basis that 'IC can contest the alidity o$ the insurance policy only ithin # years $rom the date o$ issue and durin! the li$etime o$ the insured. 'ecide the case. SUGGESTED ANSWER:
I ould rule in $aor o$ the insurance company. he incontestability clause& applies only i$ the policy had been in e-ect $or at least # years. he # year period is counted $rom the time the insurance becomes e-ectie until the death o$ the insured and not therea$ter .?an C$ %R (+(( 29un1+7 A8TERNAT7>E ANSWER:
I ould rule in $aor o$ the insurance company. Althou!h an insurer may not rescind the contract on !round o$ misrepresentation a$ter an action is commenced $or recoery under the policy& the insurer is not precluded $rom inoin! the !round o$ misrepresentation as a de$ense in the action $or recoery. his is alri!ht since the bar problem is not coered yet by the incontestability clause. Concealment aterial Concealment 7ncontesta.ilit% Clause (**)
9enato as issued a li$e insurance policy
on anuary #& 2HH. /e concealed the $act that years prior to the issuance o$ his li$e insurance policy& he had been seein! a doctor about his heart ailment. Bn arch 2& 2HH#& 9enato died o$ heart $ailure. ay the heirs fle a claim on the proceeds o$ the li$e insurance policy o$ 9enato? (@%) SUGGESTED ANSWER:
0es. he li$e insurance policy in +uestion as issued on anuary H& 2HH. ore than # years had elapsed hen 9enato& the insured& died on arch 2& 2HH#. he incontestability clause applies. INC$N!#!A&I/I!0 C/A#
he insurer has to years $rom the date o$ issuance o$ the insurance contract or o$ its last reinstatement ithin hich to contest the policy& hether or not& the insured still lies ithin such period. A$ter to years& the de$enses o$ concealment or misrepresentation& no matter ho patent or ell $ounded& no lon!er lie. 7nsura.le 7nterest: ,an- De$osit (2000)
5' has a ban deposit o$ hal$ a million pesos. 1ince the limit o$ the insurance coera!e o$ the ;hilippine 'eposit Insurance Corp (;'IC) (9A @H2) is only one tenth o$ 5'3s deposit& he ould lie some protection $or the e=cess by tain! out an insurance a!ainst all riss or contin!encies o$ loss arisin! $rom any unsound or unsa$e banin! practices includin! un$oreseen aderse e-ects o$
Mercantile Law Bar Examination Q & A (1990-2006)
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the continuin! crisis inolin! the banin! and fnancial sector in the Asian re!ion. 'oes 5' hae an insurable interest ithin the meanin! o$ the Insurance Code o$ the ;hilippines (;'24:)? (#%) SUGGESTED ANSWER:
0es. 5' has insurable interest in his ban deposit. In case o$ loss o$ said deposit& more particularly to the e=tent o$ the amount in e=cess o$ the limit coered by the ;'IC Act& ;5' ill be damnifed. /e ill su-er pecuniary loss o$ ;&.& that is& his ban deposit o$ hal$ a million pesos minus ;#&. hich is the ma=imum amount recoerable $rom the ;'IC.
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it discoered that at the time o$ the loss& the stocsintrade ere mort!a!ed to a creditor ho lieise obtained $rom 1econd Insurance Company fre insurance coera!e $or the stocs at their $ull alue o$ ;@. a$ ay the businessman and the creditor obtain separate insurance coera!es oer the same stocs intrade? <=plain (%) b$ 8irst Insurance re$used to pay claimin! that double insurance is contrary to la. Is this contention tenable? (%) c$ 1uppose you are the ud!e& ho much ould you allo the businessman and the creditor to recoer $rom their respectie insurers. <=plain (%) SUGGESTED ANSWER:
a$ 0es. he businessman& as oner& and the
7nsura.le 7nterest: "u.lic Enem% (2000)
ay a member o$ the I>8 or breaaay !roup& the Abu 1ayya$& insured ith a company licensed to business under the Insurance Code o$ ;hils (;' 24:)? <=plain. (%)
its be do the
SUGGESTED ANSWER:
A member o$ the I>8 or the Abu 1ayya$ may be insured ith a company licensed to do business under the Insurance Code o$ the ;hils. What is prohibited to be insured is a public enemy. A public enemy is a citi6en or national o$ a country ith hich the ;hilippines is at ar. 1uch member o$ the I>8 or the Abu 1ayya$ is not a citi6en or national o$ another country& but o$ the ;hilippines.
creditor& as mort!a!ee& hae separate insurable interests in the same stocsin trade.
7nsura.le 7nterest: Se$arate 7nsura.le 7nterest (***)
A businessman in the !rocery business obtained $rom 8irst Insurance an insurance policy $or ;@ to $ully coer his stocsintrade $rom the ris o$ fre. hree months therea$ter& a fre o$ accidental ori!in broe out and completely destroyed the !rocery includin! his stocsintrade. his prompted the businessman to fle ith 8irst Insurance a claim $or fe million pesos representin! the $ull alue o$ his !oods. 8irst Insurance denied the claim because Version 1990-2003 Arranged by SULAW Class
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oreoer& in the problem at hand& there is no double insurance because the insured ith the 8irst Insurance is di-erent $rom the insured ith the 1econd Insurance Company. he same is true ith respect to the interests insured in the to policies. c$ As
ud!e& I ould allo the businessman to recoer his total loss o$ ;@ representin! the $ull alue o$ his !oods hich ere lost throu!h fre. As to the creditor& I ould allo him to recoer the amount to the e=tent o$ or e+uialent to the alue o$ the credit he e=tended to the businessman $or the stocsintrade hich ere mort!a!ed by the businessman.
7nsura.le 7nterest 8i&e s! "ro$ert% 7nsurance (**+) a$ A
obtains a fre insurance on his house and as a !enerous !esture names his nei!hbor as the benefciary. I$ A3s house is destroyed by fre& can 5 success$ully claim a!ainst the policy? b$ A obtains insurance oer his li$e and names his nei!hbor 5 the benefciary because o$ A3s secret loe $or 5. I$ A dies& can 5 success$ully claim a!ainst the policy? SUGGESTED ANSWER:
a$ 7o.
In property insurance& the benefciary must hae insurable interest in the property insured. (1ec 2J Ins Code). 5 does not hae insurable interest in the house insured. b$ 0es. In li$e insurance& it is not re+uired
7nsura.le 7nterest E5uita.le 7nterest (**)
A piece o$ machinery as shipped to r ;ablo on the basis o$ CP8 anila. ;ablo insured said machinery ith the ala!a erchants Ins Co (amic) $or loss or dama!e durin! the oya!e. he essel san en route to anila. ;ablo then fled a claim ith amic hich as denied $or the reason that prior to delier& ;ablo had no insurable interest. 'ecide the case. SUGGESTED ANSWER:
;ablo had an e=istin! insurable interest on the piece o$ machinery he bou!ht. he purchase o$ !oods under a per$ected contract o$ sale already ests e+uitable interest on the property in $aor o$ the buyer een hile it is pendin! deliery .Fili-ino Merchants ns Co C$ %R +01(( 2+&o1+7
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that the benefciary must hae insurable interest in the li$e o$ the insured. It as the insured himsel$ ho too the policy on his on li$e. 7nsura.le 7nterest 8i&e s! "ro$ert% 7nsurance (2000)
I1& an elderly bachelor ith no non relaties& obtained li$e insurance coera!e $or ;#@&. $rom 1tarbrite Insurance Corporation& an entity licensed to en!a!e in the insurable business under the Insurance Code o$ the ;hilippines (;'24:). /e also insured his residential house $or tice that amount ithin the same corporation. /e immediately assi!ned all his ri!hts to the insurance proceeds to 5L& a $riendcompanion liin! ith him. hree years later& I1 died in a fre that !utted his insured house to days a$ter he had sold it. here is
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no eidence o$ suicide or arson or inolement o$ 5L in these eents. 5L demanded payment o$ the insurance proceeds $rom the to policies& the premiums $or hich I1 had been $aith$ully payin! durin! all the time he as alie. 1tarbrite re$used payment& contendin! that 5L had no insurable interest and there$ore as not entitled to receie the proceeds $rom I13s insurance coera!e on his li$e and also on his property. Is 1tarbrite3s contention alid? <=plain? (@%) SUGGESTED ANSWER:
1tarbrite is correct ith respect to the insurance coera!e on the property o$ I1. he benefciary in the property insurance policy or the assi!nee thereo$ must hae insurable interest in the property insured. 5L& a mere $riendcompanion o$ I1& has no insurable interest in the residential house o$ I1. 5L is not entitled to receie the proceeds $rom I13s insurance on his property. As to the insurance coera!e on the li$e o$ I1& 5L is entitled to receie the proceeds. here is no re+uirement that 5L should hae insurable interest in the li$e o$ I1. It as I1 himsel$ ho too the insurance on his on li$e.
7nsura.le 7nterest 8i&e s! "ro$ert% 7nsurance (2002) Distinguis insurable interest in property insurance fro' insurable interest in life insurance* #N$ SUGGESTED ANSWER:
a$
In property insurance& the e=pectation o$ beneft must hae a le!al basis. In li$e insurance& the e=pectation o$ beneft to be deried $rom the continued e=istence o$ a li$e need not hae any le!al basis.
b$
In property insurance& the actual alue o$ the interest therein is the limit o$ the insurance that can alidly be placed thereon. In li$e insurance& there is no limit to the amount o$ insurance that may be taen upon li$e.
c$
In
property
insurance&
an
interest
53 of 103
insured must e=ist hen the insurance taes e-ect and hen the loss occurs but need not e=ist in the meantime. In li$e insurance& it is enou!h that insurable interest e=ists at the time hen the contract is made but it need not e=ist at the time o$ loss. 7nsura.le 7nterest "ro$ert% 7nsurance (**)
In a ciil suit& the Court ordered 5en"ie to pay 7at ;@&.. o e=ecute the "ud!ment& the sheri- leied upon 5en"ie3s re!istered property (a parcel o$ land and the buildin! thereon)&and sold the same at public auction to 7at& the hi!hest bidder. he latter& on arch 2J& 2HH#& re!istered ith the 9e!ister o$ 'eeds the certifcate o$ sale issued to him by the sheri-. eanhile& on anuary #& 2HH& 5en"ie insured ith Farapal Insurance $or ;2&&. the same buildin! that as sold at public auction to 7at. 5en"ie $ailed to redeem the property by arch 2J& 2HH.
Bn arch 2H& 2HH& a fre ra6ed the buildin! to the !round. Farapal Insurance re$used to mae !ood its obli!ation to 5en"ie under the insurance contract. /$ Is Farapal Insurance le!ally "ustifed in re$usin! payment to 5en"ie? !$ Is 7at entitled to collect on the insurance policy? SUGGESTED ANSWER:
0es. At the time o$ the loss& 5en"ie as no lon!er the oner o$ the property insured as he $ailed to redeem the property. he la re+uires in property insurance that a person can recoer the proceeds o$ the policy i$ he has insurable interest at the time o$ the issuance o$ the policy and also at the time hen the loss occurs. At the time o$ fre& 5en"ie no lon!er had insurable interest in the property insured. /$
!$ 7o. While at the time o$ the loss he
had insurable interest in the buildin!& as he as the oner thereo$& 7at did not hae any interest in the policy. here as no automatic trans$er clause in the policy that ould !ie him such interest in the policy. 7nsura.le 7nterest "ro$ert% 7nsurance (200)
T& oner o$ a condominium unit& insured the same a!ainst fre ith the L0S Insurance Co.& and made the loss payable to his brother& >T. In case o$ loss by fre o$ the said condominium unit& ho may recoer on the fre insurance policy? 1tate the reason(s) $or your anser. (@%) SUGGESTED ANSWER:
T can recoer on the fre insurance policy $or the loss o$ said condominium unit. /e has the insurable interest as oner insured. As benefciary in the fre insurance policy& >T cannot recoer on the fre insurance policy. 8or the benefciary to recoer on the fre or property insurance policy& it is re+uired that he must hae insurable interest in the property insured. In this case& >T does not hae insurable interest in the condominium unit. 7nsurance Cas# Carr% ,asis (2003)
What is meant by “cash and carry” in the business o$ insurance? SUGGESTED ANSWER:
7nsurance Co?7nsurance s! Re?7nsurance (**)
'istin!uish coinsurance $rom reinsurance. SUGGESTED ANSWER:
CBI71,9A7C< is the percenta!e in the alue o$ the insured property hich the insured himsel$ assumes or undertaes to act as insurer to the e=tent o$ the defciency in the insurance o$ the insured property. In case o$ loss or dama!e& the insurer ill be liable only $or such proportion o$ the loss or dama!e as the amount o$ insurance bears to the desi!nated percenta!e o$ the $ull alue o$ the property insured. 9
Mercantile Law Bar Examination Q & A (1990-2006)
reinsurance is an insurance a!ainst liability hich the ori!inal ori!inal insurer may incur incur in $aor o$ the ori!inal insured.
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matter o$ the insurance bein! applied $or. $or. .&e4 ife :nt C$ 2 s 667 !$ 7o& because she is !uilty o$ iolation o$ a
7nsurance Dou.le 7nsurance (2001)
When does double insurance e=ist? (#%) SUGGESTED ANSWER:
,nder 1ection H o$ the Insurance Code& there is double insurance hen there is oerinsurance ith to or more companies& coerin! the same property& the same insurable interest and the same ris. 'ouble insurance e=ists here the same person is insured by seeral insurers separately in respect o$ the same sub"ect matter and interests. .%eagonia # Court of $--eals, %#R# &o# 11((2, Fe*ruar5 Fe*ruar5 6, 107
7nsurance Dou.le 7nsurance e&&ect (**3)
ulie and Alma $ormed $ormed a business business partnership. ,nder the business name ;ino 1hop& the partnership en!a!ed in a sale o$ construction materials. ulie insured the stocs in trade o$ ;ino 1hop ith WFC Insurance Co $or ;@th. 1ubse+uently& she a!ain !ot an insurance contract ith 91I $or ;2m and then $rom
arrantyO condition. 7nsurance E&&ects "a%ment o& "remiums .% 7nstallment 7nsurance (2004)
he ;eninsula Insurance Company o-ered to insure 8rancisD brand ne car a!ainst all riss in the sum o$ ;I illion $or 2 year. he policy as issued ith the premium f=ed at 2:&. payable in : months. 8rancis only paid the frst to months installments. 'espite demands& he $ailed to pay the subse+uent installments. 8ie months a$ter the issuance o$ the policy& policy& the ehicle as carnapped. carnapped. 8rancis 8rancis fled ith the insurance company a claim $or its alue. /oeer& /oeer& the company company denied his claim on the !round that he $ailed to pay the premium resultin! in the cancellation o$ the policy. Can 8rancis recoer $rom the ;eninsula Insurance Company? (@%) SU44ESTE) ANSWER(
SUGGESTED ANSWER:
/$ 7o. An insured is re+uired to disclose
the other insurances coerin! the sub"ect Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
0es& 0es& hen insured insured and insurer insurer hae a!reed to the payment o$ premium by installments and partial payment has been made at the time o$ loss& then the insurer becomes liable. When the car loss happened on the @th month& the si= months a!reed period o$ payment had not yet elapsed .DC/B %eneral nsurance # Masagana ?ela!art, ela!art, %#R# %#R# &o# 1312, 1312, $-ril
8rancis can recoer $rom ;eninsula ;eninsula Insurance Company& Company& but the latter has the ri!ht to deduct the amount o$ unpaid premium $rom the insurance proceeds.
(,
preclude the assi!nee $rom claimin! ri!hts under the policy. he $ailure o$ notice did not& hoeer& hoeer& aoid the policyK hence& upon the death o$ ose& the proceeds ould& in the absence o$ a desi!nated benefciary& benefciary& !o to the estate o$ the insured. he estate& in turn& ould be liable $or the loan o$ ;@& oin! in $aor o$ 0.
217.
7nsurance 8i&e 7nsurance Assi'nment o& "olic% (**)
he policy o$ insurance upon his li$e& ith a $ace alue o$ ;2th as assi!ned by ose& a married married man ith # le!itimate le!itimate children& to his nephe 0 as security $or a loan o$ ;@th. /e did not !ie the insurer any ritten notice o$ such assi!nment despite the e=plicit proision to that e-ect in the policy. ose died. ,pon the claim on the policy by the assi!nee& the insurer re$used to pay on the !round that it as not notifed o$ the assi!nment. ,pon the other hand& the heirs o$ ose contended that 0 is not entitled to any amount under the policy because the assi!nment ithout due notice to the insurer as oid. 9esole the issues. SUGGESTED ANSWER:
A li$e insurance insurance is assi!nable. assi!nable. A proision& hoeer& in the policy statin! that ritten notice o$ such an assi!nment should be !ien to the insurer is alid (1ecs 2J22J# Ins Code). he $ailure o$ the notice o$ assi!nment ould thus
Version 1990-2003 Arranged by SULAW Class
7nsurance "er&ection o& 7nsurance Contracts (2003)
osie Fatbonton Fatbonton obtained obtained $rom Warranty Insurance Corporation a comprehensie motor ehicle insurance to coer her brand ne automobile. 1he paid& and the insurer accepted payment in chec. 5e$ore the chec could be encashed& osie as inoled in a motor ehicle accident here her car became a total rec. 1he sou!ht payment $rom the insurer. Could the insur insurer er be made made liable liable unde underr the insurance coera!e? (:%) SUGGESTED ANSWER:
(per 'ondee) 0es& 0es& because there as a per$ected contract o$ insurance the moment there is a meetin! o$ the minds ith respect to the ob"ect and the cause o$ payment. he payment o$ chec is a alid payment payment unless unless upon encashm encashment ent the chec bounced. 7nsurance "ro$ert% 7nsurance "rescri$tion o& Claims (**4)
9obin insured his buildin! a!ainst fre ith <8F Assurance. he insurance policy contained the usual stipulation that any action or suit must be fled ithin one year a$ter a$ter the re"ection re"ection o$ the claim. claim.
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Examination Q & A (1990-2006)
A$ter his buildin! burned don& 9obin fled his claim $or fre loss ith <8F. Bn 8eb #J& 2HH4& <8F denied 9obin3s claim. Bn April & 2HH4& 9obin sou!ht reconsideration o$ the denial& but <8F reiterated its position. Bn arch #& 2HH@& 9obin commenced "udicial "udicial action a!ainst <8F. 1hould 9obin3s action be !ien due course? <=plain. SUGGESTED ANSWER:
7o& 9obin3s action should not be !ien due course. Is flin! o$ the re+uest $or reconsideration did not suspend the runnin! o$ the prescriptie period o$ one year stipulated stipulated in the insurance insurance policy. policy. hus& hen robin commenced "udicial action a!ainst <8F Assurance on arch #& 2HH@& his ability to do so had already prescribed. he oneyear period is counted $rom 8eb 8eb #J& 2HH4 hen <8F denied 9obin3s claim& not $rom the date (presumably a$ter April & 2HH4) hen <8F reiterated its position denyin! 9obin3s claim. he reason $or this rule is to insure that claims a!ainst insurance companies are promptly settled and that insurance suits are brou!ht by the insured hile the eidence as to the ori!in and cause o$ the destruction has not yet disappeared. .See Sun ns OEice td C$ gr +(1, Mar 13 1 10s137
7nsurance Return o& "remiums (2000)
7ame at least three instances hen an insured is entitled to a return o$ o$ the premium paid. SUGGESTED ANSWER:
hree instances hen an insured is entitled to a return o$ premium paid are* /* o the W/B>< ;9<I,& i$ no part o$ his interest in the thin! insured be e=posed to any o$ the perils insured a!ainst. !*
Where the insurance is made $or a defnite period o$ time and the insured surrenders his policy& to such portion o$ the premium as corresponds ith the une=pired time at a pro rata rate& unless a short period rate has been a!reed upon and appears on the $ace o$
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55 of 103
the policy& a$ter deductin! $rom the hole premium any claim $or loss or dama!e under the policy hich has preiously accrued. *
When the contract is oidable on account o$ the $raud or misrepresentation o$ the insurer or o$ his a!ent or on account o$ $acts the e=istence o$ hich the insured as i!norant ithout his $aultK or hen& by any de$ault o$ the insured other than actual $raud& the insurer neer incurred any liability under the policy.
A8TERNAT7>E 7NSTANCE:
In case o$ an oer insurance by seeral insurers& the insured is entitled to a ratable return o$ the premium& proportioned to the amount by hich the a!!re!ate sum insured in all the policies e=ceeds the insurable alue o$ the thin! at ris. 7nsure6 Acci6ent "olic% (200)
C7I insure 1A under a homeonerDs policy a!ainst claims $or accidental in"uries by nei!hbors. 1ADs minor
son& 5B0& in"ured children o$ ;B1& a nei!hbor& ho sued 1A $or dama!es. 1ADs layer as A& ho as paid $or his serices by the insurer $or reportin! periodically on the case to C7I. In one report& A disclosed to C7I that a$ter his inesti!ations& he $ound the in"uries to the children not accidental but intentional. 1A lost the case in court& and ;B1 as aarded one million pesos in dama!es hich he sou!ht to collect $rom the insurer. 5ut C7I used As report to deny the claim on the !round that the in"uries to ;B1Ds children ere intentional& hence e=cluded $rom the policyDs coera!e. ;B1 countered that C7I as estopped $rom usin! As report because it as unethical $or A to proide pre"udicial in$ormation a!ainst his client to the insurer& C7I. Who should preail* the claimant& ;B1K or the insurer& C7I? 'ecide ith reasons brieEy. (@%) SUGGESTED ANSWER:
C7I is not estopped $rom usin! ADs report& because C7I& in the frst place& commissioned it and paid A $or it. Bn the other hand& A has no conEict o$ interest because 1A and C7I are on the same side V their interests bein! con!ruent ith each other& namely& to oppose ;B1Ds claim. It cannot be said that A A has used the in$ormation in$ormation to the disadanta!e or pre"udice o$ 1A. /oeer&
in Fin!an %eneral %eneral
$ssurance Cor-# # Court of $--eals, 213 SCR$ (3
.127, it as e=plained that there is no
NaccidentN in the conte=t o$ an accident
poli policy cy&& i$ it is the the natur natural al resul resultt o$ the insuredDs oluntary act& unaccompanied by anythin anythin! ! un$ore un$oreseen seen e=cept e=cept the in"ury in"ury.. here is no accident hen a deliberate act is per$ormed& unless some additional and un$oreseen happenin! occurs that brin!s about the in"ury. his element o$ deliberateness is not clearly shon $rom the $acts o$ the case& especially considerin! the $act that 5B0 is a minor& and the in"ured in"ured parties are also children. children. Accordin!ly Accordin!ly&& it is possible possible that C7I may not prosper. ADs report is not conclusie on ;B1 or the court. 7nsure6 Acci6ent s! Suici6e (**0)
>uis as the holder o$ an accident insurance insurance policy e-ectie 7o 7o 2& 2HJJ to Bct 2& 2HJH. At a bo=in! contest held on an 2& 2HJH and sponsored sponsored by his employer& he slipped and as hit on the $act by his opponent so he $ell and his head hit one o$ the posts o$ the bo=in! rin!. /e as rendered unconscious and as dead on arrial at the hospital due to “intracranial hemorrha!e.” Can his $ather ho is a benefciary under said insurance policy success$ully claim indemnity $rom the insurance company? <=plain. SUGGESTED ANSWER:
0es& 0es& the $ather ho is a benefciary benefciary under the accidental insurance can success$ully claim indemnity $or the death o$ the insured. Clearly& the pro=imate cause o$ death as the bo=in! contest. 'eath sustained in a bo=in! contest is an accident# .)e la Cru8 Ca-ital ns A Suret5 Co 1s007
Mercantile Law Bar Examination Q & A (1990-2006)
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or ill$ul e=posure to needless peril hich are e=cepted 7nsure6 Acci6ent s! Suici6e (**3)
1 Insurance Co issued a personal accident policy to 5ob an ith a $ace alue o$ ;@th. In the eenin! o$ 1ep @& 2HH#& a$ter his birthday party& an as in a happy mood but not drun. /e as playin! ith his hand !un& $rom hich he preiously remoed the ma!a6ine. As his secretary as atchin! teleision& he stood in $ront o$ her and pointed the !un at her. 1he pushed it aside and said that it may be loaded. /e assured her that it as not and then pointed it at his temple. he ne=t moment& there as an e=plosion and an slumped to the Eoor li$eless. he i$e o$ the deceased sou!ht payment on the policy but her claim as re"ected. he insurance company a!reed that there as no suicide. /oeer& it as the submission o$ the insurance company that there as no accident. In support thereo$& it contended a) that there as no accident hen a deliberate act as per$ormed unless some additional& une=pected& independent and un$oreseen happenin! occur hich produces or brin!s about the in"ury or deathK and b) that the insured ill$ully e=posed himsel$ to needless peril and thus remoed himsel$ $rom the coera!e o$ the insurance policy. Are the to contentions o$ the insurance company tenable? <=plain.
alue o$ ;@th. A proision in the policy states that “the company shall not be liable in respect o$ “bodily in"ury3 conse+uent upon the insured person attemptin! to commit suicide or ill$ully e=posin! himsel$ to needless peril e=cept in an attempt to sae human li$e.” 1i= months later /enry 'y died o$ a bullet ound in his head. Inesti!ation shoed that one eenin! /enry as in a happy mood althou!h he as not drun. /e as playin! ith his hand!un $rom hich he had preiously remoed its ma!a6ine. /e pointed the !un at his sister ho !ot scared. /e assured her it as not loaded. /e then pointed the !un at his temple and pulled the tri!!er. he !un fred and /enry slumped on the Eoor. /enry3s i$e 5eerly& as the desi!nated benefciary& sou!ht to collect under the policy. 1unoon Insurance re"ected her claim on the !round that the death o$ /enry as not accidental. 5eerly sued the insurer. 'ecide and 'iscuss $ully. SUGGESTED ANSWER:
5eerly can recoer the proceeds o$ the policy $rom the insurer. he death o$ the insured as not due to suicide
SUGGESTED ANSWER:
7o. hese to contentions are not tenable. he insurer is liable $or in"ury or death een due to the insured3s !ross ne!li!ence. he $act that the insured remoed the ma!a6ine $rom the hand !un means that the insured did not ill$ully e=pose himsel$ to needless peril. At most& the insured is only !uilty o$ ne!li!ence .Sun ns C$ 211 s 00(7
7nsure6 Acci6ent s! Suici6e (**1)
1unoon Insurance issued a ;ersonal Accident ;olicy to /enry 'y ith a $ace Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
riss. he insured3s act as purely an act o$ ne!li!ence hich is coered by the policy and $or hich the insured !ot the insurance $or his protection. In $act& he remoed the ma!a6ine $rom the !un and hen he pointed the !un to his temple he did so because he thou!ht that it as sa$e $or him to do so. /e did so to assure his sister that the !un as harmless. here is none in the policy that ould reliee the insurer o$ liability $or the death o$ the insured since the death as an accident. 7nsurer: E&&ects: Seeral 7nsurers (2001)
What is the nature o$ the liability o$ the seeral insurers in double insurance? <=plain. (#%) SUGGESTED ANSWER:
he nature o$ the liability o$ the seeral insurers in double insurance is that each insurer is bound to the contribute ratably to the loss in proportion to the amount $or hich he is liable under his contract as proided $or by 1ec H4 o$ IC; par. he ratable contribution o$ each o$ each insurer ill be determined based on the $olloin! $ormula* AB,7 B8 ;B>IC0 diided by BA> I71,9A7C< AM<7 multiplied by >B11 X >IA5I>I0 B8 /< I71,9<9. A8TERNAT7>E ANSWER:
sidesiped 9oberto& causin! in"uries to the latter& 9oberto sued Cesar and the third party liability insurer $or dama!es andOor insurance proceeds. he insurance company moed to dismiss the complaint& contendin! that the liability o$ Cesar has not yet been determined ith fnality. a$ Is the contention o$ the insurer correct? <=plain. b$ ay the insurer be held liable ith Cesar? SUGGESTED ANSWER:
7o& the contention o$ the insurer is not correct. here is no need to ait $or the decision o$ the court determinin! Cesar3s liability ith fnality be$ore the third party liability insurer could be sued. he occurrence o$ the in"ury to 9oberto immediately !ae rise to the liability o$ the insurer under its policy. In other ords& here an insurance policy insures directly a!ainst liability& the insurer3s liability accrues immediately upon the occurrence o$ the in"ury or eent upon hich the liability depends .Sher!an Shafer 9udge R?C Olonga-o Cit5 Branch 0 %R l++(+, &o 1( ++ 16s3+67
he insurer cannot be held solidarily liable ith Cesar. he liability o$ the insurer is based on contract hile that o$ Cesar is based on tort. I$ the insurer ere solidarily liable ith Cesar& it could be made to pay more than the amount stated in the policy. his ould& hoeer& be contrary to the principles underlyin! insurance contracts. Bn the other hand& i$ the insurer ere solidarily liable ith Cesar and it is made to pay only up to the amount
While driin! his car alon! <'1A& Cesar
Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
state. in te insurance policy te principles un.erlying soli.ary obligations woul. be )iolate. ' (6alayan ns "o v "# 4+ F$.-). Sep -, 88 )-5s5.-C iguracion vda de 6aglana v "onsolacion 4+ -;5;- #ug -, * )s-8!
7nsurer 3r6 "art% 8ia.ilit% (2000)
L as ridin! a suburban utility ehicle (1,Q) coered by a comprehensie motor ehicle liability insurance (CQ>I) underritten by 8ast;ay Insurance Company hen it collided ith a speedin! bus oned by 9 rael Inc. he collision resulted in serious in"uries to LK 0& a passen!er o$ the busK and S& a pedestrian aitin! $or a ride at the scene o$ the collision. he police report established that the bus as the o-endin! ehicle. he bus had CQ>I policy issued by 'ra!on Ins Co. L& 0& and S "ointly sued 9 rael and 'ra!on Ins $or indemnity under the Insurance Code o$ the ;hils (;'24:). he loer court applied the “no $ault” indemnity policy o$ the statute& dismissed the suit a!ainst 9 rael& and ordered 'ra!on Ins to pay indemnity to all three plainti-s. 'o you a!ree ith the court3s "ud!ment? <=plain (#%) SUGGESTED ANSWER:
7o. he cause o$ action o$ 0 is based on the contract o$ carria!e& hile that o$ L and S is based on torts. he court should not hae dismissed the suit a!ainst 9 rael. he court should hae ordered 'ra!on Ins to pay each o$ L& 0 & and S to the e=tent o$ the insurance coera!e& but hateer amount is a!reed upon in the policy should be ansered frst by 9 rael and the succeedin! amount should be paid by 'ra!on Insurance up to the amount o$ the insurance coera!e. he e=cess o$ the claims o$ L& 0& and S& oer and aboe such insurance coera!e& i$ any& should be ansered or paid by 9 rael.
7nsurer 3r6 "art% 8ia.ilit% No /ault 7n6emnit% (**) ?at is your un.erstan.ing of a @no fault in.e'nity clause foun. in an insurance policyI SUGGESTED ANSWER:
,nder
the
“7B
8A,>
I7'<7I0”
Page
5- of 103
clause& any claim $or death or in"ury o$ any passen!er or third party shall be paid ithout the necessity o$ proin! $ault or ne!li!ence o$ any ind. he indemnity in respect o$ any one person shall not e=ceed ;@&.& proided they are under oath& the $olloin! proo$s shall be su-icient* /* police report o$ the accidentK and !* death certifcate and eidence su-icient to establish the proper payeeK or * medical report and eidence o$ medical or hospital disbursement in respect o$ hich re$und is claimed. (* Claim may be made a!ainst one motor ehicle only. 7nsurer 3r6 "art% 8ia.ilit% uitclaim (**)
9aul3s truc bumped the car oned by >u6. he car as insured by Cala Insurance. 8or the dama!e caused& Cala paid >u6 ;@&. in amicable settlement. >u6 e=ecuted a release o$ claim& subro!atin! Cala to all her ri!hts a!ainst 9aul. When Cala demanded reimbursement $rom 9aul& the latter re$used sayin! that he had already paid
>u6 ;4&@ $or the dama!e to the car as eidenced by a release o$ claim e=ecuted by >u6 dischar!in! 9aul. 1o Cala demanded reimbursement $rom >u6& ho re$used to pay& sayin! that the total dama!e to the car as ;H&@. 1ince Cala paid ;@& only& >u6 contends that she as entitled to !o a$ter 9aul to claim the additional ;4&@. /$ Is Cala& as subro!ee o$ >u6& entitled to reimbursement $rom 9aul? !$ ay Cala recoer hat it has paid >u6? SUGGESTED ANSWER:
/$ =o* Lu e4ecute. a release in fa)or of +aul (6anila 6ahogany 6fg "orp v "# 4+ 575-, ) 1ct )*87!
!$ es* Cala lost its rigt against +aul because of te release e4ecute. by Lu* Since te release was 'a.e witout te consent of Cala Cala 'ay reco)er te a'ount of P#""" for' Lu (6anila 6ahogany 6fg "orp v "# 4+ 575-, ) 1ct )*87!'
7nsurer Aut#orie6 Drier Clause (**)
1heryl insured her nely ac+uired car& a 7issan a=ima a!ainst any loss or dama!e $or ;@th and a!ainst rd party liability $or ;#th ith the L0S Ins Co. ,nder the policy& the car must be drien only by an authori6ed drier ho is either* 2) the insured& or #) any person driin! on the insured3s order or ith his permission* proided that the person driin! is permitted in accordance ith the licensin! or other las or re!ulations to drie the motor ehicle and is not dis+ualifed $rom driin! such motor
ehicle by order o$ a court. 'urin! the e-ectiity o$ the policy& the car& then drien by 1heryl hersel$& ho had no drier3s license& met an accident and as e=tensiely dama!ed. he estimated cost o$ repair as ;4th. 1heryl immediately notifed L0S& but the latter re$used to pay on the policy alle!in! that 1heryl iolated the terms thereo$ hen she droe it ithout a drier3s license. Is the insurer correct? SUGGESTED ANSWER:
he insurer as not correct in denyin! the claim since the proiso “that the person driin! is permitted in accordance ith the licensin!& etc.” +ualifed only a person driin! the ehicle other than the insured at the time o$ the accident ./aler!o /5ra!id ns Co %R 36(+ 31 Ma5 ++7 A8TERNAT7>E ANSWER:
he insurer is correct. he clause “authori6ed drier” in the policy eidently applies to both the insured and any other person driin! the ehicle at the time o$ the accident. he term “authori6ed drier” should be construed as a person ho is authori6ed by la to drier the ehicle ./e8a $lik-ala 16s317
7nsurer Aut#orie6 Drier Clause (2003)
9ic de la Cru6 insured his passen!er "eepney ith Asiatic Insurers& Inc. he policy proided that the authori6ed drier o$ the ehicle should hae a alid and e=istin! drier3s license. he passen!er "eepney o$ 9ic de la Cru6 hich as at the time drien by ay Cru6&
Mercantile Law Bar Examination Q & A (1990-2006)
f!ured in an accident resultin! in the death o$ a passen!er. At the time o$ the accident& ay Cru6 as licensed to drie but it as confscated by an >B a!ent ho issued him a ra-ic Qiolation 9eport (Q9) "ust minutes be$ore the accident. Could Asiatic Insurers& Inc.& be made liable under its policy? Why? (:%) SUGGESTED ANSWER:
Asiatic Insurers& Inc.& should be made liable under the policy. he $act that the drier as merely holdin! a Q9 does not iolate the condition that the drier should hae a alid and e=istin! drier3s license. 5esides& such a condition should be disre!arded because hat is inoled is a passen!er "eepney& and hat is inoled here is not on dama!e insurance but third party liability here the in"ured party is a third party not priy to the contract o$ insurance. 7nsurer Aut#orie6 Drier Clause e#icle is stolen (**3)
/> insured his brand ne car ith ; Ins Co $or comprehensie coera!e herein the insurance company undertoo to indemni$y him a!ainst loss or dama!e to the car a) by accidental collision ... b) by fre& e=ternal e=plosion& bur!lary& or the$t& and c) malicious act.
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company. /$ ay the insurance company be held liable to indemni$y /> $or the loss o$ the insured ehicle? <=plain. !$ 1upposin! that the car as brou!ht by /> on installment basis and there ere installments due and payable be$ore the loss o$ the car as ell as installments not yet payable. 5ecause o$ the loss o$ the car& the endor demanded $rom /> the unpaid balance o$ the promissory note. /> resisted the demand and claimed that he as only liable $or the installments due and payable be$ore the loss o$ the car but no lon!er liable $or other installments not yet due at the time o$ the loss o$ the car. 'ecide. SUGGESTED ANSWER:
/$ 0es. he car as lost due to the$t. What
applies in this case is the “the$t” clause& and not the “authori6ed drier” clause. It is immaterial that />3s i$e as driin! the car ith an e=pired drier3s license at the time it as carnapped # ./erla Co!-ania de Seguros C$ 2+ s (+7
!$ he promissory note is not a-ected by
hateer be$alls the sub"ect matter o$ the accessory contract. he
A$ter a month& the car as carnapped hile pared in the parin! space in $ront o$ the Intercontinental /otel in aati. />3s i$e ho as driin! said car be$ore it as carnapped reported immediately the incident to arious !oernment a!encies in compliance ith the insurance re+uirements. 5ecause the car could not be recoered& /> fled a claim $or the loss o$ the car ith the insurance company but it as denied on the !round that his i$e ho as driin! the car hen it as carnapped as in the possession o$ an e=pired drier3s license& a iolation o$ the “authori6ed drier” clause o$ the insurance Version 1990-2003 Arranged by SULAW Class
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unpaid balance on the promissory note should be paid and not only the installments due and payable be$ore the loss o$ the car. 7nsurer Grou$ 7nsurance Em$lo%er?"olic% ol6er (2000) L company procured a !roup
accident insurance policy $or its construction employees ariously assi!ned to its proincial in$rastructure pro"ects. 0 Insurance Company underrote the coera!e& the premiums o$ hich ere paid $or entirely by L Company ithout any employee contributions. While the policy as in e-ect& fe o$ the coered employees perished at sea on their ay to their proincial assi!nments. heir ies sued 0 Insurance Company $or payment o$ death benefts under the policy. While the suit as pendin!& the ies si!ned a poer o$ attorney desi!natin! L Company e=ecutie& ;& as their authori6ed representatie to enter into a settlement ith the insurance company. When a settlement as reached& ; instructed the insurance company to issue the settlement chec to the order o$ L Company& hich ill undertae the payment to the indiidual claimants o$ their respectie shares. ; misappropriated the settlement amount and the ies pursued their case a!ainst 0 Insurance Co. Will the suit prosper? <=plain (%) SUGGESTED ANSWER:
0es. he suit ill prosper. 0 Ins Co is liable. L Co& throu!h its e=ecutie& ;& acted as a!ent o$ 0 Ins Co. he latter is thus bound by the misconduct o$ its a!ent. It is the usual practice in the
Version 1990-2003 Arranged by SULAW Class
!roup insurance business that the employerpolicy holder is the a!ent o$ the insurer. 7nsurer 8ia.ilit% o& t#e 7nsurers (**0) a$ 1uppose
that 8ortune ons a house alued at ;:th and insured the same a!ainst fre ith insurance companies as $ollos* L G ;4th 0 G ;#th S G ;:th In the absence o$ any stipulation in the policies $rom hich insurance company or companies may 8ortune recoer in case fre should destroy his house completely? SUGGESTED ANSWER:
8ortune may recoer $rom the insurers in such order as he may select up to their concurrent liability (1ec H4 Ins Code) Valued Policy b$ I$ each o$ the fre insurance policies
obtained by 8ortune in the problem (a) is a alued policy and the alue o$ his house as f=ed in each o$ the policies at ;2m& ho much ould 8ortune recoer $rom L i$ he has already obtained $ull payment on the insurance policies issued by 0 and S? SUGGESTED ANSWER:
8ortune may still recoer only the balance o$ ;#& $rom L insurance company since the insured may only recoer up to the e=tent o$ his loss. A8TERNAT7>E:
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Mercantile Law Bar Examination Q & A (1990-2006)
/ain! already obtained $ull payment on the insurance policies issued by 0 and S& 8ortune may no lon!er recoer $rom L insurance policy.
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rice as no lon!er ft $or human consumption. Admittedly& the rice could still be used as animal $eed. Is 9C3s claim $or total loss "ustifed? <=plain. SUGGESTED ANSWER:
Open Policy c$ I$
each o$ the policies obtained by 8ortune in the problem (a) aboe is an open policy and it as immediately determined a$ter the fre that the alue o$ 8ortune3s house as ;#.4m& ho much may he collect $rom L&0 and S? SUGGESTED ANSWER:
In an open policy& the insured may recoer his total loss up to the amount o$ the insurance coer. hus& the e=tent o$ recoery ould be ;4th $rom L& ;#th $rom 0& and ;:th $rom S. .$ In problem (a)& hat is the e=tent o$ the
liability o$ the insurance companies amon! themseles? SUGGESTED ANSWER:
In problem (a)& the insurance companies amon! themseles ould be liable& i6* L G 4O2# o$ ;:th X ;#th 0 G #O2# o$ ;:th X ;2th S G :O2# o$ ;:th X ;th e$ 1upposin! in problem (a) aboe& 8ortune
as able to collect $rom both 0 and S& may he eep the entire amount he as able to collect $rom the said # insurance companies? SUGGESTED ANSWER:
7o& he can only be indemnifed $or his loss& not proft therebyK hence he must return ;#th o$ the ;Jth he as able to collect. 8oss: Actual Total 8oss (**4)
9C Corporation purchased rice $rom hailand& hich it intended to sell locally. 'ue to stormy eather& the ship carryin! the rice became submer!ed in sea ater& and ith it the rice car!o. When the car!o arried in anila& 9C fled a claim $or total loss ith the insurer& because the
0es& 9C3s claim $or total loss is "ustifed. he rice& hich as imported $rom hailand $or sale locally& is obiously intended $or consumption by the public. he complete physical destruction o$ the rice is not essential to constitute an actual total loss. 1uch a loss e=ists in this case since the rice& hain! been soaed in sea ater and thereby rendered unft $or human consumption& has become totally useless $or the purpose $or hich it as imported ./an Mala5an ns Co C$ gr 0 Se- 0, 117
8oss: Constructie Total 8oss (2001)
OQ ;early 1hells& a passen!er and car!o essel& as insured $or ;4&&. a!ainst “constructie total loss.” 'ue to a typhoon& it san near ;alaan. >ucily& there ere no casualties& only in"ured passen!ers. he ship oner sent a notice o$ abandonment o$ his interest oer the essel to the insurance company hich then
hired pro$essionals to aEoat the essel $or ;H&.. When reEoated& the essel needed repairs estimated at ;#&&.. he insurance company re$used to pay the claim o$ the ship oner& statin! that there as “no constructie total loss.” a$ Was there “constructie total loss” to entitle the ship oner to recoer $rom the insurance company? <=plain. b$ Was it proper $or the ship oner to send a notice o$ abandonment to the insurance company? <=plain. (@%)
send a notice o$ abandonment to the insurance company because abandonment can only be aailed o$ hen& in a marine insurance contract& the amount to be e=pended to recoer the essel ould hae been more than three $ourths o$ its alue. Qessel 7 ;early 1hells needed only ;#.H illion& hich does not meet the re+uired three $ourths o$ its alue to merit abandonment. (1ection 2H& Insurance Code& cited in Oriental $ssurance # Court of $--eals and /ana!a Sai Mill, %#R# &o# (02, $ugust , 117
SUGGESTED ANSWER:
7o& there as no Nconstructie total lossN because the essel as reEoated and the costs o$ reEoatin! plus the needed repairs (; #.H illion) ill not be more than three$ourths o$ the alue o$ the essel. A constructie total loss is one hich !ies to a person insured a ri!ht to abandon. (1ec& 22& Insurance Code) here ould hae been a constructie total loss had the essel 7 ;early 1hells su-er loss or needed reEoatin! and repairs o$ more than the re+uired three$ourths o$ its alue& i.e.& more than ;. illion .Sec# 13, nsurance Code, cited in Oriental $ssurance # Court of $--eals and /ana!a Sa4 Mill, %#R# &o# (02, $ugust , 117
/oeer& the insurance company shall pay $or the total costs o$ reEoatin! and needed repairs (;#.H illion). c$
Was it proper $or the ship oner to send a notice o$ abandonment to the insurance company? <=plain.
SUGGESTED ANSWER:
7o& it as not proper $or the ship oner to
8oss: Total 8oss
An insurance company issued a marine insurance policy coerin! a shipment by sea $rom indoro to 5atan!as o$ 2& pieces o$ indoro !arden stones a!ainst “total loss only.” he stones ere loaded in to li!hters& the frst ith : pieces and the second ith 4 pieces. 5ecause o$ rou!h seas& dama!e as caused the second li!hter resultin! in the loss o$ #@ out o$ the 4 pieces. he oner o$ the shipment fled claims a!ainst the insurance company on the !round o$ constructie total loss inasmuch as more than Y o$ the alue o$ the stones had been lost in one o$ the li!hters. Is the insurance company liable under its policy? Why? SUGGESTED ANSWER:
he insurance company is not liable under its policy coerin! a!ainst “total loss only” the shipment o$ 2& pieces o$ indoro !arden stones. here is no constructie total loss that can claimed since the Y rule is to be computed on the total 2& pieces o$ indoro
Mercantile Law Bar Examination Q & A (1990-2006)
gar.en stones co)ere. by te single policy co)erage (see 1riental #ssurance "o v "# ;; s 5*! arine 7nsurance 7m$lie6 Warranties (2000)
What arranties are implied in marine insurance? SUGGESTED ANSWER:
he $olloin! arranties are implied in marine insurance* /$ hat the ship is seaorthy to mae the oya!e andOor to tae in certain car!oes !$ hat the ship shall not deiate $rom the oya!e insuredK $ hat the ship shall carry the necessary documents to sho nationality or neutrality and that it ill not carry any document hich ill cast reasonable suspicion thereonK ($ hat the ship shall not carry contraband& especially i$ it is main! a oya!e throu!h belli!erent aters. arine 7nsurance "eril o& t#e S#i$ s! "eril o& t#e Sea (**)
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A mutual li$e insurance corporation is a cooperatie that promotes the el$are o$ its on members& ith the money collected $rom amon! themseles and solely $or their on protection and not $or proft. embers are both the insurer and insured. A mutual li$e insurance company has no capital stoc and relies solely upon its contributions or premiums to meet une=pected losses& contin!encies and e=penses .Re-u*lic # Sunlife, %#R# &o 10++0, Octo*er 1(, 207#
Intelle#tal ro%erty Co$%ri'#t (**1)
What intellectual property ri!hts are protected by copyri!ht? SUGGESTED ANSWER:
1ec @ o$ ;' 4H proides that Copyri!ht shall consist in the e=clusie ri!ht*
A marine insurance policy on a car!o states that “the insurer shall be liable $or losses incident to perils o$ the sea.” 'urin! the oya!e& seaater entered the compartment here the car!o as stored due to the de$ectie drainpipe o$ the ship. he insured fled an action on the policy $or recoery o$ the dama!es caused to the car!o. ay the insured recoer dama!es? (@%) SUGGESTED ANSWER:
7o. he pro=imate cause o$ the dama!e to the car!o insured as the de$ectie drainpipe o$ the ship. his is peril o$ the ship& and not peril o$ the sea. he de$ect in the drainpipe as the result o$ the ordinary use o$ the ship. o recoer under a marine insurance policy& the pro=imate cause o$ the loss or dama!e must be peril o$ the sea. utual 7nsurance Com$an% Nature De&inition (2004)
What is a mutual insurance company or association? SU44ESTE) ANSWER( Version 1990-2003 Arranged by SULAW Class
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a*
to print& reprint& publish& copy& distribute& multiply& sell and mae photo!raphs& photo en!rain!s& and pictorial illustrations o$ the orsK
b*
to mae any translation or other ersion or e=tracts or arran!ements or adaptation thereo$K to dramati6e i$ it be a nondramatic orK to conert it into a nondramatic or i$ it be a dramaK to complete or e=ecute it i$ it be a model or desi!nK
c*
.*
to e=hibit& per$orm& represent& produce or reproduce the or in any manner or by any method hateer $or proft or otheriseK i$ not reproduced in copies $or sale& to sell any manuscripts or any record hatsoeer thereo$K to mae any other use or disposition o$ the or consistent ith the las o$ the land
Co$%ri'#t Commissione6 Artist (**1)
1olid Inestment /ouse commissioned on 5lanco and his son 1tee& both noted artists& to paint a mural $or the ain >obby o$ the ne buildin! o$ 1olid $or a contract price o$ ;#m. a$ ho ons the mural? <=plain b$ Who ons the copyri!ht o$ the mural? <=plain. SUGGESTED ANSWER:
a$ 1olid ons the mural. 1olid as the
one ho commissioned the artists to do the or and paid $or the or in the sum o$ ;#m
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,nless there is a stipulation to the contrary in the contract& the copyri!ht shall belon! in "oint onership to 1olid and on and 1tee. b$
Co$%ri'#t Commissione6 Artist (200)
59 and C are noted artists hose paintin!s are hi!hly pri6ed by collectors. 'r. '> commissioned them to paint a mural at the main lobby o$ his ne hospital $or children. 5oth a!reed to collaborate on the pro"ect $or a total $ee o$ to million pesos to be e+ually diided beteen them. It as also a!reed that 'r. '> had to proide all the materials $or the paintin! and pay $or the a!es o$ technicians and laborers needed $or the or on the pro"ect. Assume that the pro"ect is completed and both 59 and C are $ully paid the amount o$ ;# as artistsD $ee by '>. ,nder the la on intellectual property& ho ill on the mural? Who ill on the copyri!ht in the mural? Why? <=plain. (@%) SUGGESTED ANSWER:
,nder 1ection 2J.4 o$ the Intellectual ;roperty Code& in case o$ commissioned or& the creator (in the absence o$ a ritten stipulation to the contrary) ons the copyri!ht& but the or itsel$ belon!s to the person ho commissioned its creation. Accordin!ly& the mural belon!s to '>. /oeer& 59 and C on the copyri!ht& since there is no stipulation to the contrary. Co$%ri'#t 7n&rin'ement (**)
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
he Qictoria /otel chain reproduces ideotapes& distributes the copies thereo$ to its hotels and maes them aailable to hotel !uests $or iein! in the hotel !uest rooms. It char!es a separate nominal $ee $or the use o$ the ideotape player. /$ Can the Qictoria /otel be en"oined $or in$rin!in! copyri!hts and held liable $or dama!es? !$ Would it mae any di-erence i$ Qictoria /otel does not char!e any $ee $or the use o$ the ideotape?
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Laier as not aare that the story o$ anolin! 1antia!o as protected by copyri!ht. anolin! 1antia!o sued uan Laier $or in$rin!ement o$ copyri!ht. Is uan Laier liable? (#%) SUGGESTED ANSWER:
0es. uan Laier is liable $or in$rin!ement o$ copyri!ht. It is not necessary that uan Laier is aare that the story o$ anolin! 1antia!o as protected by copyri!ht. he or o$ anolin! 1antia!o is protected at the time o$ its creation.
SUGGESTED ANSWER:
/$ 0es. Qictoria /otel has no ri!ht to use
such ideo tapes in its hotel business ithout the consent o$ the creatorO oner o$ the copyri!ht.
!$=o* 2e use of te )i.eotapes is for business an. not 'erely for o'e consu'ption* (ilipino Society of "omposers, #uthors 3ublishers v 2an )8 s -)C pd )*88!
Co$%ri'#t 7n&rin'ement (**+)
In an action $or dama!es on account o$ an in$rin!ement o$ a copyri!ht& the de$endant (the alle!ed pirate) raised the de$ense that he as unaare that hat he had copied as a copyri!ht material. Would this de$ense be alid? SUGGESTED ANSWER:
7o. An intention to pirate is not an element o$ in$rin!ement. /ence& an honest intention is no de$ense to an action $or in$rin!ement. A8TERNAT7>E ANSWER:
0es. he oner o$ the copyri!ht must mae others aare that the material in +uestion is under or coered by a copyri!ht. his is done by the !iin! o$ such notice at a prominent portion o$ the copyri!ht material. When the alle!ed pirate is thus made aare thereo$& his act o$ piratin! the copy material ill constitute in$rin!ement. Co$%ri'#t 7n&rin'ement (**)
uan Laier rote and published a story similar to an unpublished copyri!hted story o$ anolin! 1antia!o. It as& hoeer& conclusiely proen that uan
Co$%ri'#t 7n&rin'ement (2004)
In a ritten le!al opinion $or a client on the di-erence beteen apprenticeship and learnership& >i6a +uoted ithout permission a labor la e=pertDs comment appearin! in his boo entitled NAnnotations on the >abor Code.N Can the labor la e=pert hold >i6a liable $or in$rin!ement o$ copyri!ht $or +uotin! a portion o$ his boo ithout his permission? (@%) SU44ESTE) ANSWER(
>i6a cannot be held liable $or in$rin!ement o$ copyri!ht since under the Intellectual ;roperty Code& one o$ the limitations to the copyri!ht is the main! o$ +uotations $rom a published or $or purpose o$ any "udicial proceedin!s or $or !iin! o$ pro$essorial adice by le!al practitioner& proided that the source and name o$ the author are identifed (1ee 1ection 2J4.2Z[ o$ the Intellectual ;roperty Code o$ the ;hilippines).
!$
8raudulent intent is unnecessary in in$rin!ement o$ trademar& hereas $raudulent intent is essential in un$air competitionK
.!
2e prior registration of te tra.e'ark is a prere-uisite to an action for infringe'ent of tra.e'ark wereas registration of te tra.e'ark is not necessary in unfair co'petition* (&el 6onte "orp v "# 78.5
7n&rin'ement s! Un&air Com$etition (2003) Co$%ri'#t "#otoco$% ;#en allo;e6 (**)
ay a person hae photocopies o$ some pa!es o$ the boo o$ ;ro$essor 9osario made ithout iolatin! the copyri!ht la? (%) SUGGESTED ANSWER:
0es. he priate reproduction o$ a published or in a sin!le copy& here the reproduction is made by a natural person e=clusiely $or research and priate study& is permitted& ithout the authori6ation o$ the oner o$ the copyri!ht in the or. 7n&rin'ement s! Un&air Com$etition (**4)
What is the distinction beteen in$rin!ement and un$air competition? SUGGESTED ANSWER:
he distinction beteen in$rin!ement (presumably trademar) and un$air competition are as $ollos* /$ In$rin!ement o$ trademar is the unauthori6ed use o$ a trademar& hereas un$air competition is the passin! o- o$ one3s !oods as those o$ anotherK
In hat ay is an in$rin!ement o$ a trademar similar to that hich pertains to un$air competition? SUGGESTED ANSWER:
7n&rin'ement Juris6iction (2003)
MH Corporation& a $orei!n corporation alle!in! itsel$ to be the re!istered oner o$ trademar “MH” and lo!o “M”& fled an Inter ;artes case ith the Intellectual ;roperty B-ice a!ainst Manin Corporation $or the cancellation o$ the latter3s mar “MH” and lo!o “M.” 'urin! the pendency o$ the case be$ore the I;B& Manin Corporation brou!ht suit a!ainst MH Corporation be$ore the 9C $or in$rin!ement and dama!es. Could the action be$ore the 9C prosper? Why? SUGGESTED ANSWER:
"atent Non?"atenta.le 7nentions (2004)
1upposin! Albert
Mercantile Law Bar Examination Q & A (1990-2006)
$ormula
0es& the I;B is correct because under the Intellectual ;roperty Code& discoeries& scientifc theories and mathematical methods& are classifed to be as Nnon patentable inentions.N
Page
must possess essential elements o$ noelty& ori!inality and precedence to be entitled to protection. 7eertheless& under the Nfrst to fle rule&N 8rancis application ould hae to be !ien priority. Ce6ar& hoeer& has ithin three months $rom the decision& to hae it cancelled as the ri!ht$ul inentorK or ithin one year $rom publication& to fle an action to proe his priority to the inention& hich has been taen $rom him and $raudulently re!istered by 8rancis. $
"atents: Gas?Sain' Deice: &irst to &ile rule (2001)
Ce6ar ors in a car manu$acturin! company oned by oab. Ce6ar is +uite innoatie and loes to tiner ith thin!s. With the materials and parts o$ the car& he as able to inent a !assain! deice that ill enable cars to consume less !as. 8rancis& a coorer& sa ho Ce6ar created the deice and lieise& came up ith a similar !ad!et& also usin! scrap materials and spare parts o$ the company. herea$ter& 8rancis fled an application $or re!istration o$ his deice ith the 5ureau o$ ;atents.
62 of 103
1upposin! oab !ot ind o$ the inentions o$ his employees and also laid claim to the patents& assertin! that Ce6ar and 8rancis ere usin! his materials and company time in main! the deices& ill his claim preail oer those o$ his employees? <=plain.
SUGGESTED ANSWER:
7o& oabDs claim cannot preail oer those o$ his employees. In the frst place& oab did not commission any o$ the to employees to inent the deice& and its
Is the !assain! deice patentable? <=plain.
SUGGESTED ANSWER:
0es& the !assain! deice is patentable because it proides a technical solution to a problem in a feld o$ human actiity. It is ne and inoles an inentie step& and certainly industrially applicable. It there$ore $ulflls the re+uisites mandated by the intellectual ;roperty Code $or hat is patentable. !$ Assumin! that it is patentable& ho is
entitled to the patent? What& i$ any& is the remedy o$ the losin! party? SUGGESTED ANSWER:
Ce6ar is entitled to the patent because he as the real inentor. 8rancis& copyin! $rom the or o$ Ce6ar& cannot claim the essential criteria o$ an inentor& ho Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
inention did not $all ithin their re!ular duties. What preails is the proision o$ the Intellectual ;roperty Code that holds that the inention belon!s to the employee& i$ the inentie actiity is not a part o$ his re!ular duties& een i$ he uses the time& $acilities and materials o$ the employer.
"atents: 7n&rin'ement Reme6ies De&enses (**3) Fer.ie is a patent owner of a certain in)ention* Ee .isco)ere. tat is in)ention is being infringe. by 7oann* /$ What are the remedies aailable to
8erdie a!ainst ohann? !$ I$ you ere the layer o$ ohann in the in$rin!ement suit& hat are the de$enses that your client can assert? SUGGESTED ANSWER:
/$ he $olloin! remedies are aailable to
8erdie a!ainst ohann. a* sei6e and destroy b* in"unction c* dama!es in such amount may hae been obtained $rom the use o$ the inention i$ properly transacted hich can be more than hat the in$rin!er (ohann ) receied. .* Attorney3s $ees and cost !$ hese are the de$enses that can be
asserted in an in$rin!ement suit* a* ;atent is inalid (1ec 4@ 9A 2:@& as amended) b* ;atent is not ne or patentable c* 1pecifcation o$ the inention does not comply ith 1ec 24
Version 1990-2003 Arranged by SULAW Class
.*
;atent as issued not to the true and actual inentor& desi!ner or author o$ the utility model or the plainti- did not derie his ri!hts $rom the true and actual inentor& desi!ner or author o$ the utility model (1ec #J 9A 2:@ as amended)
"atents 7n&rin'ement (**2)
In an action $or in$rin!ement o$ patent& the alle!ed in$rin!er de$ended himsel$ by statin! 2) that the patent issued by the ;atent B-ice as not really an inention hich as patentableK #) that he had no intent to in$rin!e so that there as no actionable case $or in$rin!ementK and ) that there as no e=act duplication o$ the patentee3s e=istin! patent but only a minor improement. With those de$enses& ould you e=empt the alle!ed iolator $rom liability? Why? SUGGESTED ANSWER:
I ould not e=empt the alle!ed iolator $rom liability $or the $olloin! reasons* /$ A patent once issued by the ;atent B-ice raises a presumption that the article is patentableK it can& hoeer be shon otherise (1ec 4@ 9A 2:@). A mere statement or alle!ation is not enou!h to destroy that presumption. ( $uas de eon 3 9an +2 3216) !$ An intention to in$rin!e is not necessary
nor an element in a in$rin!ement o$ a patent.
Version 1990-2006 U pdated by
case
$or
Mercantile Law Bar Examination Q & A (1990-2006)
$
here is no need o$ e=act duplication o$ the patentee3s e=istin! patent such as hen the improement made by another is merely minor .Frank Benito, 01-137. o be independently patentable& an improement o$ an e=istin! patented inention must be a ma"or improement .$uas de eon 3216 39an+27
"atents Ri'#ts oer t#e 7nention (**0)
Cheche inented a deice that can conert rainater into automobile $uel. 1he ased acon& a layer& to assist in !ettin! her inention patented. acon su!!ested that they $orm a corporation ith other $riends and hae the corporation apply $or the patent& J% o$ the shares o$ stoc thereo$ to be subscribed by Cheche and @% by acon. he corporation as $ormed and the patent application as fled. /oeer& Cheche died months later o$ a heart attac. 8ranco& the estran!ed husband o$ Cheche& contested the application o$ the corporation and fled his on patent application as the sole suriin! heir o$ Cheche. 'ecide the issue ith reasons. SUGGESTED ANSWER:
he estran!ed husband o$ Chece cannot success$ully contest the application. he ri!ht oer inentions accrue $rom the moment o$ creation and as a ri!ht it can la$ully be assi!ned. Bnce the title thereto is ested in the trans$eree& the latter has the ri!ht to apply $or its re!istration. he estran!ed husband o$ Cheche& i$ not dis+ualifed to inherit& merely ould succeed to the interest o$ Cheche. 0ote #n examinee who answers on the basis of the issue of validity of the transfer of patent as a valid consideration for subscription of the shares of stoc/s should be given due credit'
Tra6emar- (**0)
In 2HJJ& the 8ood and 'ru! Administration approed the labels submitted by urbo Corporation $or its
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ne dru! brand name& “A=ilon.” urbo is no applyin! ith the 5ureau o$ ;atents& rademars and echnolo!y rans$er $or the re!istration o$ said brand name. It as subse+uently confrmed that “Accilonne” is a !eneric term $or a class o$ anti$un!al dru!s and is used as such by the medical pro$ession and the pharmaceutical industry& and that it is used as a !eneric chemical name in arious scientifc and pro$essional publications. A competin! dru! manu$acturer ass you to contest the re!istration o$ the brand name “A=ilon” by urbo. What ill you adice be? SUGGESTED ANSWER:
he application $or re!istration by urbo Corporation may be contested. he rademar >a ould not allo the re!istration o$ a trademar hich& hen applied to or used in connection ith his products& is merely descriptie or deceptiely misdescriptie o$ them. Con$usion can result $rom the use o$ “A=ilon” as the !eneric product itsel$. A8TERNAT7>E ANSWER:
edical dru!s may be procured only upon prescription made by a duly licensed physician. he possibility o$
deception could be rather remote. 1ince it cannot really be said that physicians can be so easily deceied by such trademar as “A=ilon&” it may be hard to e=pect an opposition thereto to succeed.
hich are di-erent products protected by >arber!e3s trademar.
AN
)5 s .)-!
he application $or re!istration o$ urbo Corporation may be contested. he $actual settin!s do not indicate that there had been prior use $or at least # months o$ the trademar “A=ilon.” Tra6emar- (**)
>aber!e& Inc.& manu$actures and marets a$tershae lotion& shain! cream& deodorant& talcum poder and toilet soap& usin! the trademar “;9,”& hich is re!istered ith the ;hil ;atent B-ice. >aber!e does not manu$acture brie$s and underear and these items are not specifed in the certifcate o$ re!istration. F ho manu$actures brie$s and underear& ants to no hether& under our las& he can use and re!ister the trademar “;9,<” $or his merchandise. What is your adice? SUGGESTED ANSWER:
0es. he trademar re!istered in the name o$ >aber!e Inc coers only a$ter shae lotion& shain! cream& deodorant& talcum poder and toilet soap. It does not coer brie$s and underear. he limit o$ the trademar is stated in the certifcate issued to >aber!e Inc. It does not include brie$s and underear
7G can register te tra.e'ark @P+>25 to co)er its briefs an. un.erwear (aberge nc v #"
Tra6emar-B Test o& Dominanc% (**4)
What is the “test o$ dominancy?” SUGGESTED ANSWER:
he test o$ dominancy re+uires that i$ the competin! trademar contains the main or essential $eatures o$ another and con$usion and deception is liely to result& in$rin!ement taes place. 'uplication or imitation is not necessaryK not is it necessary that the in$rin!in! label should su!!est an e-ort to imitate. 1imilarity in si6e& $orm and color& hile releant& is not conclusie. .$sia Bre4er5 C$ %R 130(3 9ul0,3 22(s(37
Tra6emar- 7n&rin'ement (**)
1ony is a re!istered trademar $or Q& stereo& radio& cameras& betama= and other electronic products. A local company& 5est anu$acturin! Inc produced electric $ans hich it sold under the trademar 1ony ithout the consent o$ 1ony. 1ony sued 5est anu$acturin! $or in$rin!ement. 'ecide the case. SUGGESTED ANSWER:
here is no in$rin!ement. In order that a case $or in$rin!ement o$ trademar can prosper& the products on hich the trademar is used must be o$ the same ind. he electric $ans produced by 5est anu$acturin! cannot
Mercantile Law Bar Examination Q & A (1990-2006)
be said to be similar to such products as Q& stereo and radio sets or cameras or betama= products o$ 1ony. A8TERNAT7>E ANSWER:
here is in$rin!ement. I$ the oner o$ a trademar hich manu$actures certain types o$ !oods could reasonably be e=pected to en!a!e in the manu$acture o$ another product usin! the same trademar& another party ho uses the trademar $or that product can be held liable $or usin! that trademar. ,sin! this standard& in$rin!ement e=ists because 1ony can be reasonably e=pected to use such trademar on electric $ans. Tra6emar- Test o& Dominanc% (**4)
7 Corporation manu$actures rubber shoes under the trademar “ordann” hich hit the ;hil maret in 2HJ@& and re!istered its trademar ith the 5ureau o$ ;atents& rademars and echnolo!y (5;) in 2HH. ;M Company also manu$actures rubber shoes ith the trademar “aorsi” hich it re!istered ith 5; in 2HJ. In 2HH#& ;M Co adopted and copied the desi!n o$ 7 Corporation3s “ordann” rubber shoes& both as to shape and color& but retained the trademar “aorsi” on its products.
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misleadin! similarity in !eneral appearance& not similarity o$ trademars .Conerse Ru**er Co 9acinto Ru**er A /lastics Co %R 2(20 and 300, $-r2+,+ s10+7
Tra6ename: 7nternational A&&iliation (2001)
1 'eelopment Corporation sued 1han!rila Corporation $or usin! the “1” lo!o and the tradename “1han!rila”. he $ormer claims that it as the frst to re!ister the lo!o and the tradename in the ;hilippines and that it had been usin! the same in its restaurant business. 1han!rila Corporation counters that it is an a-iliate o$ an international or!ani6ation hich has been usin! such lo!o and tradename “1han!rila” $or oer # years. /oeer& 1han!rila Corporation re!istered the tradename and lo!o in the ;hilippines only a$ter the suit as fled. Which o$ the to corporations has a better ri!ht to use the lo!o and the tradename? <=plain. SUGGESTED ANSWER:
1 'eelopment Corporation has a better ri!ht to use the lo!o and the tradename& since the protectie benefts o$
ay ;M Company be held liable to 7 Co? <=plain. SUGGESTED ANSWER:
;M Co may be liable $or un$airly competin! a!ainst 7 Co. 5y copyin! the desi!n& shape and color o$ 7 Corporation3s “ordann” rubber shoes and usin! the same in its rubber shoes trademared “aorsi&” ;M is obiously tryin! to pass o- its shoes $or those o$ 7. It is o$ no moment that he trademar “aorsi” as re!istered ahead o$ the trademar “ordann.” ;riority in re!istration is not material in an action $or un$air competition as distin!uished $rom an action $or in$rin!ement o$ trademar. he basis o$ an action $or un$air competition is con$usin! and Version 1990-2003 Arranged by SULAW Class
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the la are con$erred by the $act o$ re!istration and not by use. Althou!h 1han!rila CorporationDs parent had used the tradename and lo!o lon! be$ore& the protection o$ the las ill be $or 1 'eelopment Corporation because it as the frst entity to re!ister the intellectual properties. o3 oes t4e -nternat-onal aff-l-at-on of 4angr-la Corporat-on affe't t4e out'o+e of t4e -spute #6pla-n. 7589 SUGGESTED ANSWER:
he international a-iliation o$ 1han!rila Corporation may be critical in the eent that its a-iliates or parent company abroad had re!istered in a $orei!n "urisdiction the tradename and the lo!o. A ellnon mar and tradename is sub"ect to protection under reaty o$ ;aris $or the ;rotection o$ Intellectual ;roperty to hich the ;hilippines is a member.
Insolven#y Cor%orate Re#overy nsolvency vs. 8uspension of Payment (!!)
'istin!uish insolency $rom suspension o$ payments. (%) 8?==58T5, A<8@5/1
a$
In insolency& the liabilities o$ the debtor are more than his assets& hile in suspension o$ payments& assets o$ the debtor are more than his
Version 1990-2003 Arranged by SULAW Class
liabilities. b$
In insolency& the assets o$ the debtor are to be conerted into cash $or distribution amon! his creditors& hile in suspension o$ payments& the debtor is only asin! $or time ithin hich to conert his $ro6en assets into li+uid cash ith hich to pay his obli!ations hen the latter $all due.
7nsolenc%: >oluntar% 7nsolenc% (2001)
Aaron& a ellnon architect& is su-erin! $rom fnancial reerses. /e has $our creditors ith a total claim o$ ;#: illion. 'espite his intention to pay these obli!ations& his current assets are insu-icient to coer all o$ them. /is creditors are about to sue him. Conse+uently& he as constrained to fle a petition $or insolency. (@%) a$ 1ince Aaron as merely $orced by circumstances to petition the court to declare him insolent& can the "ud!e properly treat the petition as one $or inoluntary insolency? <=plain. SUGGESTED ANSWER:
7o. his is a case $or oluntary insolency because this as fled by an insolent debtor oin! debts e=ceedin! the amount o$ ;2&. under 1ection 24 o$ the Insolency >a. ,nder 1ection # o$ the Insolency >a& the petition must be fled by three or more creditors. In the case at bar& it is Aaron& the debtor& ho fled the insolency proceedin!s.
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
b$
I$ Aaron is declared an insolent by the court& hat ould be the e-ect& i$ any& o$ such declaration on his creditors? <=plain.
SUGGESTED ANSWER:
A declaration by the court that the petitioner is insolent ill hae the $olloin! e-ects* /$ he sheri- shall tae possession o$ all assets o$ the debtor until the appointment o$ a receier or assi!neeK !$ ;ayment to the debtor o$ any debts due to him and the deliery to the debtor o$ any property belon!in! to him& and the trans$er o$ any property by him are $orbiddenK $ All ciil proceedin!s pendin! a!ainst the insolent shall be stayedK and ($ ort!a!es and pled!es are not a-ected by the order declarin! a person insolent. (1ec. @H& Insolency >a) c$ Assumin! that& Aaron has !uarantors
$or his debts& are the !uarantors released $rom their obli!ations once Aaron is dischar!ed $rom his debts? <=plain. SUGGESTED ANSWER:
7o& precisely under the principle o$ e=cussion& the liability o$ the !uarantors arises only a$ter the e=haustion o$ the assets o$ the principal obli!or. he e-ect o$ dischar!e merely confrms e=haustion o$ the assets o$ the obli!or aailable to his creditors. A8TERNAT7>E ANSWER:
0es. Article #: o$ the Ciil Code proides* he obli!ation o$ the !uarantor is e=tin!uished at the same time as that o$ the debtor& and $or the same causes as all other obli!ations. .$
What remedies are aailable to the !uarantors in case they are made to pay the creditors? <=plain.
SUGGESTED ANSWER:
,nder Article #J2& the !uarantor may set up a!ainst the creditor all the de$enses
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that pertain to the principal debtor. he dischar!e obtained by Aaron on the principal obli!ation can no be used as a de$ense by the !uarantors a!ainst the creditors. he !uarantors are also entitled to indemnity under Article #:: o$ the Ciil Code. 7nsolenc% Assets s! 8ia.ilities (**)
/oracio opened a co-ee shop usin! money borroed $rom fnancial institutions. A$ter months& /oracio le$t $or the ,1 ith the intent o$ de$raudin! his creditors. While his liabilities are orth ;2.#m& his assets& hoeer are orth ;2.@m. ay /oracio be declared insolent? (#%) SUGGESTED ANSWER:
7o. /oracio may not be declared insolent. /is assets orth ;2.@m are more than his liabilities orth ;2.#m. 7nsolenc% Assi'nees (**4)
Bn une 2:& 2HH@& Qicente obtained a rit o$ preliminary attachment a!ainst Carlito. he ley on Carlito3s property occurred on une #@& 2HH@. Bn uly #H& 2HH@& another creditor fled a petition $or inoluntary insolency a!ainst Carlito. he insolency court !ae due course to the
petition. In the meantime& the case fled by Qicente proceeded and resulted in a "ud!ment aard in $aor o$ Qicente. ay the "ud!ment obtained by Qicente be en$orced independently o$ the insolency proceedin!s? <=plain. SUGGESTED ANSWER:
he "ud!ment obtained by Qicente can be en$orced independently o$ the insolency proceedin!s. ,nder 1ec # o$ the Insolency >a& the assi!nment to the assi!nee o$ all the real and personal property& estate and e-ects o$ the debtor made by the cler o$ the court shall acate and set aside any "ud!ment entered in any action commenced ith days immediately prior to the commencement o$ insolency proceedin!s. In this case& hoeer& the action fled by Qicente a!ainst Carlito as commenced by Qicente not later than une 2:& 2HH@ (the $acts on this point are not clear) hen Qicente obtained a rit o$ preliminary attachment a!ainst Carlito or more than days be$ore the petition $or inoluntary insolency as fled a!ainst Carlito by his other creditors. (i.e. on uly #H& 2HH@) .Radiola?oshi*a /hil $C %R 0222 9ul51+,1 1s337
7nsolenc% E&&ect Declaration o& 7nsolenc% (**) ?at are te effects of a 9u.g'ent in insol)ency in ;oluntary 1nsol)ency casesI SUGGESTED ANSWER:
he ad"udication or declaration o$ insolency by the court& a$ter hearin! or de$ault& shall hae the $olloin! e-ects* a$ 8orbid the payment to the debtor o$ any debt due to him and the deliery
to him o$ any property belon!in! to himK b$ 8orbid the trans$er o$ any property by himK and c$ 1tay o$ all ciil proceedin!s a!ainst the insolent but $oreclosure may be alloed (1ecs 2J P #4 Insolency >a) 7nsolenc% /rau6ulent "a%ment (2002)
As o$ une 2& ##&
Mercantile Law Bar Examination Q & A (1990-2006)
ban demanded immediate payment. 5ecause the ban threatened to proceed a!ainst the surety& a. As "ud!e in the pendin! insolency case& ho ould you decide the respectie contentions o$ the assi!nee in insolency and o$ Inte!rity 5an? <=plain (@%)
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payments in ie o$ the said fnancial condition he $aces? <=plain your anser. b$ 1hould he sell proft participation certifcates to his 2 brothers and sisters in order to raise cash $or his business? <=plain. SUGGESTED ANSWER:
a$ I
ould counsel erry to fle the ;etition $or 1uspension o$ ;ayment ith the ordinary courts& rather than the 1
o$ sellin! proft participation certifcates& I ould ur!e erry to enter into a partnership or to incorporate in order to raise cash $or his business. A8TERNAT7>E ANSWER:
b) erry may sell proft participation certifcates to his brothers and sisters ithout re!isterin! the same ith the 1
SUGGESTED ANSWER:
he contention o$ the assi!nee in insolency is correct. he payment made by
Bne day erry /a& doin! business under the name 1tarli!ht
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An insolent debtor& a$ter la$ul dischar!e $olloin! an ad"udication o$ insolency& is released $rom& !enerally& all debts& claims& liabilities and demands hich are or hae been proed a!ainst his estate. Fie @ obli!ations o$ the insolent debtor to surie. SUGGESTED ANSWER:
he @ obli!ations o$ the insolent debtor that surie are as $ollos* /* a=es and assessments due the !oernment& national or localK !* Bbli!ations arisin! $rom embe66lement or $raudK * Bbli!ation o$ any person liable ith the insolent debtor $or the same debt& either as a solidary co debtor& surety& !uarantor& partner& indorser or otherise. (* Alimony or claim $or supportK and #* 'ebts not proable a!ainst the estate (such as a$ter incurred obli!ations) o$& or not included in the schedule submitted by& the insolent debtor. 7nsolenc% >oluntar% 7nsolenc% "rocee6in' (**)
Is the issuance o$ an order& declarin! a petition in a Qoluntary Insolency proceedin! insolent& mandatory upon the court? SUGGESTED ANSWER:
Assumin! that the petition as in due $orm and substance and that the assets o$ the petitioner are less than his liabilities& the court must ad"udicate the insolency (1ec 2J Insolency >a)
7nsolenc% >oluntar% s! 7noluntar% Solenc%
Version 1990-2003 Arranged by SULAW Class
(**1) Distinguis between )oluntary insol)ency an. in)oluntary insol)ency* SUGGESTED ANSWER:
In oluntary insolency& it is the debtor himsel$ ho fles the petition $or insolency& hile in inoluntary insolency& at least creditors are the ones ho fle the petition $or insolency a!ainst the insolent debtor. A8TERNAT7>E ANSWER:
he $olloin! are the distinctions* /* In inoluntary insolency& or more creditors are re+uired& hereas in oluntary insolency& one creditor may be su-icientK !* In inoluntary insolency& the creditors must be residents o$ the ;hilippines& hose credits or demand accrued in the ;hilippines& and none o$ the creditors has become a creditor by assi!nment ithin days prior to the flin! o$ the petition& hereas in oluntary insolency& these are not re+uired. * In inoluntary insolency& the debtor must hae done any o$ the acts o$ insolency as enumerated by 1ec #& hereas in oluntary insolency& the debtor must not hae done any o$ said acts. (* In inoluntary insolency& the amount o$ indebtedness must not be less than ;2& hereas in oluntary insolency& it must e=ceed ;2&. #* In inoluntary insolency& the petition must be accompanied by a bond& hereas such is not re+uired in oluntary insolency.
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
8a; on Cor$orate Recoer% (2003)
L Corporation applied $or its rehabilitation and submitted a rehabilitation plan hich called $or the entry by it into a "oint enture a!reement ith 0 Corporation. ,nder the a!reement& 0 Corporation as to lend to L Corporation its credit $acilities ith certain bans to obtain $unds not only to operate L Corporation but also $or a part thereo$ in the amount o$ ;2 million as initial deposit in a sinin! $und to be au!mented annually in amounts e+uialent to 2% o$ the yearly income $rom its operation o$ the business o$ L Corporation. 8rom this $und the creditors o$ L Corporation ere to be paid annually& startin! $rom the second year o$ operations& ith the entire indebtedness to be li+uidated in 2@ years. he creditors o$ L Corporation ob"ected to the plan because 0 Corporation ould be tain! oer the business and assets o$ L Corporation. Could the court approe the plan despite the ob"ections o$ the creditors o$ L Corporation and could the creditors be compelled to $ollo the plan? Could 0 Corporation& in mana!in! the business o$ L Corporation in the meantime& be deemed to hae taenoer L Corporation itsel$? (:%) SUGGESTED ANSWER:
Re#a.ilitation Sta%
he 5lue 1tar Corporation fled ith the 9e!ional rial Court a petition $or rehabilitation on the !round that it $oresa the impossibility o$ payin! its obli!ations as they $all due. 8indin! the petition su-icient in $orm and substance& the court issued an Brder appointin! a rehabilitation receier and stayin! the en$orcement o$ all claims a!ainst the corporation. :4at -s t4e rat-onale for t4e tay $rer 7589 SU44ESTE) ANSWER(
2e purpose of te stay or.er is inten.e. to gi)e te 'anage'ent co''ittee or reabilitation recei)er te leeway to 'ake te business )iable again witout a)ing to .i)ert attention an. resources to litigation in )arious fora (3hilippine #irlines v' Spouses :urang/ing, et al, 4'+' 0o' )--*8, September , ;;C B @omes, nc' v' "ourt of #ppeals,
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4'+' 0os' 7-87* ? 77)., 1ctober ., )**;C +ubberworld J3hils'K nc' v' 0F+", 4'+' 0o' )-77., #pril ), )***C SobreGuanite v' #SB &ev' "orp', 4'+' 0o' )-5-75, September
1t also pre)ents a cre.itor fro' obtaining an a.)antage or preference o)er anoter wit respect to actions against te corporation (inasia nvestments and inance "orp v' "ourt of #ppeals, 4' +' 0o' );7;;, 1ctober 7,)**! *
.;,
;;5!'
Sus$ension o& "a%ment s! 7nsolenc% (**1) Distinguis between suspension of pay'ents an. insol)ency* SUGGESTED ANSWER:
In suspension o$ payments& the debtor is not insolent. /e only needs time ithin hich to conert his assetOs into cash ith hich to pay his obli!ations hen they $all due. In the case o$ insolency& the debtor is insolent& that is& his assets are less than his liabilities. A8TERNAT7>E ANSWER:
he $olloin! are the distinctions*
In suspension o$ payments& the debtor has su-icient property to coer all his debts but $oresees the impossibility o$ meetin! them hen they respectiely $all due& hereas& in insolency& the debtor does not hae su-icient property to pay all his debts in $ullK !* In suspension o$ payments& the purpose is to suspend or delay payment o$ debts hich remain una-ected althou!h a postponement o$ payment is declared& hereas& in insolency& the ob"ect is to obtain dischar!e $rom all debts and liabilityK * In suspension o$ payments& no limit $or the amount o$ indebtedness is re+uired& hereas& in insolency& the debts must e=ceed ;2& in case o$ oluntary insolency& or must not be less than ;2& in case o$ inoluntary insolency. /*
Sus$ension o& "a%ments s! Sta%
Sus$ension o& "a%ments Re#a.ilitation Receier (***)
'ebtor Corporation and its principal stocholders fled ith the 1ecurities and <=chan!e Commission (1
o$ the corporation and all its assets and liabilities& earnin!s and operations& and to determine the $easibility o$ continuin! operations and rehabilitatin! the company $or the beneft o$ inestors and creditors. Fenerally& the unsecured creditors had mani$ested illin!ness to cooperate ith 'ebtor Corporation. he secured creditors& hoeer& e=pressed serious ob"ections and reserations. 8irst 5an had already initiated "udicial $oreclosure proceedin!s on the mort!a!e constituted on the $actory o$ 'ebtor Corporation. 1econd 5an had already initiated $oreclosure proceedin!s on a thirdparty mort!a!e constituted on certain assets o$ the principal stocholders. hird 5an had already fled a suit a!ainst the principal stocholders ho had held themseles liable "ointly and seerally $or the loans o$ 'ebtor Corporation ith said 5an. A$ter hearin!& the 1
Mercantile Law Bar Examination Q & A (1990-2006)
'iscuss the e-ects o$ the 1
SUGGESTED ANSWER:
a* he 1
is alid ith respect to the debtor corporation& but not ith respect to the principal stocholders. he 1
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security& hether oned by the debtor corporation or o$ a third party& has not yet arisen. A8TERNAT7>E ANSWER:
c* he suspension order does not apply to a
third party mort!a!e because in such a case& the credit is not yet bein! en$orced a!ainst the corporation but a!ainst the third party mort!a!or3s property. SUGGESTED ANSWER:
.* 8or the same reason as in (c)& the order o$
suspension o$ payments suspended the suit fled by hird 5an a!ainst the principal stocholders. A8TERNAT7>E ANSWER:
.* he
action a!ainst the principal stocholders3 surety in $aor o$ the corporation is not suspended as it is not an action a!ainst the corporation but a!ainst the stocholders hose personality is separate $rom that o$ the corporation. SUGGESTED ANSWER:
e* ,nder ;' H#A& the appointment o$ a
rehabilitation receier ill suspend all actions $or claims a!ainst the corporation and the corporation ill be placed under
SUGGESTED ANSWER:
b*
he 1
SUGGESTED ANSWER:
c* he order o$ suspension o$ payments
suspended the $oreclosure proceedin!s initiated by the 1econd 5an. While the $oreclosure is a!ainst the property o$ a third party& it is in reality an action to collect the principal obli!ation oned by the corporation. 'urin! the time that the payment o$ the principal obli!ation is suspended& the debtor corporation is considered to be not in de$ault and& there$ore& een the ri!ht to en$orce the Version 1990-2003 Arranged by SULAW Class
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rehabilitation in accordance ith a rehabilitation plan approed by the 1
Letters o Cre&it
SUGGESTED ANSWER:
f* o presere the assets o$ the 'ebtor
8etter o& Cre6it: ort'a'e (2001)
Corporation& the receier may tae custody o$& and control oer& all the e=istin! assets and property o$ the corporationK ealuate e=istin! assets and liabilities& earnin!s and operations o$ the corporationK and determine the best ay to sala!e and protect the interest o$ the inestors and creditors.
9icardo mort!a!ed his fshpond to AC 5an to secure a ;2 illion loan. In a separate transaction& he opened a letter o$ credit ith the same ban $or R@&. in $aor o$ /1 5an& a $orei!n ban& to purchase outboard motors. >ieise& 9icardo e=ecuted a 1urety A!reement in $aor o$ AC 5an.
Sus$ension o& "a%ments Reme6ies (2003)
he outboard motors arried and ere deliered to 9icardo& but he as not able to pay the purchase price thereo$. a$ Can AC 5an tae possession o$ the outboard motors? Why? b$ Can AC 5an also $oreclose the mort!a!e oer the fshpond? <=plain. (@%)
When is the remedy o$ declaration in a state o$ suspension o$ payments aailable to a corporation? SUGGESTED ANSWER:
(per dondee) his remedy is aailable to a corporation hen it e=periences inability to pay oneDs debts and liabilities& and here the petitionin! corporation either* /* has su-icient property to coer all its debts but $oresees the impossibility o$ meetin! them hen they $all due (solent but illi+uid) or !* has no su-icient property (insolent) but is under the mana!ement o$ a rehabilitation receier or a mana!ement committee& the applicable la is ;.'. 7o. H#A pursuant to 1ec. @ par.
SUGGESTED ANSWER:
a$
7o& $or AC 5an has no le!al standin!& much less a lien& on the outboard motors. Inso$ar as AC 5an is concerned& it has priity ith the person o$ 9icardo under the 1urety A!reement& and a lien on the fshpond based on the real estate mort!a!e constituted therein.
b$ 0es& but only to en$orce payment o$
the principal loan o$ ;2million secured by the real estate mort!a!e on the fshpond
8etter o& Cre6it Certi&ication &rom Consi'nee (**3)
Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
5Q a!reed to sell to AC& a 1hip and erchandise 5roer& #&@ cubic meters o$ lo!s at R# per cubic meter 8B5. A$ter inspectin! the lo!s& C' issued a purchase order. Bn the arran!ements made upon instruction o$ the consi!nee& /P Corporation o$ >A& Cali$ornia& the 1; 5an o$ >A issued an irreocable letter o$ credit aailable at si!ht in $aor o$ 5Q $or the total purchase price o$ the lo!s. he letter o$ credit as mailed to 8< 5an ith the instruction “to $orard it to the benefciary.” he letter o$ credit proided that the dra$t to be dran is on 1; 5an and that it be accompanied by& amon! other thin!s& a certifcation $rom AC& statin! that the lo!s hae been approed prior shipment in accordance ith the terms and conditions o$ the purchase order. 5e$ore loadin! on the essel chartered by AC& the lo!s ere inspected by custom inspectors and representaties o$ the 5ureau o$ 8orestry& ho certifed to the !ood condition and e=portability o$ the lo!s. A$ter the loadin! as completed& the Chie$ ate o$ the essel issued a mate receipt o$ the car!o hich stated that the lo!s are in !ood condition. /oeer& AC re$used to issue the re+uired certifcation in the letter o$ credit. 5ecause o$ the absence o$ certifcation& 8< 5an re$used to adance payment on the letter o$ credit. /$ ay 8e 5an be held liable under the letter o$ credit? <=plain. !$ ,nder the $acts aboe& the seller& 5Q& ar!ued that 8< 5an& by acceptin! the obli!ation to noti$y him that the irreocable letter o$ credit has been transmitted to it on his behal$& has confrmed the letter o$ credit. Conse+uently& 8< 5an is liable under the letter o$ credit. Is the ar!ument tenable? <=plain. SUGGESTED ANSWER:
/$ 7o. he letter o$ credit proides as a
condition a certifcation o$ AC. Without such certifcation& there is no obli!ation
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on the part o$ 8< 5an to adance payment o$ the letter o$ credit. .Feati Bank C$ 16 S 067
!$ 7o. 8< 5an may hae confrmed the
letter o$ credit hen it notifed 5Q& that an irreocable letter o$ credit has been transmitted to it on its behal$. 5ut the conditions in the letter o$ credit must frst be complied ith& namely that the dra$t be accompanied by a certifcation $rom AC. 8urther& confrmation o$ a letter o$ credit must be e=pressed. .Feati Bank C$ 16 s 067
8etters o& Cre6it 8ia.ilit% o& a con&irmin' an6 noti&%in' .an- (**)
In letters o$ credit in banin! transactions& distin!uish the liability o$ a confrmin! ban $rom a noti$yin! ban. SUGGESTED ANSWER:
In case anythin! ron! happens to the letter o$ credit& a confrmin! ban incurs liability $or the amount o$ the letter o$ credit& hile a noti$yin! ban does not incur any liability. 8etters o& Cre6it 8ia.ilit% o& a Noti&%in' ,an- (2003) a$
What liability& i$ any is incurred by an adisin! or noti$yin! ban in a letter o$ credit transaction?
SUGGESTED ANSWER:
It incurs no liability unless it is also the ne!otiatin! ban b$
5rao 5an receied $rom Cisco 5an by re!istered mail an irreocable letter o$ credit issued by 'elta 5an $or the account o$ 0 Company in the amount o$ ,1R2&& to coer the sale o$ canned $ruit "uices. he benefciary o$ the letter o$ credit as L Corporation hich later on partially aailed itsel$ o$ the letter o$ credit by submittin! to 5rao 5an all documents relatie to the shipment o$ the cans o$ $ruit "uices. 5rao 5an paid L Corporation $or its partial aailment. >ater& hoeer& it re$used $urther aailment because o$ suspicions o$ $raud bein! practiced upon it and& instead & sued L Corporation to recoer hat it had paid the latter. /o ould you rule i$ you ere the "ud!e to decide the controersy? (:%)
/$
5eteen the applicantObuyerOimporter and the benefciaryOsellerOe=porter G he applicantObuyerOimporter is the one ho procures the letter o$ credit and obli!es himsel$ to reimburse the issuin! ban upon receipt o$ the documents o$ title& hile the benefciaryOsellerOe=porter is the one ho in compliance ith the contract o$ sale ships the !oods to the buyer and deliers the documents o$ title and dra$t to the issuin! ban to recoer payment $or the !oods. heir relationship is !oerned by the contract o$ sale.
!$
5eteen the issuin! ban and the benefciaryOsellerOe=porter G he issuin! ban is the one that issues the letter o$ credit and undertaes to pay the seller upon receipt o$ the dra$t and proper documents o$ title and to surrender the documents to the buyer upon reimbursement. heir relationship is !oerned by the terms o$ the letter o$ credit issued by the ban.
$
5eteen the issuin! ban and the applicantObuyerOimporter G heir relationship is !oerned by the terms o$ the application and a!reement $or the issuance o$ the letter o$ credit by the ban.
SUGGESTED ANSWER:
8etters o& Cre6it T#ree Distinct Contract Relations#i$s (2002)
<=plain the three () distinct but intertined contract relationships that are indispensable in a letter o$ credit transaction. SUGGESTED ANSWER:
he three () distinct but intertined contract relationships that are indispensable in a letter o$ credit transaction are*
Maritime Commer#e Aera'e "articular Aera'e s! General Aera'e (2003)
Mercantile Law Bar Examination Q & A (1990-2006)
OQ Ilo! de anila ith a car!o o$ @ tons o$ iron ore le$t the ;ort o$ Samboan!a City bound $or anila. 8or one reason or another& OQ Ilo! de anila hit a submer!ed obstacle causin! it to sin alon! ith its car!o. A salor& 1alador& Inc.& as contracted to reEoat the essel $or ;2 illion. What ind o$ aera!e as the reEoatin! $ee o$ ;2 million& and $or hose account should it be? Why? (4%) SUGGESTED ANSWER:
;articular Aera!e. he oner o$ the essel shall shoulder the aera!e. Fenerally speain!& simple or particular aera!es include all e=penses and dama!es caused to the essel or car!o hich hae not inured to the common beneft (Art. JH& and are& there$ore& to be borne only by the oner o$ the property hich !ae rise to the same (Art. J2) hile !eneral or !ross aera!es include Nall the dama!es and e=penses hich are deliberately caused in order to sae the essel& its car!o& or both at the same time& $rom a real and non risN (Art. J22). 5ein! $or the common beneft& !ross aera!es are to be borne by the oners o$ the articles saed (Art. J2#). In the present case there is no proo$ that the essel had to be put aEoat to sae it $rom an imminent dan!er.
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Whose lien should be !ien pre$erence& that o$ o"o or >utan!? SUGGESTED ANSWER:
>utan! Corporation3s lien should be !ien pre$erence. he lien o$ o"o by irtue o$ a loan o$ bottomry as e=tin!uished hen the essel san. ,nder such loan on bottomry o"o acted not only as creditor but also as insurer. o"o3s ri!ht to recoer the amount o$ the loan is predicated on the sa$e arrial o$ the essel at the port o$ destination. he ri!ht as lost hen the essel san (1ec 2 ;' 2@#2) Carria'e o& Goo6s: Deiation: 8ia.ilit% (2001)
Bn a clear eather& OQ 1undo& carryin! insured car!o& le$t the port o$ anila bound $or Cebu. While at sea& the essel encountered a stron! typhoon $orcin! the captain to steer the essel to the nearest island here it stayed $or seen days. he essel ran out o$ proisions $or its passen!ers. Conse+uently& the essel proceeded to >eyte to replenish its supplies. Assumin! that the car!o as dama!ed because o$ such deiation& ho beteen the insurance company and the oner o$ the car!o bears the loss? <=plain. SUGGESTED ANSWER:
,ottomr% (**)
Fi!i obtained a loan $rom o"o Corporation& payable in installments. Fi!i e=ecuted a chattel mort!a!e in $aor o$ o"o hereby she trans$erred “in $aor o$ o"o& its successors and assi!ns& all her title& ri!hts ... to a essel o$ hich Fi!i is the absolute oner.” he chattel mort!a!e as re!istered ith the ;hilippine Coast Fuard pursuant to ;' 2@#2. Fi!i de$aulted and had a total accountability o$ ;. 5ut o"o could not $oreclose the mort!a!e on the essel because it san durin! a typhoon. eanhile& >utan! Corporation hich rendered sala!e serices $or reEoatin! the essel sued Fi!i. 7ersion 1 990+2003 Arrange& 'y SULAW Cass
7ersion 1990+2006 U %&ate& 'y
he insurance company should bear the loss to the car!o because the deiation o$ the essel as proper in order to aoid a peril& hich as the stron! typhoon. he runnin! out o$ proisions as a direct conse+uence o$ the proper deiation in order to aoid the peril o$ the typhoon. A8TERNAT7>E ANSWER:
he oner o$ the car!o bears the loss because in the case at bar& they stayed too lon! at the island& main! it an improper deiation. <ery deiation not specifed in 1ec. 2#4 is improper. (1ec. 2#@& Insurance Code)
Carria'e o& Goo6s Deiation W#en "ro$er (2001)
,nder hat circumstances can a essel properly proceed to a port other than its port o$ destination? <=plain. (4%) SUGGESTED ANSWER:
'eiation is proper* a$ hen caused by circumstances oer hich neither the master nor the oner o$ the ship has any controlK b$ hen necessary to comply ith a arranty or aoid a peril& hether or not the peril is insured a!ainstK c$ hen made in !ood $aith& and upon reasonable !rounds o$ belie$ in its necessity to aoid a perilK or .$ hen in !ood $aith& $or the purpose o$ sain! human li$e& or reliein! another essel in distress. (1ec. 2#4& Insurance Code) Carria'e o& Goo6s E9ercise E9traor6inar% Dili'ence (2001)
1tar 1hippin! >ines accepted 2 cartons
7ersion 1 990+2003 Arrange& 'y SULAW Cass
o$ sardines $rom aster to be deliered to @@@ Company in anila. Bnly JJ cartons ere deliered& hoeer& these ere in bad condition. @@@ Company claimed $rom 1tar 1hippin! >ines the alue o$ the missin! !oods& as ell as the dama!ed !oods. 1tar 1hippin! >ines re$used because the $ormer $ailed to present a bill o$ ladin!. 9esole ith reasons the claim o$ @@@ Company. (4%) SUGGESTED ANSWER:
he claim o$ @@@ Company is meritorious& een i$ it $ails to present a bill o$ ladin!. Althou!h a bill o$ ladin! is the best eidence o$ the contract o$ carria!e $or car!o& neertheless such contract can e=ist een ithout a bill o$ ladin!. >ie any other contract& a contract o$ carria!e is a meetin! o$ minds that !ies rise to an obli!ation on the part o$ the carrier to transport the !oods. urisprudence has held that the moment the carrier receies the car!o $or transport& then its duty to e=ercise e=traordinary dili!ence arises # .Cia# Mariti!a $!erica,
#
nsurance
Co#
of
&orth
4'+' 0o' F$)8*-5, 1ctober .;, )*-C 0egre v' "abahug Shipping ? "o', 4'+' 0o' F$)*-;*, #pril *, )*--! A8TERNAT7>E ANSWER:
Star Sipping Lines can refuse to onor ### Co'panyOs clai' for te 'issing an. .a'age. goo.s* 2e Bill of La.ing is te .ocu'ent of title tat legally establises te ownersip of ### Co'pany o)er sai. goo.s* ### nee.s to present te Bill of La.ing to legally clai' sai. goo.s* (0ational Lnion ire nsurance of 3ittsburg v' Stolt$0ielaen, 4'+' 0o' 87*58, #pril -, )**;!
C#arter "art% (**)
7ersion 1990+2006 U %&ate& 'y
Mercantile Law Bar Examination Q & A (1990-2006)
he 1aad 'e Co enters into a oya!e charter ith L0S oer the latter3s essel& the Q >ady>oe. 5e$ore the 1aad could load it& L0S sold >ady >oe to Bslob aritime Co hich decided to load it $or its on account. a$ ay L0S 1hippin! Co alidly as $or the rescission o$ the charter party? I$ so& can 1aad recoer dama!es? o hat e=tent? b$ I$ Bslob did not load it $or its on account& is it bound by the charter party? c$ <=plain the meanin! o$ “oner pro hac ice o$ the essel.” In hat ind o$ charter party does this obtain? SUGGESTED ANSWER:
a$ L0S may as $or the rescission o$ the
charter party i$& as in this case& it sold the essel be$ore the charterer has be!un to load the essel and the purchaser loads it $or his on account. 1aad may recoer dama!es to the e=tent o$ its losses (Art :JH Code o$ Commerce) b$ I$ Bslob did not load >ady >oe $or its
on account& it ould be bound by the charter party& but L0S ould hae to indemni$y Bslob i$ it as not in$ormed o$ the Charter ;arty at the time o$ sale. (Art :JH Code o$ Commerce)
c$ 2e ter' @8wner Pro Eac ;ice of te ;essel is generally un.erstoo. to be te carterer of te )essel in te case of bareboat or .e'ise carter (FitonGua Shipping "o v 0ational SeamenMs Board 4+ 5)*); );#ug)*8*!
C#arter "art% (200)
,nder a charter party& LLB radin! Company shipped su!ar to CocaCola Company throu!h 11 7e!ros 1hippin! Corp.& insured by Capitol Insurance Company. he car!o arried but ith shorta!es. CocaCola demanded $rom Capitol Insurance Co. ;@. in settlement $or LLB radin!. he 9e!ional rial Court& here the ciil suit as fled& Nabsoled the insurance company& declarin! that under the Code o$ Commerce& the shippin! a!ent is ciilly
Page
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liable $or dama!es in $aor o$ third persons due to the conduct o$ the carrierDs captain& and the stipulation in the charter party e=emptin! the oner $rom liability is not a!ainst public policy. CocaCola appealed. Will its appeal prosper? 9eason brieEy. (@%) SUGGESTED ANSWER:
7o. he appeal o$ CocaCola ill not prosper. ,nder Article @J o$ the Code o$ Commerce& the shippin! a!ent is ciilly liable $or dama!es in $aor o$ third persons due to the conduct o$ the carrierDs captain& and the shippin! a!ent can e=empt himsel$ there$rom only by abandonin! the essel ith all his e+uipment and the $rei!ht he may hae earned durin! the oya!e. Bn the other hand& assumin! there is bareboat charter& the stipulation in the charter party e=emptin! the oner $rom liability is not a!ainst public policy because the public at lar!e is not inoled .o!e nsurance Co# # $!erican Stea!shi- $gencies, nc#, 23 SCR$20 .16+7#
C
AA entered into a contract ith 55 thru CC to transport ladiesD ear $rom anila to 8rance ith transhipment at aian. 1omeho the !oods ere not loaded at aian on time. /ence& hen the !oods arried in 8rance& they arried No- seasonN and AA as paid only $or one hal$ the alue by the buyer. AA claimed dama!es $rom the shippin! company and its a!ent. he de$ense o$ the respondents as prescription. Considerin! that the ladiesD ear su-ered Nloss o$ alue&N as claimed by AA& should the prescriptie period be one year under the Carria!e o$ Foods by 1ea Act& or ten years under the Ciil Code? <=plain brieEy. (@%) SUGGESTED ANSWER:
he applicable prescriptie period is ten years under the Ciil Code. he oneyear prescriptie period under the Carria!e o$ Foods by 1ea Act applies in cases o$ loss or dama!es to the car!o. he term NlossN as interpreted by the 1upreme Court in Mitsui O#S#@# ines td# # Court of $--eals, 2+ SCR$ 366 .1+7 & contemplates
a situation here no deliery at all as made by the carrier o$ the !oods because the same had perished or !one out o$ commerce deteriorated or decayed hile in transit. In the present case& the shipment o$ ladiesD ear as actually deliered. he Nloss o$ alueN is not the total loss contemplated by the Carria!e o$ Foods by 1ea Act. C
A local consi!nee sou!ht to en$orce "udicially a claim a!ainst the carrier $or loss o$ a shipment o$ drums o$ lubricatin! oil $rom apan under the
Carria!e o$ Foods by 1ea Act (CBF1A) a$ter the carrier had re"ected its demand. he carrier pleaded in its Anser the a-irmatie de$ense o$ prescription under the proisions o$ said Act inasmuch as the suit as brou!ht by the consi!nee a$ter one (2) year $rom the deliery o$ the !oods. In turn& the consi!nee contended that the period o$ prescription as suspended by the ritten e=tra"udicial demand it had made a!ainst the carrier ithin the one year period& pursuant to Article 22@@ o$ the Ciil Code proidin! that the prescription o$ actions is interrupted hen there is a ritten e=tra"udicial demand by the creditors. a$ /as the action in $act prescribed? Why? b$ I$ the consi!nee3s action ere predicated on misdeliery or conersion o$ the !oods& ould your anser be the same? <=plain brieEy. SUGGESTED ANSWER:
a$ he action taen by the local consi!nee
has& in $act& prescribed. he period o$ one year under the Carria!e o$ Foods by 1ea Act (CBF1A) is not interrupted by a ritten e=tra"udicial demand. he proisions o$ Art 22@@ o$ the 7CC merely apply to prescriptie periods proided $or in said Code and not to special las such as CBF1A e=cept hen otherise proided. .)ole Mariti!e Co 1(+ s 11+7# b$ I$
the consi!nee3s action ere predicated on misdeliery or conersion o$ !oods& the proisions o$ the CBF1A ould be inapplicable. In these cases& the 7CC prescriptie periods& includin! Art 22@@ o$ the 7CC ill apply .$ng Co!-ania Marita!a 133 s 67
Mercantile Law Bar Examination Q & A (1990-2006)
Page
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SUGGESTED ANSWER:
C
9C imported computer motherboards $rom the ,nited 1tates and had them shipped to anila aboard an ocean !oin! car!o ship oned by 5C 1hippin! Company. When the car!o arried at anila seaport and deliered to 9C& the crate appeared intactK but upon inspection o$ the contents& 9C discoered that the items inside had all been badly dama!ed. /e did not fle any notice o$ dama!e or anythin! ith anyone& least o$ all ith 5C 1hippin! Company. What he did as to proceed directly to your o-ice to consult you about hether he should hae !ien a notice o$ dama!e and ho lon! a time he had to initiate a suit under the proisions o$ the Carria!e o$ Foods by 1ea Act (CA :@). What ould your adice be? (#%)
the essels and the car!oes? <=plain. * Which party should bear the dama!e to
the essels and the car!oes i$ the cause o$ the collision as a $ortuitous eent? <=plain. SUGGESTED ANSWER:
/*
5oth o$ them ere at $ault. (Art J#& Code o$ Commerce) !*
o$ them should bear their respectie dama!es. 1ince it cannot be determined as to hich essel is at $ault. his is the doctrine o$ “inscrutable $ault.” * 7o party shall be held liable since the
cause o$ the collision is $ortuitous eent. he carrier is not an insurer.
SUGGESTED ANSWER:
y adice ould be that 9C should !ie notice o$ the dama!e sustained by the car!o ithin days and that he has to fle the suit to recoer the dama!e sustained by the car!o ithin one year $rom the date o$ the deliery o$ the car!o to him.
Doctrine o& 7nscruta.le /ault (**+)
<=plain the doctrine in aritime accidents G 'octrine o$ Inscrutable 8ault
C
What is the prescriptie period $or actions inolin! lost or dama!ed car!o under the Carria!e o$ Foods by 1ea Act? SUGGESTED ANSWER:
B7< 0
# essels comin! $rom the opposite directions collided ith each other due to $ault imputable to both. What are the liabilities o$ the to essels ith respect to the dama!e caused to them and their car!oes? <=plain.
!*
I$ it cannot be determined hich o$ the to essels as at $ault resultin! in the collision& hich party should bear the dama!e caused to
Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
,nder the “doctrine o$ inscrutable $ault&” here $ault is established but it cannot be determined hich o$ the to essels ere at $ault& both shall be deemed to hae been at $ault. Doctrine o& 7nscruta.le /ault (**)
A seere typhoon as ra!in! hen the essel 11 asdaam collided ith Q ;rinces. It is conceded that the typhoon as the ma"or cause o$ the collision& althou!h there as a ery stron! possibility that it could hae been aoided i$ the captain o$ 11 asdaam as not drun and the captain o$ the Q ;rinces as not asleep at the time o$ collisions. Who should bear the dama!es to the essels and their car!oes? (@%) SUGGESTED ANSWER:
he shiponers o$ 11 asdaam and Q ;rincess shall each bear their respectie loss o$ essels. 8or the losses and dama!es su-ered by their car!oes both shiponers are solidarily liable. 8imite6 8ia.ilit% Rule (**)
oni& a copra dealer& loaded 2 sacs o$ copra on board the essel Q onichi (a common carrier en!a!ed in coastise trade oned by Ichi) $or shipment $rom ;uerto Falera to anila. he car!o did not reach anila because the essel capsi6ed and san ith all its car!o. When oni sued Ichi $or dama!es based on breach o$ contract& the latter inoed the “limited liability rule.” /$ What do you understand o$ the “rule”
Version 1990-2003 Arranged by SULAW Class
inoed by Ichi? !$ Are there e=ceptions liability rule”?
to the
“limited
SUGGESTED ANSWER:
/$ 5y “limited liability rule” is meant that
the liability o$ a shiponer $or dama!es in case o$ loss is limited to the alue o$ the essel inoled. /is other properties cannot be reached by the parties entitled to dama!es. !$ 0es. When the ship oner o$ the essel
inoled is !uilty o$ ne!li!ence& the “limited liability rule” does not apply. In such case& the ship oner is liable to the $ull e=tent o$ the dama!es sustained by the a!!rieed parties .Mecenas C$ 1+ s +37
8imite6 8ia.ilit% Rule (**+)
<=plain the doctrine in aritime accidents G he 'octrine o$ >imited >iability SUGGESTED ANSWER:
,nder the “doctrine o$ limited liability” the e=clusiely real and hypothecary nature o$ maritime la operates to limit the liability o$ the shiponer to the alue o$ the essel& earned $rei!hta!e and proceeds o$ the insurance. /oeer& such doctrine does not apply i$ the shiponer and the captain are !uilty o$ ne!li!ence. 8imite6 8ia.ilit% Rule (***)
hinin! that the impendin! typhoon as still #4 hours aay& Q ;ioneer le$t port to sail $or >eyte. hat as a miscalculation o$ the typhoon si!nals by both the ship
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
oner and the captain as the typhoon came earlier and oertoo the essel. he essel san and a number o$ passen!ers disappeared ith it. 9elaties o$ the missin! passen!ers claimed dama!es a!ainst the shiponer. he shiponer set up the de$ense that under the doctrine o$ limited liability& his liability as coe=tensie ith his interest in the essel. As the essel as totally lost& his liability had also been e=tin!uished. a* /o ill you adice the claimants? 'iscuss the doctrine o$ limited liability in maritime la. (%) b* Assumin! that the essel as insured& may the claimants !o a$ter the insurance proceeds? (%) SUGGESTED ANSWER:
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ship3s rated capacity. 1ued $or dama!es by the ictim3s suriin! relaties& arina 7a Co contended 2) that its liability& i$ any& had been e=tin!uished ith the sinin! o$ Q ariposaK and #) that assumin! it had not been so e=tin!uished& such liability should be limited to the loss o$ the car!o. Are these contentions meritorious in the conte=t o$ applicable proisions o$ the Code o$ Commerce? (%) SUGGESTED ANSWER:
0es. he contentions o$ arina 7a Co are meritorious. he captain o$ Q ariposa is !uilty o$ ne!li!ence in i!norin! the typhoon bulletins issued by ;AFA1A and in oerloadin! the essel. 5ut only the captain o$ the essel Q ariposa is !uilty o$ ne!li!ence. he ship oner is not. here$ore& the ship oner can inoe the doctrine o$ limited liability.
a* ,nder the doctrine o$ limited liability in
maritime la& the liability o$ the shiponer arisin! $rom the operation o$ a ship is confned to the essel& e+uipment& and $rei!ht& or insurance& i$ any& so that i$ the shiponer abandoned the ship& e+uipment& and $rei!ht& his liability is e=tin!uished. /oeer& the doctrine o$ limited liability does not apply hen the shiponer or captain is !uilty o$ ne!li!ence. b* 0es. In case o$ a lost essel& the claimants
may !o a$ter the proceeds o$ the insurance coerin! the essel. 8imite6 8ia.ilit% Rule (2000)
Q ariposa& one o$ fe passen!er ships oned by arina 7ai!ation Co& san o- the coast o$ indoro hile en route to Iloilo City. ore than # passen!ers perished in the disaster. <idence shoed that the ship captain i!nored typhoon bulletins issued by ;a!asa durin! the #4 hour period immediately prior to the essel3s departure $rom anila. he bulletins arned all types o$ sea cra$ts to aoid the typhoon3s e=pected path near indoro. o mae matters orse& he too more load than as alloed $or the
8imite6 8ia.ilit% Rule Doctrine o& 7nscruta.le /ault (**)
In a collision beteen O anila& a taner& and OQ 'on Claro& an interisland essel& 'on Claro san and many o$ its passen!ers droned 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 4 nautical miles apart& 'on
Claro already si!hted anila on its radar screen. anila had no radar e+uipment. As $or speed& 'on Claro as tice as $ast as anila. At the time o$ the collision& anila $ailed to $ollo 9ule 2H o$ the International 9ules o$ the 9oad hich re+uires # essels meetin! head on to chan!e their course by each essel steerin! to starboard (ri!ht) so that each essel may pass on the port side (le$t) o$ the other. anila si!naled that it ould turn to the port side and steered accordin!ly& thus resultin! in the collision. 'on Claro3s captain as o-duty and as hain! a drin at the ship3s bar at the time o$ the collision. a$ Who ould you hold liable $or the collision? b$ I$ 'on Claro as at $ault& may the heirs o$ the passen!ers ho died and the oners o$ the car!oes recoer dama!es $rom the oner o$ said essel? SUGGESTED ANSWER:
I can hold the # essels liable. In the problem !ien& hether on the basis o$ the $actual settin!s or under the doctrine o$ inscrutable $ault& both essels can be said to hae been !uilty o$ ne!li!ence. he liability o$ the # carriers $or the death or in"ury o$ passen!ers and $or the loss o$ or dama!e to the !oods arisin! $rom the collision is solidary. 7either carrier may inoe the doctrine o$ last clear chance hich can only be releant& i$ at all& beteen the to essels but not on the claims made by passen!ers or shippers .itonGua Shi--ing &ational Sea!en Board %R 011 1$ug1+7
SUGGESTED ANSWER:
0es& but sub"ect to the doctrine o$ limited liability. he doctrine is to the e-ect that the liability o$ the shiponers ould only be to the e=tent o$ any remainin! alue o$ the essel& proceeds o$ insurance& i$ any& and earned $rei!hta!e. Fien the $actual settin!s& the shiponer himsel$ as not !uilty o$ ne!li!ence and& there$ore& the doctrine can ell apply .$!-aro de los Santos C$ 1+6 s 67
8imite6 8ia.ilit% Rule General Aera'e 8oss (2000)
L 1hippin! Company spent almost a $ortune in refttin! and repairin! its lu=ury passen!er essel& the Q arina& hich plied the interisland routes o$ the company $rom >a ,nion in the north to 'aao City in the south. he Q arina met an untimely $ate durin! its post repair oya!e. It san o- the coast o$ Sambales hile en route to >a ,nion $rom anila. he inesti!ation shoed that the captain alone as ne!li!ent. here ere no casualties in that disaster. 8aced ith a claim $or the payment o$ the refttin! and repair& L 1hippin! company asserted e=emption $rom liability on the basis o$ the hypothecary or limited liability rule under Article @J o$ the Code o$ Commerce. Is L 1hippin! Company3s assertion alid? <=plain (%). SUGGESTED ANSWER:
7o. he assertion o$ L 1hippin! Company is not alid. he total destruction o$ the essel does not a-ect the liability o$ the ship oner $or repairs on the essel completed be$ore its loss. 8imite6 8ia.ilit% Rule General Aera'e 8oss (2000)
Mercantile Law Bar Examination Q & A (1990-2006)
Q 1uper8ast& a passen!ercar!o essel oned by 18 1hippin! Company plyin! the interisland routes& as on its ay to Samboan!a City $rom the anila port hen it accidentally& and ithout $ault or ne!li!ence o$ anyone on the ship& hit a hu!e Eoatin! ob"ect. he accident caused dama!e to the essel and loss o$ an accompanyin! crated car!o o$ passen!er ;9. In order to li!hten the essel and sae it $rom sinin! and in order to aoid ris o$ dama!e to or loss o$ the rest o$ the shipped items (none o$ hich as located on the dec)& some had to be "ettisoned. 18 1hippin! had the essel repaired at its port o$ destination. 18 1hippin! therea$ter fled a complaint demandin! all the other car!o oners to share in the total repair costs incurred by the company and in the alue o$ the lost and "ettisoned car!oes. In anser to the complaint& the shippers3 sole contention as that& under the Code o$ Commerce& each dama!ed party should bear its or his on dama!e and those that did not su-er any loss or dama!e ere not obli!ated to mae any contribution in $aor o$ those ho did. Is the shippers3 contention alid? <=plain (#%)
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Nationalie6 Actiities or Un6erta-in's (**3) /$ A inested ;@th in a security a!ency on
Bctober & 2HH. /e as char!ed ith bein! a dummy o$ his $riend& a $orei!ner. I$ you ere the prosecutor& hat eidence can you present to proe iolation o$ the Anti'ummy >a? !$ uana de la Cru6& a common la i$e o$ a $orei!ner rested the control o$ a teleision frm. At the instance o$ the minority !roup o$ the frm& she as char!ed ith iolation o$ the Anti'ummy >a. ay she be conicted by the mere $act that she is a common la i$e o$ a $orei!ner? <=plain. SUGGESTED ANSWER:
2) A allos or permits the use or e=ploitation or en"oyment o$ a ri!ht& priile!e or business& the e=ercise or en"oyment o$ hich is e=pressly resered by the Constitution or the las to citi6ens o$ the ;hilippines& by the $orei!ner not possessin! the re+uisites prescribed by the Constitution or the las o$ the ;hilippines. he prosecutor should proe the aboe elements o$ the crime
SUGGESTED ANSWER:
7o. he shippers3 contention is not alid. he oners o$ the car!o "ettisoned& to sae the essel $rom sinin! and to sae the rest o$ the car!oes& are entitled to contribution. he "ettisonin! o$ said car!oes constitute !eneral aera!e loss hich entitles the oners thereo$ to contribution $rom the oner o$ the essel and also $rom the oners o$ the car!oes saed. 18 1hippin! is not entitled to contributionO reimbursement $or the costs o$ repairs on the essel $rom the shippers.
Nationalie& A#tivities or Un&erta,ings 7ersion 1 990+2003 Arrange& 'y SULAW Cass
7ersion 1990+2006 U %&ate& 'y
and also the $act that A does not hae the means and resources to inest ;@th in the security a!ency. A8TERNAT7>E ANSWER:
/$ he prosecutor may establish the $act
that the ;@th ould constitute a ma"or inestment and yet A is not een elected member o$ the 5B' or one o$ the o-icers. 8urthermore& it may also be shon that A does not een hae the means to raise the amount o$ ;@th and that the o-icers or ma"ority o$ the directors are $orei!ners. SUGGESTED ANSWER:
!$ 7o. he mere $act o$ bein! a common
la i$e o$ a $orei!ner does not brin! her ithin the ambit o$ the Anti'ummy >a. A8TERNAT7>E ANSWER:
#) 0es. 5ein! a common la i$e& it can be presumed that she is the one runnin! the business& hich raises a prima $acie presumption o$ iolation o$ the Anti dummy >a& (9A :J4). Nationalie6 Actiities or Un6erta-in's (**)
Celeste& a domestic corporation holly oned by 8ilipino citi6ens& is en!a!ed in tradin! and operates as !eneral contractor. It buys and resells the products o$ atilde& a domestic corporation& H% o$ hose capital stoc is oned by aliens. All o$ atilde3s !oods are made in the ;hilippines $rom materials $ound or produced in the ;hilippines. Bn the other hand&
7ersion 1 990+2003 Arrange& 'y SULAW Cass
manu$acturer o$ asbestos products. Celeste and a
$rom tain! part in biddin!s to supply the !oernment? !$ 'id Celeste and atilde iolate the Anti 'ummy >a? $ 'id Celeste and atilde iolate the 9etail rade 7ationali6ation >a? <=plain. SUGGESTED ANSWER:
/$ 7o. he materials o-ered in the bids
submitted are made in the ;hilippines $rom articles produced or !ron in the ;hilippines& and the bidder& Celeste& is a domestic entity. he 8la! >a does not apply. It can be inoed only a!ainst a bidder ho is not a domestic entity& or a!ainst a domestic entity ho o-ers imported materials. !$ 7o& since Celeste is merely a dealer o$
atilde and not an alter e!o o$ the latter. Celeste buys and sells on its on account the products o$ atilde. $ atilde did not iolate the 9etail rade
>a since it does not sell its products to consumers& but to dealers ho resell them. 7either did Celeste iolate the 9etail rade >a since& in the frst place& it is not prohibited to
7ersion 1990+2006 U %&ate& 'y
Mercantile Law Bar Examination Q & A (1990-2006)
engage in retail tra.e* Besi.es Matil.es sale of te asbestos pro.ucts to Celeste being wolesale te transaction is not co)ere. by te +etail 2ra.e Law (#sbestos ntegrated v 3eralta )55 S ).!
Nationalie6 Actiities or Un6erta-in's (**1)
Flobal M> alaysia& a 2% alaysian oned corporation& desires to build a hotel beach resort in 1amal Island& 'aao City& to tae adanta!e o$ the increased tra-ic o$ tourists and boost the tourism industry o$ the ;hilippines. /* Assumin! that Flobal has ,1R2 to inest in a hotel beach resort in the ;hilippines& may it be alloed to ac+uire the land on hich to build the resort? I$ so& under hat terms and conditions may Flobal ac+uire the land? 'iscuss $ully. !* ay Flobal be alloed to mana!e the hotel beach resort? <=plain. * ay Flobal be alloed to operate restaurants ithin the hotel beach resort? <=plain. SUGGESTED ANSWER:
/* Flobal can secure a lease on the land. As
a corporation ith a alaysian nationality& Flobal cannot on the land. !* 0es& Flobal can mana!e the hotel beach
resort. here is no la prohibitin! it $rom mana!in! the resort. * Flobal
may be alloed to operate restaurants ithin the beach resort. his is part o$ the operation o$ the resort. Retail Tra6e 8a; (**0)
Acme radin! Co Inc& a tradin! company holly oned by $orei!n stocholders& as persuaded by ;aulo Ala& a 8ilipino& to inest in #% o$ the outstandin! shares o$ stoc o$ a corporation he is $ormin! hich ill en!a!e in the department store business (the “department store corporation”). ;aulo also ur!ed Acme to inest in 4% o$ the outstandin! shares o$ stoc o$ the realty corporation he is puttin! up to on the land on hich the department store ill be built (the
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“realty corporation”). a$ ay Acme inest in the said department store corporation? <=plain your anser. b$ ay Acme inest in the realty corporation? 'iscuss. c$ ay the ;resident o$ Acme& a $orei!ner& sit in the 5B' o$ the said department store corporation? ay he be a director o$ the realty corporation? 'iscuss. .$ ay the reasurer o$ Acme& another $orei!ner& occupy the same position in the said department store corporation? ay he be the treasurer o$ the said realty corporation? <=plain. SUGGESTED ANSWER:
a$ Acme may not inest in the department
store corporation since the 9etail rade Act allos& in the case o$ corporations& only 2% 8ilipino oned companies to en!a!e in retail trade. b$ Acme
may inest in the realty corporation& on the assumption that the balance o$ :% o$ onership o$ the latter corporation& is 8ilipino oned since the la merely
re+uires :% 8ilipino holdin! in land corporate onership. c$ he
Antidummy >a allos board representation to the e=tent o$ actual and permissible $orei!n inestments in corporations. Accordin!ly& the ;resident o$ Acme may no sit in the 5B' o$ the department store corporation but can do so in the realty corporation. .$ he reasurer o$ Acme may not hold
that position either in the department store corporation or in the realty corporation since the Anti'ummy >a prohibits the employment o$ aliens in such nationali6ed areas o$ business e=cept those that call $or hi!hly technical +ualifcations.
Retail Tra6e 8a; (**)
Is the 8ilipino commonla i$e o$ a $orei!ner barred $rom en!a!in! in the retail business? SUGGESTED ANSWER:
A 8ilipino commonla i$e o$ a $orei!ner is not barred $rom en!a!in! in retail business. Bn the assumption that she acts $or and in her on behal$& and absent a iolation o$ the Anti'ummy >a hich prohibits a $orei!ner $rom bein! either the real proprietor or an employee o$ a person en!a!ed in the retail trade& she ould be iolatin! the 9etail rade Act. A8TERNAT7>E ANSWER:
An en!a!ement by a i$e (includin! commonla relationships) o$ a $orei!ner in the retail trade business& raises the
presumption that she has iolated the Anti 'ummy >a. /ence& the i$e is barred $rom en!a!in! in the retail trade business. Retail Tra6e 8a; (**2)
A Cooperatie purchased $rom 0 Co on installments a rice mill and made a don payment there$ore. As security $or the payment o$ the balance& the Cooperatie e=ecuted a chattel mort!a!e in $aor o$ 0 Corporation. 0 Co in turn assi!ned its ri!hts to the chattel mort!a!e to S Co a @% $orei!n oned company doin! business in the ;hilippines. he cooperatie therea$ter made installment payments to S Co. 5ecause the Cooperatie as unable to meet its obli!ations in $ull& S Co fled a!ainst it a court suit $or collection. he Coop resisted contendin! that S Co as ille!ally en!a!ed in the retail trade business $or hain! sold a consumer !ood as opposed to a producer item. he Coop also alle!ed that S had iolated the Anti 'ummy >a. Is S !uilty o$ iolatin! the 9etail rade >a and the Anti'ummy >a? Why? SUGGESTED ANSWER:
S Co is not !uilty o$ iolatin! the 9etail rade >a and the Anti'ummy >a. he term 9<AI> under the 9etail rade Act re+uires that the seller must be habitually en!a!ed in sellin! to the !eneral public consumption !oods. 5y consumption !oods are meant “personal& $amily and household” purposes. A 9ice ill
Mercantile Law Bar Examination Q & A (1990-2006)
does not $all under the cate!ory. 7either does it appear that S is habitually en!a!ed in sellin! to the !eneral public that commodity. 1ince there is no iolation o$ the 9etail rade >a& there ould lieise by no iolation o$ the Anti'ummy >a. Retail Tra6e 8a; (**3)
A $orei!n frm is en!a!ed in the business o$ manu$acturin! and sellin! rubber products to dealers ho in turn sell them to others. It also sells directly to a!ricultural enterprises& automotie assembly plants& public utilities hich buy them in lar!e bul& and to its o-icers and employees. /$ Is there iolation o$ the 9etail rade >a? <=plain. !$ ay said frm operate a canteen inside the premises o$ its plant e=clusiely $or its o-icials and employees ithout iolatin! the 9etail rade Act? <=plain. SUGGESTED ANSWER:
/$ Bn the assumption that the $orei!n frm
is doin! business in the ;hilippines& the sale to the dealers o$ a!ricultural enterprises& automotie assembly plants& and public utilities is holesale and& there$ore& not in iolation o$ the 9etail rade Act .BF %oodrich Re5es 121 s 3637
Page
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rade >a. aria is a manu$acturer ho sells to the !eneral public& throu!h her stall in the public maret& the soap hich she manu$actures. Inasmuch as her capital does not e=ceed ;@th (it is only ;#th) then she is considered under 1ec 4a o$ the 9etail rade >a as not en!a!ed in the “retail business.” Inasmuch as aria3s business is not a “retail business&” then the re+uirement in 1ec 2 o$ the 9etail rade >a that only ;hilippine nationals shall en!a!e& directly& or indirectly& in the retail business is inapplicable. 8or this reason& the participation o$ a >ee& aria3s common >a husband& in the mana!ement o$ the business ould not be a iolation o$ the 9etail rade >a in relation to the Anti 'ummy >a. Retail Tra6e 8a; (**4)
<> Inc& a domestic corporation ith $orei!n e+uity& manu$actures electric !enerators& and sells them to the $olloin! customers* a) !oernment o-ices hich use the !enerators durin! bronouts to render public serice& b) a!ricultural enterprises hich utili6e the !enerators as
!$ 0es. he operation o$ the canteen inside
the premises e=clusiely $or its o-icers and employees& ould amount to an input in the manu$acturin! process and& there$ore& does not iolate the 9etail rade Act. Retail Tra6e 8a; (**4)
With a capital o$ ;#th aria operates a stall at a public maret. 1he manu$actures soap that she sells to the !eneral public. /er common la husband& a>ee& ho has a pendin! petition $or naturali6ation& occasionally fnances the purchase o$ !oods $or resale& and assists in the mana!ement o$ the business. Is there a iolation o$ the 9etail rade >a? <=plain. SUGGESTED ANSWER:
7o& there is no iolation o$ the 9etail Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
bacup in the processin! o$ !oods& c) $actories& and d) its on employees. Is <> en!a!ed in retail trade? <=plain. SUGGESTED ANSWER:
he sale by <> o$ !enerators to !oernment o-ices& a!ricultural enterprises and $actories are outside the scope o$ the term “retail business” and may& there$ore& be made by the said corporation. /oeer& sales o$ !enerators by <> to its on employees constitute retail sales and are proscribed. ,nder the amendment to the 9etail rade >a introduced by ;' 24& the term “retail business” shall not include a manu$acturer (such as <>) sellin! to industrial and commercial users or consumers ho use the products bou!ht by them to render serice to the !eneral public (e! !oernment o-ices) andOor to produce or manu$acture !oods hich are in turn sold by them (e! a!ricultural enterprises and $actories). .%ood5ear ?ires Re5es Sr %r 363, 9l5 2, +3 123s237#
Retail Tra6e 8a; Consi'nment (**)
A5C anu$acturin! Inc& a company holly oned by $orei!n nationals& manu$actures typeriters hich A5C distributes to the !eneral public in # ays* /* A5C consi!ns its typeriters to independent dealers ho in turn sell them to the publicK and& !* hrou!h indiiduals& ho are not employees o$ A5C& and ho are paid strictly on a commission basis $or each sale. 'o these arran!ements iolate the 9etail rade >a? SUGGESTED ANSWER:
Version 1990-2003 Arranged by SULAW Class
a) he frst arran!ement ould not be in iolation o$ the 9etail rade >a. he la applies only hen the sale is direct to the !eneral public. A dealer buys and sells $or and in his on behal$ and& there$ore& the sale to the !eneral public is made by the dealer and not by the manu$acturer .Mars!an A Co First Coconut Control Co %R3+(1 29une1++7 A8TERNAT7>E ANSWER:
a$ he
frst arran!ement iolates the 9etail rade >a because hen A5C “consi!ned” the typeriters& the transaction as one o$ consi!nment sale. In consi!nment sale& an a!ency relationship is created so it is as i$ A5C sells directly to the public throu!h its a!ents. SUGGESTED ANSWER:
b$ he
second arran!ement ould be iolatie o$ the 9etail rade >a& since the sale is done throu!h indiiduals bein! paid strictly on a commission basis. he said indiiduals ould then be actin! merely as a!ents o$ the manu$acturer. 1ales& there$ore& made by such a!ents are deemed direct sales by the manu$acturer. A8TERNAT7>E ANSWER:
b) he #nd arran!ement is not iolatie o$ the 9etail rade >a because typeriters are not consumption !oods or !oods $or personal& household and $amily use.
Negotia'le Instrments La! ,on6: Cas# ,on6 s! Suret% ,on6 (200)
'istin!uish clearly cash bond $rom surety bond.
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006) SUGGESTED ANSWER:
A 1,9<0 5B7' is issued by a surety or insurance company in $aor o$ a desi!nated benefciary& pursuant to hich such company acts as a surety to the debtor or obli!or o$ such benefciary. A CA1/ 5B7' is a security in the $orm o$ cash established by a !uarantor or surety to secure the obli!ation o$ another.
Page
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C#ec-s Crosse6 C#ec- (**)
What is a crossed chec? What are the e-ects o$ crossin! a chec? <=plain.
r ;ablo sou!ht to borro ;#th $rom r Carlos. Carlos a!reed to loan the amount in the $orm o$ a post dated chec hich as crossed (i.e. # parallel lines dia!onally dran on the top le$t portion o$ the chec). 5e$ore the due date o$ the chec& ;ablo discounted it ith 7oble Bn due date& 7oble deposited the chec ith his ban. he chec as dishonored. 7oble sued ;ablo. he court dismissed 7oble3s complaint. Was the court3s decision correct?
SUGGESTED ANSWER:
SUGGESTED ANSWER:
C#ec-s: Crosse6 C#ec-s (2001)
A Crossed Chec under accepted banin! practice& crossin! a chec is done by ritin! to parallel lines dia!onally on the le$t top portion o$ the checs. he crossin! is special here the name o$ the ban or a business institution is ritten beteen the to parallel lines& hich means that the draee should pay only ith the interention o$ that company. #ffe'ts of Crosse C4e';s
he chec may not be encashed but only deposited in the ban. !$ he chec may be ne!otiated only onceVto one ho has an account ith a ban. $ he act o$ crossin! the chec seres as a arnin! to the holder that the chec has been issued $or a defnite purpose& so that he must in+uire i$ he has receied the chec pursuant to that purposeK otherise& he is not a holder in due course. /$
C#ec-s: Crosse6 C#ec-s s! Cancelle6 C#ec-s (200) Distinguis clearly /$ crosse. cecks fro' cancelle. cecks% SUGGESTED ANSWER:
A crossed chec is one ith to parallel lines dran dia!onally across its $ace or across a corner thereo$. Bn the other hand& a cancelled chec is one mared or stamped NpaidN andOor NcancelledN by or on behal$ o$ a draee ban to indicate payment thereo$.
he court3s decision as incorrect. ;ablo and Carlos& bein! immediate parties to the instrument& are !oerned by the rules o$ priity. Fien the $actual circumstances o$ the problem& ;ablo has no alid e=cuse $rom denyin! liability& .State inest!ent ouse $C %R 26( 139ul51+7# ;ablo undoubtedly had benefted in the transaction. o hold otherise ould also contraene the basic rules o$ un"ust enrichment. <en in ne!otiable instruments& the
Ciil Code and other las o$ !eneral application can still apply suppletorily. A8TERNAT7>E ANSWER:
he dismissal by the court as correct. A chec hether or not postdated or crossed& is still a ne!otiable instrument and unless ;ablo is a !eneral indorser& hich is not e=pressed in the $actual settin!s& he cannot be held liable $or the dishonor o$ the instrument. In State nest!ent
ouse
$C
.%R
26(
139ul1+7& the court did not !o so $ar as
to hold that the $act o$ crossin! ould render the instrument nonne!otiable. A8TERNAT7>E ANSWER:
In State nest!ent ouse $C .%R 26( 139ul1+7, the 1C considered a crossed chec as sub"ectin! a subse+uent holder thereo$ to the contractual coenants o$ the payor and the payee. I$ such ere the case& then the instrument is not one hich can still be said to contain an unconditional promise to pay or order a sum certain in money. In the trans$er o$ nonne!otiable credits by assi!nment& the trans$eror does not assume liability $or the $ault o$ the debtor or obli!or. Accordin!ly the court3s decision as correct. A8TERNAT7>E ANSWER:
0es. he chec is crossed. It should hae $orearned r. 7oble that it as issued $or a specifc purpose. /ence& r 7oble could not be a holder in due course. /e is sub"ect to the personal de$ense o$ breach o$ trustO a!reement by r. ;ablo. 1uch de$ense is aailable in $aor o$ r Carlos a!ainst r 7oble.
C#ec-s Crosse6 C#ec- (**)
;o ;ress issued in $aor o$ ose a postdated crossed chec& in payment o$ nesprint hich ose promised to delier. ose sold and ne!otiated the chec to <=cel Inc. at a discount. <=cel did not as ose the purpose o$ crossin! the chec. 1ince ose $ailed to delier the nesprint& ;o ordered the draee ban to stop payment on the chec. <-orts o$ <=cel to collect $rom ;o $ailed. <=cel ants to no $rom you as counsel* /$ What are the e-ects o$ crossin! a chec? !$ Whether as second indorser and holder o$ the crossed chec& is it a holder in due course? $ Whether ;o3s de$ense o$ lac o$ consideration as a!ainst ose is also aailable as a!ainst <=cel? SUGGESTED ANSWER:
/$ he e-ects o$ crossin! a chec are* a* b*
c*
he chec is $or deposit only in the account o$ the payee he chec may be indorsed only once in $aor o$ a person ho has an account ith a ban he chec is issued $or a specifc purpose and the person ho taes it not in accordance ith said purpose does not become a holder in due course and is not entitled to payment thereunder.
!$ 7o. It is a crossed chec and <=cel did
not tae it in accordance ith the purpose $or hich the chec as issued. 8ailure on its part to in+uire as to said purpose&
Mercantile Law Bar Examination Q & A (1990-2006)
Page
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preented <=cel $rom becomin! a holder in due course& as such $ailure or re$usal constituted bad C#ec-s Crosse6 C#ec- (**4) $aith. What are the e-ects o$ crossin! a chec?
$ es* =ot being a ol.er in .ue course 54cel is sub9ect to te personal .efense wic Po Press can set up against 7ose (State nvestment @ouse v #" )75 S .);!
C#ec-s Crosse6 C#ec- (**1)
Bn Bct 2#& 2HH& Chelsea 1trai!hts& a corp en!a!ed in the manu$acture o$ ci!arettes& ordered $rom oises #& bales o$ tobacco. Chelsea issued to oises to crossed checs postdated 2@ ar H4 and 2@ Apr H4 in $ull payment there$or. Bn 2H an H4 oises sold to 'ra!on Inestment /ouse at a discount the to checs dran by Chelsea in his $aor. oises $ailed to delier the bales o$ tobacco as a!reed despite Chelsea3s demand. Conse+uently& on 2 ar H4 Chelsea issued a “stop payment” order on the # checs issued to oises. 'ra!on& claimin! to be a holder in due course& fled a complaint $or collection a!ainst Chelsea $or the alue o$ the checs. 9ule on the complaint o$ 'ra!on. Fie your le!al basis.
SUGGESTED ANSWER:
he e-ects o$ crossin! a chec are as $ollos* a* he chec may not be encashed but only deposited in a banK b* he chec may be ne!otiated only once to one ho has an account ith a banK c'
2e act of crossing a ceck ser)es as a warning to te ol.er tereof tat te ceck as been issue. for a .efinite purpose so tat te ol.er 'ust in-uire if e as recei)e. te ceck pursuant to tat purpose oterwise e is not a ol.er in .ue course (See Bataan "igar and "igarette actory, nc' v "# 4+ *.;8, 6ar ., )**C .; s -.!
C#ec-s Crosse6 C#ec- (**4)
Bn arch 2& 2HH:& ;entium Company ordered a computer $rom C' 5ytes& and issued a crossed chec in the amount o$ ;& postdated ar 2& 2HH:. ,pon receipt o$ the chec& C' 5ytes discounted the chec ith 8und /ouse.
SUGGESTED ANSWER:
'ra!on cannot collect $rom Chelsea. he instruments are crossed checs hich ere intended to pay $or the #& bales o$ tobacco to be deliered to oises. It as there$ore the obli!ation o$ 'ra!on to in+uire as to the purpose o$ the issuance o$ the # crossed checs be$ore causin! them to be discounted. 8ailure on its part to mae such in+uiry& hich resulted in its bad $aith& 'ra!on cannot claim to be a holder in due course. oreoer& the checs ere sold& not endorsed& by him to 'ra!on hich did not become a holder in due course. 7ot bein! a holder in due course& 'ra!on is sub"ect to the personal de$ense on the part o$ Chelsea concernin! the breach o$ trust on the part o$ oises >im in not complyin! ith his obli!ation to delier the # bales o$ tobacco.
Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
Bn April 2& 2HH:& ;entium stopped payment o$ the chec $or $ailure o$ C' 5ytes to delier the computer. hus& hen 8und /ouse deposited the chec& the draee ban dishonored it. I$ 8und /ouse fles a complaint a!ainst ;entium and C' 5ytes $or the payment o$ the dishonored chec& ill the complaint prosper? <=plain. SUGGESTED ANSWER::
he complaint fled by 8und /ouse a!ainst ;entium ill not prosper but the one a!ainst C' 5ytes ill. 8und /ouse is not a holder in due course and& there$ore& ;entium can raise the de$ense o$ $ailure o$ consideration a!ainst it. he chec in +uestion as issued by ;entium to pay $or a computer that it ordered $rom C' 5ytes. he computer not hain! been deliered& there as a $ailure o$ consideration. he chec discounted ith 8und /ouse by C' 5ytes is a crossed chec and this should hae put 8und /ouse on in+uiry. It should hae ascertained the title o$ C' 5ytes to the chec or the nature o$ the latter3s possession. 8ailin! in this respect& 8und /ouse is deemed !uilty o$ !ross ne!li!ence amountin! to le!al absence o$ !ood $aith and& thus& not a holder in due course. 8und /ouse can collect $rom C' 5ytes as the latter as the immediate indorser o$ the chec. .See Bataan Cigar and Cigarette Factor5 C$ et al 23 s 6(3 %R 3(+ Mar 3, (7
account ith the Brti!as branch o$ 5oni$acio 5an in $aor o$ 5. Althou!h L does not hae su-icient $unds& the ban honors the chec hen it is presented $or payment. Apparently& L has conspired ith the ban3s booeeper so that his led!er card ould sho that he still has su-icient $unds. he ban fles an action $or recoery o$ the amount paid to 5 because the chec presented has no su-icient $unds. 'ecide the case (@%) SUGGESTED ANSWER:
he ban cannot recoer the amount paid to 5 $or the chec. When the ban honored the chec& it became an acceptor. As acceptor& the ban became primarily and directly liable to the payeeOholder 5. he recourse o$ the ban should be a!ainst L and its booeeper ho conspired to mae L3s led!er sho that he has su-icient $unds. A8TERNAT7>E ANSWER:
he ban can recoer $rom solutio inde*iti because there by the ban to 5 hen such not due. he chec issued by payee had no su-icient $unds.
5. his is is payment payment is L to 5 as
C#ec-s E&&ects Alterations "rescri$tie "erio6 (**4) ?illia' issue. to Albert a ceck for P/"""" .rawn on KM Bank* Albert altere. te a'ount of te ceck to P!/"""" an. .eposite. te ceck to is account wit =D Bank* ?en =D Bank presente. te ceck for
C#ec-s E&&ect Acce$tance .% t#e 6ra;ee .an- (**)
L dras a chec a!ainst his current
Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
payment throu!h the Clearin! /ouse& L 5an honored it. herea$ter& Albert ithdre the ;#2& and closed his account. When the chec as returned to him a$ter a month& William discoered the alteration. L 5an recredited ;#2& to William3s current account& and sou!ht reimbursement $rom 7' 5an. 7' 5an re$used& claimin! that L 5an $ailed to return the altered chec to it ithin #4 hour clearin! period. Who& as beteen& L 5an and 7' 5an& should bear the loss? <=plain. SUGGESTED ANSWER:
7' 5an should bear the loss i$ L 5an returned the altered chec to 7' 5an ithin tenty $our hours a$ter its discoery o$ the alteration. ,nder the !ien $acts& William discoered the alteration hen the altered chec as returned to him a$ter a month. It may sa$ely be assumed that William immediately adised L 5an o$ such $act and that the latter promptly notifed 7' 5an therea$ter. Central 5an Circular 7o. H& as amended& on hich the decisions o$ the 1upreme Court in ongkong A Shanghai Banking Cor- /eo-les Bank A ?rust Co and Re-u*lic Bank s C$ ere based as e=pressly cancelled and superseded by C5 7o 2 dated 'ec # 2H. he latter as in turn amended by C5 Circular 7o @J& dated 1ept 2H& 2H. As to altered checs& the ne rules proide that the draee ban can still return them een a$ter 4* pm o$ the ne=t day proided it does so ithin #4 hours $rom discoery o$ the alteration but in no eent beyond the period f=ed or proided by la $or flin! o$ a le!al action by the returnin! ban a!ainst the ban sendin! the same. Assumin! that the relationship beteen the draee ban and the collectin! ban is eidenced by some ritten document& the prescriptie period ould be 2 years. .Ca!-os, & 0th ed (0((007 A8TERNAT7>E ANSWER:
KM Bank soul. bear te loss* ?en te .rawee bank KM Bank$ faile. to return te
-9 of 103 altere. ceck to te collecting bank =D Bank$ witin te !( our clearing perio. pro)i.e. in Sec (c of CB Circular 0 .ate. Feb /3 /0(0 te latter is absol)e. fro' liability* (See @SB" v Page
3B?2 "o 4+ F$8- Sep .; )*7;C .5 s );C also +ep Ban/ v "# 4+ 75 #pr , )**) )*- s );;!
C#ec-s /or'e6 C#ec- E&&ects (2004)
'iscuss the le!al conse+uences ban honors a $or!ed chec. (@%)
hen
a
SU44ESTE) ANSWER(
he le!al conse+uences hen a honors a $or!ed chec are as $ollos*
ban
When Drawer's Signature is Forged: a$ Drawee
,nless a $or!ery is attributable to the $ault or ne!li!ence o$ the draer himsel$& the remedy o$ the draeeban is a!ainst the party responsible $or the $or!ery. Btherise&
.rawee
(B3 amily Ban/ v'
Buenaventura,
A .rawee
"o' 3hils, v' ar East Ban/, 4'+' 0o' )*;)5, #ugust ).,
1f te .rawee
of #ppeals, 4'+' 0o' );7.8,
Eowe)er te .rawer 'ay be preclu.e. or estoppe. fro' setting up te .efense of forgery as against te .rawee< bank wen it is sown tat te .rawer i'self a. been guilty of gross negligence as to a)e facilitate. te forgery 6etropolitan Naterwor/s v' "ourt of #ppeals, 4'+' 0o' F$ -*., ). S"+# ;,
Drawee Bank versus Collecting Bank ?en te signature of te .rawer is forge. as between te .rawee< bank an. collecting bank te .rawee
b$
Forged
Payee's
Signature:
?en
.rawee
Forged Indorsement* •
'raerDs account cannot be char!ed& and i$ char!ed& he can recoer $rom the draee ban .$ssociated Bank # Court of $--eals, %#R# 31,167#
•
&o#
13+2
9anuar5
'raer has no cause o$ action a!ainst collectin! ban& since the duty o$ collectin! ban is only to the payee. A collectin! ban is not !uilty o$ ne!li!ence oer a $or!ed indorsement on checs $or it has no ay o$ ascertainin! the authority o$ the endorsement and hen it caused the checs to pass throu!h the clearin! house be$ore alloin! ithdraal o$ the proceeds thereo$ .Manila ighter ?rans-ortation, nc# # Court of $--eals, %#R# &o# 033, Fe*ruar5 10, 17# Bn
the other hand& a collectin! ban hich endorses a chec bearin! a $or!ed endorsement and presents it to the draee ban !uarantees all prior endorsements includin! the $or!ed endorsement itsel$ and should be held liable
Mercantile Law Bar Examination Q & A (1990-2006)
terefor
(2raders +oyal Ban/ v' +30, 4'+' 0o' ).85);, 1ctober );, ;;!' •
Drawee
because e)en if te in.orse'ent on te ceck .eposite. by te bankOs client is forge. collecting bank is boun. by its warranties as an in.orser an. cannot set up .efense of forgery as against .rawee bank (#ssociated Ban/ v' "ourt of
#ugust
.,)*!
#ppeals, 4'+' 0o' );7.8,
C#ec-s 8ia.ilit% Dra;ee ,an- (**1)
ario Fu6man issued to /onesto 1antos a chec $or ;@th as payment $or a #nd hand car. Without the noled!e o$ ario& /onesto chan!ed the amount to ;2@th hich alteration could not be detected by the naed eye. /onesto deposited the altered chec ith 1hure 5an hich $orarded the same to ;ro!ressie 5an $or payment. ;ro!ressie 5an ithout noticin! the alteration paid the chec& debitin! ;2@th $rom the account o$ ario. /onesto ithdre the amount o$ ;2@th $rom 1hure 5an and disappeared. A$ter receiin! his ban statement& ario discoered the alteration and demanded restitution $rom ;ro!ressie 5an. 'iscuss $ully the ri!hts and the liabilities o$ the parties concerned.
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1hure 5an that there as somethin! ron! ith the chec ithin the clearin! hour rule o$ #4 hours. C#ec-s aterial Alterations 8ia.ilit% (***)
A chec $or ;@&. as dran a!ainst draee ban and made payable to L0S aretin! or order. he chec as deposited ith payee3s account at A5C 5an hich then sent the chec $or clearin! to draee ban. 'raee ban re$used to honor the chec on !round that the serial number thereo$ had been altered. L0S maretin! sued draee ban. a* Is it proper $or the draee ban to dishonor the chec $or the reason that it had been altered? <=plain (#%) b* In instant suit& draee ban contended that L0S aretin! as payee could not sue the draee ban as there as no priity beteen then. 'raee theori6ed that there as no basis to mae it liable $or the chec. Is this contention correct? <=plain. (%) SUGGESTED ANSWER:
a*
7o. he serial number is not a material particular o$ the chec. Its alteration does not constitute material
SUGGESTED ANSWER:
he demand o$ ario $or restitution o$ the amount o$ ;2@& to his account is tenable. ;ro!ressie 5an has no ri!ht to deduct said amount $rom ario3s account since the order o$ ario is di-erent. oreoer& ;ro!ressie 5an is liable $or the ne!li!ence o$ its employees in not noticin! the alteration hich& thou!h it cannot be detected by the naed eye& could be detected by a ma!ni$yin! instrument used by tellers. As beteen ;ro!ressie 5an and 1hure 5an& it is the $ormer that should bear the loss. ;ro!ressie 5an $ailed to noti$y Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
alteration o$ the instrument. he serial number is not material to the ne!otiability o$ the instrument. b* 0es. As a !eneral rule& the draee is
not liable under the chec because there is no priity o$ contract beteen L0S aretin!& as payee& and A5C 5an as the draee ban. /oeer& i$ the action taen by the ban is an abuse o$ ri!ht hich caused dama!e not only to the issuer o$ the chec but also to the payee& the payee has a cause o$ action under +uasidelict. C#ec-s "resentment (**)
Femma dre a chec on 1eptember 2& 2HH. he holder presented the chec to the draee ban only on arch @& 2HH4. he ban dishonored the chec on the same date. A$ter dishonor by the draee ban& the holder !ae a $ormal notice o$ dishonor to Femma throu!h a letter dated April #& 2HH4. /$ What is meant by “unreasonable time” as applied to presentment? !$ Is Femma liable to the holder?
this is due to the !iin! o$ the notice o$ dishonor beyond the period alloed by la. he !iin! o$ notice o$ dishonor on April #& 2HH4 is more than one (2) month $rom arch @& 2HH4 hen the chec as dishonored. 1ince it is not shon that Femma and the holder resided in the same place& the period ithin hich to !ie notice o$ dishonor must be the same time that the notice ould reach Femma i$ sent by mail. (7I> 1ec 2 P 24K 8ar E ANSWER:
!$ Femma can still be liable under the
ori!inal contract $or the consideration o$ hich the chec as issued. C#ec-s "resentment (2003)
A ban issues its on chec. ay the holder hold the ban liable thereunder i$ he $ails to G proe presentment $or payment& or present the bill to the draee $or acceptance? <=plain your ansers. (4%) •
•
SUGGESTED ANSWER:
SUGGESTED ANSWER:
/$ As
applied to presentment $or payment& “reasonable time* is meant not more than : months $rom the date o$ issue. 5eyond said period& it is “unreasonable time” and the chec becomes stale. !$ 7o. Aside $orm the chec bein! already
stale& Femma is also dischar!ed $orm liability under the chec& bein! a draer and a person hose liability is secondary&
Version 1990-2003 Arranged by SULAW Class
C#ec-s >ali6it% Waier o& ,an-s lia.ilit% &or ne'li'ence (**)
r. >im issued a chec dran a!ainst 5;I 5an in $aor o$ r 0u as payment o$ certain shares o$ stoc hich he purchased. Bn the same day that he issued the chec to 0u& >im ordered 5;I to stop payment. ;er standard banin! practice& >im as made to si!n a aier o$ 5;I3s
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
liability in the eent that it should pay 0u throu!h oersi!ht or inadertence. 'espite the stop order by >im& 5;I neertheless paid 0u upon presentation o$ the chec. >im sued 5;I $or payin! a!ainst his order. 'ecide the case. SUGGESTED ANSWER:
In the eent that r. >im& in $act& had su-icient le!al reasons to issue the stop payment order& he may sue 5;I $or payin! a!ainst his order. he aier e=ecuted by r >im did not mean that it need not e=ercise due dili!ence to protect the interest o$ its account holder. It is not amiss to state that the draee& unless the instrument has earlier been accepted by it& is not bound to honor payment to the holder o$ the chec that thereby e=cludes it $rom any liability i$ it ere to comply ith its stop payment order (1ec :2 7I>) A8TERNAT7>E ANSWER:
2HH2 :b) 5;I ould not be liable to r >im. r >im and 5;I are !oerned by their on a!reement. he aier e=ecuted by r >im& neither bein! one o$ $uture $raud or !ross ne!li!ence& ould be alid. he problem does not indicate the e=istence o$ $raud or !ross ne!li!ence on the part o$ 5;I so as to arrant liability on its part. De&enses /or'er% (200)
CL maintained a checin! account ith ,5A7M& aati 5ranch. Bne o$ his checs in a stub o$ f$ty as missin!. >ater& he discoered that s. '0 $or!ed his si!nature and succeeded to encash ;2@& $rom another branch o$ the ban. '0 as able to encash the chec hen <& a $riend& !uaranteed due e=ecution& sayin! that she as a holder in due course. Can CL recoer the money $rom the ban? 9eason brieEy. (@%) SUGGESTED ANSWER:
0es& CL can recoer $rom the ban. ,nder 1ection # o$ the 7e!otiable Instruments >a& $or!ery is a real de$ense. he $or!ed chec is holly inoperatie in relation to CL. CL cannot be held liable thereon by anyone& not een by a holder
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in due course. ,nder a $or!ed si!nature o$ the draer& there is no alid instrument that ould !ie rise to a contract hich can be the basis or source o$ liability on the part o$ the draer. he draee ban has no ri!ht or authority to touch the draerDs $unds deposited ith the draee ban.
/or'er% 8ia.ilities "rior Su.se5uent "arties (**0) 7ose loane. Mario so'e 'oney an. to e)i.ence is in.ebte.ness Mario e4ecute. an. .eli)ere. to 7ose a pro'issory note payable to is or.er* ose endorsed the note to ;ablo. 5ert $raudulently obtained the note $rom ;ablo and endorsed it to ulian by $or!in! ;ablo3s si!nature. ulian endorsed the note to Camilo. a$ ay Camilo en$orce the said promissory note a!ainst ario and ose? b$ ay Camilo !o a!ainst ;ablo? c$ ay Camilo en$orce said note a!ainst ulian? .$ A!ainst hom can ulian hae the ri!ht o$ recourse?
e$ ay ;ablo recoer $rom either ario or
ose? SUGGESTED ANSWER:
a$ Camilo
may not en$orce said promissory note a!ainst ario and ose. he promissory note at the time o$ $or!ery bein! payable to order& the si!nature o$ ;ablo as essential $or the instrument to pass title to subse+uent parties. A $or!ed si!nature as inoperatie (1ec # 7I>). Accordin!ly& the parties be$ore the $or!ery are not "uridically related to parties a$ter the $or!ery to allo such en$orcement. b$ Camilo may not !o a!ainst ;ablo& the
latter not hain! indorsed the instrument. c$ Camilo
may en$orce the instrument a!ainst ulian because o$ his special indorsement to Camilo& thereby main! him secondarily liable& both bein! parties a$ter the $or!ery. .$ ulian&
in turn& may en$orce the instrument a!ainst 5ert ho& by his $or!ery& has rendered himsel$ primarily liable. e$ ;ablo preseres his ri!ht to recoer
$rom either ario or ose ho remain parties "uridically related to him. ario is still considered primarily liable to ;ablo. ;ablo may& in case o$ dishonor& !o a$ter ose ho& by his special indorsement& is secondarily liable.
0ote t is possible that an answer might distinguish between blan/ and special indorsements of prior parties
which can thereby materially alter the above suggested answers' 2he problem did not clearly indicate the /ind of indorsements made' /or'er% 8ia.ilities "rior Su.se5uent "arties (**1)
Ale= issued a ne!otiable ;7 (promissory note) payable to 5enito or order in payment o$ certain !oods. 5enito indorsed the ;7 to Celso in payment o$ an e=istin! obli!ation. >ater Ale= $ound the !oods to be de$ectie. While in Celso3s possession the ;7 as stolen by 'ennis ho $or!ed Celso3s si!nature and discounted it ith
/* 8eli= has no ri!ht to claim a!ainst Ale=&
5enito and Celso ho are parties prior to the $or!ery o$ Celso3s si!nature by 'ennis. ;arties to an instrument ho are such prior to the $or!ery cannot be held liable by any party ho became such at or subse+uent to the $or!ery. /oeer&
Mercantile Law Bar Examination Q & A (1990-2006)
!* Celso has the ri!ht to collect $rom Ale=
and 5enito. Celso is a party subse+uent to the to. /oeer& Celso has no ri!ht to claim a!ainst 8eli= ho is a party subse+uent to Celso (1ec : and :: 7I>) 7ncom$lete Deliere6 (200)
AL& a businessman& as preparin! $or a business trip abroad. As he usually did in the past& he si!ned seeral checs in blan and entrusted them to his secretary ith instruction to sa$e!uard them and fll them out only hen re+uired to pay accounts durin! his absence. B5& his secretary& flled out one o$ the checs by placin! her name as the payee. 1he flled out the amount& endorsed and deliered the chec to MC& ho accepted it in !ood $aith $or payment o$ !ems that MC sold to B5. >ater& B5 told AL o$ hat she did ith re!rets. AL timely directed the ban to dishonor the chec. Could AL be held liable to MC? Anser and reason brieEy. (@%) SUGGESTED ANSWER:
0es. AL could be held liable to MC. his is a case o$ an incomplete chec& hich has been deliered. ,nder 1ection 24 o$ the 7e!otiable Instruments >a& MC& as a holder in due course& can en$orce payment o$ the chec as i$ it had been flled up strictly in accordance ith the authority !ien by AL to B5 and ithin a reasonable time.
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note $or the amount o$ ;2&.. /e then indorsed and deliered the same to ;ete& ho accepted the note as payment o$ the debt. What de$ense or de$enses can 1e\orita Isobel set up a!ainst ;ete? <=plain. (%) SUGGESTED ANSWER:
he de$ense (personal de$ense) hich 1e\orita Isobel can set up a!ainst ;ete is that the amount o$ ;2&. is not in accordance ith the authority !ien to her to 5rad (in the presence o$ ;ete) and that ;ete as not a holder in due course $or actin! in bad $aith hen accepted the note as payment despite his noled!e that it as only 2&. that as alloed by 1e\orita Isobel durin! their meetin! ith 5rad. 7ncom$lete 7nstruments 7ncom$lete Deliere6 7nstruments s! 7ncom$lete Un6eliere6 7nstrument (2004)
un as about to leae $or a business trip. As his usual practice& he si!ned seeral blan checs. /e instructed 9uth& his secretary& to fll them as payment $or his obli!ations. 9uth flled one chec ith her name as payee& placed ;&. thereon& endorsed and
7ncom$lete an6 Deliere6 (2001)
5rad as in desperate need o$ money to pay his debt to ;ete& a loan shar. ;ete threatened to tae 5rad3s li$e i$ he $ailed to pay. 5rad and ;ete ent to see 1e\orita Isobel& 5rad3s rich cousin& and ased her i$ she could si!n a promissory note in his $aor in the amount o$ ;2&. to pay ;ete. 8earin! that ;ete ould ill 5rad& 1e\orita Isobel acceded to the re+uest. 1he a-i=ed her si!nature on a piece o$ paper ith the assurance o$ 5rad that he ill "ust fll it up later. 5rad then flled up the blan paper& main! a promissory Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
deliered it to arie. 1he accepted the chec in !ood $aith as payment $or !oods she deliered to 9uth. <entually& 9uth re!retted hat she did and apolo!i6ed to un. Immediately he directed the draee ban to dishonor the chec. When arie encashed the chec& it as dishonored. /* Is un liable to arie? (@%) SU44ESTE) ANSWER(
0es. his coers the deliery o$ an incomplete instru ment& under 1ection 24 o$ the 7e!otiable Instruments >a& hich proides that there as prima $acie authority on the part o$ 9uth to fllup any o$ the material particulars thereo$. /ain! done so& and hen it is frst completed be$ore it is ne!otiated to a holder in due course lie arie& it is alid $or all purposes& and arie may en$orce it ithin a reasonable time& as i$ it had been flled up strictly in accordance ith the authority !ien. 1upposin! the chec as stolen hile in 9uthDs pos session and a thie$ flled the blan chec& endorsed and deliered it to arie in payment $or the !oods he purchased $rom her& is un liable to arie i$ the chec is dishonored? (@%) !*
SU44ESTE) ANSWER(
7o. <en thou!h arie is a holder in due course& this is an incomplete and undeliered instrument& coered by 1ection 2@ o$ the 7e!otiable Instruments >a. Where an incomplete instrument has not been deliered& it ill not& i$ completed and ne!otiated ithout
Version 1990-2003 Arranged by SULAW Class
authority& be a alid contract in the hands o$ any holder& as a!ainst any person& includin! un& hose si!nature as placed thereon be$ore deliery. 1uch de$ense is a real de$ense een a!ainst a holder in due course& aailable to a party lie un hose si!nature appeared prior to deliery.
7n6orser: 7rre'ular 7n6orser s! General 7n6orser (2001) Distinguis an irregular in.orser fro' a general in.orser* N$ SUGGESTED ANSWER:
Irre!ular Indorser is not a party to the instrument but he places his si!nature in blan be$ore deliery. /e is not a party but he becomes one because o$ his si!nature in the instrument. 5ecause his si!nature he is considered an indorser and he is liable to the parties in the instrument. While& a Feneral Indorser arrants that the instrument is !enuine& that he has a !ood title to it& that all prior parties had capacity to contractK that the instrument at the time o$ the indorsement is alid and subsistin!K and that on due presentment& the instrument ill be accepted or paid or both accepted and paid accordin! to its tenor& and that i$ it is dishonored& he ill pay i$ the necessary proceedin!s $or dishonor are made. Ne'otia.ilit% (**3)
'iscuss the ne!otiability or ne!otiability o$ the $olloin! notes /$ anila& 1eptember 2& 2HH
Version 1990-2006 U pdated by
non
Mercantile Law Bar Examination Q & A (1990-2006)
;#&@. I promise to pay ;edro 1an uan or order the sum o$ ;#&@. (1!d.) 7oel Castro !$ anila& une &
2HH ;2&. 8or alue receied& I promise to pay 1er!io 'ee or order the sum o$ ;2&. in fe (@) installments& ith the frst installment payable on Bctober @& 2HH and the other installments on or be$ore the f$th day o$ the succeedin! month or therea$ter. (1!d.) >ito Qilla SUGGESTED ANSWER:
he promissory note is ne!otiable as it complies ith 1ec 2& 7I>. 8irstly& it is in ritin! and si!ned by the maer& 7oel Castro. 1econdly& the promise is unconditional to pay a sum certain in money& that is& ;#&@. hirdly& it is payable on demand as no date o$ maturity is specifed. 8ourth& it is payable to order. •
•
•
•
he promissory note is ne!otiable. All the re+uirements o$ 1ec 2 7I> are complied ith. he sum to be paid is still certain despite that the sum is to be paid by installments (1ec #b 7I>) Ne'otia.ilit% (2002)
Which o$ the $olloin! stipulations or $eatures o$ a promissory note (;7) a-ect or do not a-ect its ne!otiability& assumin! that the ;7 is otherise ne!otiable? Indicate your anser by ritin! the para!raph number o$ the stipulation or $eature o$ the ;7 as shon belo and your correspondin! anser& either “A-ected” or “7ot a-ected.” <=plain (@%). he date o$ the ;7 is “8ebruary & ##.” b$ he ;7 bears interest payable on the last day o$ each calendar +uarter at a rate e+ual to fe percent (@%) aboe a$
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the then preailin! H2day reasury 5ill rate as published at the be!innin! o$ such calendar +uarter. c$ he ;7 !ies the maer the option to mae payment either in money or in +uantity o$ palay or e+uialent alue. .$ he ;7 !ies the holder the option either to re+uire payment in money or to re+uire the maer to sere as the body!uard or escort o$ the holder $or days. SUGGESTED ANSWER:
a$
;ara!raph 2 G ne!otiability is “7B A88
;ara!raph # G ne!otiability is “7B A88
Ne'otia.ilit% ol6er in Due Course (**2)
;erla brou!ht a motor car payable on installments $rom Automotie Company $or ;#@th. 1he made a don payment o$ ;@th and e=ecuted a promissory note $or the balance. he company subse+uently indorsed the note to 9eliable 8inance Corporation hich fnanced the purchase. he promissory note read* “8or alue receied& I promised to pay Automotie Company or order at its o-ice in >e!aspi City& the sum o$ ;#&. ith interest at tele (2#%) percent per annum& payable in e+ual installments o$ ;#&. monthly $or ten (2) months startin! Bctober #2& 2HH2. anila 1eptember #2& 2HH2. (s!d) ;erla
;ay to the Corporation.
order
o$
9eliable
8inance
Automotie Company 5y* (1!d) ana!er 5ecause ;erla de$aulted in the payment o$ her installments& 9eliable 8inance Corporation initiated a case a!ainst her $or a sum o$ money. ;erla ar!ued that the promissory note is merely an assi!nment o$ credit& a nonne!otiable instrument open to all de$enses aailable to the assi!nor and& there$ore& 9eliable 8inance Corporation is not a holder in due course. a$ Is the promissory note a mere assi!nment o$ credit or a ne!otiable instrument? Why? b$ Is 9eliable 8inance Corp a holder in due course? <=plain brieEy. SUGGESTED ANSWER:
a$ he promissory note in the problem is a
ne!otiable instrument& bein! in compliance ith the proisions o$ 1ec 2 7I>. 7either the $act that the payable sum is to be paid ith interest nor that the maturities are in stated installments renders uncertain the amount payable (1ec # 7I>) b$ 0es& 9eliable 8inance Corporation is a
holder in due course !ien the $actual settin!s. 1aid corporation apparently too the promissory note $or alue& and there are no indications that it ac+uired it in bad $aith .Sec 02 & see Salas C$ 1+1 s 267 Ne'otia.ilit% Re5uisites (2000)
Mercantile Law Bar Examination Q & A (1990-2006)
a$ ; bou!ht a used cell phone $rom 9.
9 pre$erred cash but ; is a $riend so 9 accepted 93s promissory note $or ;2&. 9 thou!ht o$ conertin! the note into cash by endorsin! it to his brother M9. he promissory note is a piece o$ paper ith the $olloin! handprinted notation* “; WI>> ;A0 9 <7 /B,1A7' ;<1B1 I7 ;A0<7 8B9 /I1 C<>>;/B7< 2 W<
/ is an indorsee o$ a promissory note that simply states* “;A0 B ,A7 A7 B9 B9'<9 4 ;<1B1.” he note has no date& no place o$ payment and no consideration mentioned. It as si!ned by M and ritten under his letterhead speci$yin! the address& hich happens to be his residence. / accepted the promissory note as payment $or serices rendered to 1/& ho in turn receied the note $rom uan an as payment $or a prepaid cell phone card orth 4@ pesos. he payee acnoled!ed hain! receied the note on Au!ust 2& #. A 5ar reieee had told /& ho happens to be your $riend& that / is not a holder in due course under Article @# o$ the 7e!otiable Instruments >a (Act #2) and there$ore does not en"oy the ri!hts and protection under the statute. / ass $or our adice specifcally in connection ith the note bein! undated and not mentionin! a place o$ payment and any consideration. What ould your adice be? (#%).
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SUGGESTED ANSWER:
a$ M9 is ri!ht. he promissory note is not
ne!otiable. It is not issued to order or bearer. here is no ord o$ ne!otiability containin! therein. It is not issued in accordance ith 1ection 2 o$ the 7e!otiable Instruments >a b$ he $act that the instrument is undated
and does not mention the place o$ payment does not militate a!ainst its bein! ne!otiable. he date and place o$ payment are not material particulars re+uired to mae an instrument ne!otiable. he $act that no mention is made o$ any consideration is not material. Consideration is presumed.
Ne'otia.le 7nstrument: Am.i'uous 7nstruments (**) Eow .o you treat a negotiable instru'ent tat is so a'biguous tat tere is .oubt weter it is a bill or a noteI #N$ SUGGESTED ANSWER:
2. 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$ e=chan!e or a promissory note at his election.
7ersion 1990+2006 U %&ate& 'y
Ne'otia.le 7nstrument: De&inition C#aracteristics (2001)
What is a ne!otiable instrument? Fie the characteristics o$ a ne!otiable instrument. (#%) SUGGESTED ANSWER:
7e!otiable Instrument is a ritten contract $or the payment o$ money hich is intended as a substitute $or money and passes $rom one person to another as money& in such a manner as to !ie a holder in due course the ri!ht to hold the instrument $ree $rom de$enses aailable to prior parties. 1uch instrument must comply ith 1ec. 2 o$ the 7e!otiable Instrument >a to be considered ne!otiable. he characteristics o$ a ne!otiable instrument areK /$ 7e!otiability hat +uality or attribute hereby a bill& note or chec passes or may pass $rom hand to hand& similar to money& so as to !ie the holder in due course the ri!ht to hold the instrument and collect the sum payable $or himsel$ $ree $rom de$enses.
7e!otiable Instruments >a* (@%) /$ ;ostal oney BrderK !$ A certifcate o$ time deposit hich states “his is to certi$y that bearer has deposited in this ban the sum o$ 8B,9 /B,1A7' ;<1B1 (;4&.) only& repayable to the depositor # days a$ter date.” $ >etters o$ creditK ($ Warehouse receiptsK #$ reasury arrants payable $rom a specifc $und. SUGGESTED ANSWER:
/$
;ostal oney Brder G 7on7e!otiable as it is !oerned by postal rules and re!ulation hich may be inconsistent ith the 7I> and it can only be ne!otiated once.
!$ A
certifcate o$ time deposit hich states “his is to certi$y that bearer has deposited in this ban the sum o$ 8B,9 /B,1A7' ;<1B1 (;4&.) only& repayable to the depositor # days a$ter date.” G 7on7e!otiable as it does not comply ith the re+uisites o$ 1ec. 2 o$ 7I>
$
>etters o$ credit 7on7e!otiable
($
Warehouse receipts 7on7e!otiable $or the same as 5ill o$ >adin! it merely represents !ood& not money.
#$
reasury arrants payable $rom a specifc $und 7on7e!otiable bein! payable out o$ a particular $und.
!$ Accumulation o$ 1econdary Contracts
as they are trans$erred $rom one person to another. Ne'otia.le 7nstrument: 76enti&ication (2001)
1tate and e=plain hether the $olloin! are ne!otiable instruments under the
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Mercantile Law Bar Examination Q & A (1990-2006)
Ne'otia.le 7nstrument: Ne'otia.le Document s! Ne'otia.le 7nstrument (2001)
'istin!uish a ne!otiable document $rom a ne!otiable instrument. (#%) SUGGESTED ANSWER:
7e!otiable Instrument hae re+uisites o$ 1ec. 2 o$ the 7I>& a holder o$ this instrument hae ri!ht o$ recourse a!ainst intermediate parties ho are secondarily liable& /older in due course may hae ri!hts better than trans$eror& its sub"ect is money and the Instrument itsel$ is property o$ alue.
85 of 103 Ne'otia.le 7nstruments ,earer 7nstrument (**) +icar. Clinton 'akes a pro'issory note payable to bearer an. .eli)ers te sa'e to Aurora Page* Aurora Page owe)er en.orses it to K in tis 'anner: Page
“;ayable to L. 1i!ned* Aurora ;a!e.” >ater& L& ithout endorsin! the promissory note& trans$ers and deliers the same to 7apoleon. he note is subse+uently dishonored by 9ichard Clinton. ay 7apoleon proceed a!ainst 9ichard Clinton $or the note? (@%) SUGGESTED ANSWER:
Bn the other hand& ne!otiable document does not contain re+uisites o$ 1ec. 2 o$ 7I>& it has no secondary liability o$ intermediate parties& trans$eree merely steps into the shoes o$ the trans$eror& its sub"ect are !oods and the instrument is merely eidence o$ titleK thin! o$ alue are the !oods mentioned in the document. Ne'otia.le 7nstrument Ne'otia.ilit% (**+)
Can a bill o$ e=chan!e or a promissory note +uali$y as a ne!otiable instrument i$ G a* it is not datedK or b* the day and the month& but not the year o$ its maturity& is !ienK or c* it is payable to “cash”3 or .* it names to alternatie draees SUGGESTED ANSWER:
a$ 0es. 'ate is not a material particular
re+uired by 1ec 2 7I> $or the ne!otiability o$ an instrument. b$ 7o.
he time $or payment is not determinable in this case. he year is not stated. c$ 0es. 1ec Hd 7I> maes the instrument
payable to bearer because the name o$ the payee does not purport to be the name o$ any person. .$ A bill may not be addressed to to or more
draees in the alternatie or in succession& to be ne!otiable (1ec 2#J 7I>). o do so maes the order conditional.
0es. 9ichard Clinton is liable to 7apoleon under the promissory note. he note made by 9ichard Clinton is a bearer instrument. 'espite special indorsement made by Aurora ;a!e thereon& the note remained a bearer instrument and can be ne!otiated by mere deliery. When L deliered and trans$erred the note to 7apoleon& the
latter became a holder thereo$. As such holder& 7apoleon can proceed a!ainst 9ichard Clinton. Ne'otia.le 7nstruments ,earer 7nstruments (**+)
A deliers a bearer instrument to 5. 5 then specially indorses it to C and C later indorses it in blan to '. < steals the instrument $rom ' and& $or!in! the si!nature o$ '& succeeds in “ne!otiatin!” it to 8 ho ac+uires the instrument in !ood $aith and $or alue. a$ I$& $or any reason& the draee ban re$uses to honor the chec& can 8 en$orce the instrument a!ainst the draer? b$ In case o$ the dishonor o$ the chec by both the draee and the draer& can 8 hold any o$ 5& C and ' liable secondarily on the instrument? SUGGESTED ANSWER:
a$ 0es.
he instrument as payable to bearer as it as a bearer instrument. It could be ne!otiated by mere deliery despite the presence o$ special indorsements. he $or!ed si!nature is unnecessary to presume the "uridical relation beteen or amon! the parties prior to the $or!ery and the parties a$ter the $or!ery. he only party ho can raise the de$ense o$ $or!ery a!ainst a holder in due course is the person hose si!nature is $or!ed. b$ Bnly 5 and C can be held liable by 8. he
instrument at the time o$ the $or!ery as payable to bearer& bein! a bearer instrument. oreoer& the instrument as indorsed in blan by C to '. '& hose si!nature as $or!ed by < cannot be held
liable by 8. Ne'otia.le 7nstruments .earer instruments lia.ilities o& ma-er an6 in6orsers (200)
A issued a promissory note payable to 5 or bearer. A deliered the note to 5. 5 indorsed the note to C. C placed the note in his draer& hich as stolen by the "anitor L. L indorsed the note to ' by $or!in! C3s si!nature. ' indorsed the note to < ho in turn deliered the note to 8& a holder in due course& ithout indorsement. 'iscuss the indiidual liabilities to 8 o$ A& 5 and C. (@%) SUGGESTED ANSWER:
A is liable to 8. As the maer o$ the promissory note& A is directly or primarily liable to 8& ho is a holder in due course. 'espite the presence o$ the special indorsements on the note& these do not detract $rom the $act that a bearer instrument& lie the promissory note in +uestion& is alays ne!otiable by mere deliery& until it is indorsed restrictiely “8or 'eposit Bnly.” 5& as a !eneral indorser& is liable to 8 secondarily& and arrants that the instrument is !enuine and in all respects hat it purports to beK that he has !ood title to itK that all prior parties had capacity to contractK that he has no noled!e o$ any $act hich ould impair the alidity o$ the instrument or render it aluelessK that at the time o$ his indorsement& the instrument is alid and subsistin!K and that on due presentment& it shall be accepted or paid& or both& accordin! to its tenor& and that i$ it be dishonored and the necessary proceedin!s on dishonor
Mercantile Law Bar Examination Q & A (1990-2006)
be duly taen& he ill pay the amount thereo$ to the holder& or to any subse+uent indorser ho may be compelled to pay. C is not liable to 8 since the latter cannot trace his title to the $ormer. he si!nature o$ C in the supposed indorsement by him to ' as $or!ed by L. C can raise the de$ense o$ $or!ery since it as his si!nature that as $or!ed. A8TERNAT7>E ANSWER:
As a !eneral endorser& 5 is secondarily liable to 8. C is liable to 8 since it is due to the ne!li!ence o$ C in placin! the note in his draer that enabled L to steal the same and $or!e the si!nature o$ C relatie to the indorsement in $aor o$ '. As beteen C and 8 ho are both innocent parties& it is C hose ne!li!ence is the pro=imate cause o$ the loss. /ence C should su-er the loss. Ne'otia.le 7nstruments incom$lete an6 un6eliere6 instruments #ol6er in 6ue course (2000)
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>a (Act #2)? <=plain your anser. (#%) SUGGESTED ANSWER:
a$ ;7
is ri!ht. he instrument is incomplete and undeliered. It did not create any contract that ould bind ;7 to an obli!ation to pay the amount thereo$. b$ A payee in a promissory note cannot
be a “holder in due course” ithin the meanin! o$ the 7e!otiable Instruments >a& because a payee is an immediate party in relation to the maer. he payee is sub"ect to hateer de$enses& real o$ personal& aailable to the maer o$ the promissory note. A8TERNAT7>E ANSWER:
b) A payee can be a “holder in due course.” A holder is defned as the payee or indorsee o$ the instrument ho is in possession o$ it. <ery holder is deemed prima $acie to be a holder in due course. Ne'otia.le 7nstruments 7ncom$lete Deliere6 7nstruments Com$aratie Ne'li'ence (**+)
;7 maes a promissory note $or ;@&.& but leaes the name o$ the payee in blan because he anted to eri$y its correct spellin! frst. /e mindlessly le$t the note on top o$ his des at the end o$ the orday. When he returned the $olloin! mornin!& the note as missin!. It turned up later hen L presented it to ;7 $or payment. 5e$ore L& & ho turned out to hae flched the note $rom ;73s o-ice& had endorsed the note a$ter insertin! his on name in the blan space as the payee. ;7 dishonored the note& contendin! that he did not authori6e its completion and deliery. 5ut L said he had no participation in& or noled!e about& the pil$era!e and alteration o$ the note and there$ore he en"oys the ri!hts o$ a holder in due course under the 7e!otiable Instruments >a. Who is correct and hy? (%) b) Can the payee in a promissory note be a “holder in due course” ithin the meanin! o$ the 7e!otiable Instruments Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
A& sin!le proprietor o$ a business concern& is about to leae $or a business trip and& as he so o$ten does on these occasions& si!ns seeral checs in blan. /e instructs 5& his secretary& to sa$eeep the checs and fll them out hen and as re+uired to pay accounts durin! his absence. 5 flls out one o$ the checs by placin! her name as payee& flls in the amount& endorses and deliers the chec to C ho accepts it in !ood $aith as payment $or !oods sold to 5. 5 re!rets her action and tells A hat she did. A directs the 5an in time to dishonor the chec. When C encashes the chec& it is dishonored. Can A be held liable to C? SUGGESTED ANSWER:
0es& A can be held liable to C& assumin! that the latter !ae notice o$ dishonor to A. his is a case o$ an incomplete instrument but deliered as it as entrusted to 5& the secretary o$ A. oreoer& under the doctrine o$ comparatie ne!li!ence& as beteen A and C& both innocent parties& it as the ne!li!ence o$ A in entrustin! the chec to 5 hich is the pro=imate cause o$ the loss. Ne'otia.le 7nstruments -in6s o& ne'otia.le instrument ;or6s o& ne'otia.ilit% (2002)
your ne!otiable promissory note and (#) your chec& each containin! the essential elements o$ a ne!otiable instrument (#%) SUGGESTED ANSWER:
A* (2) A ne!otiable promissory note is an
unconditional promise in ritin! made by one person to another& si!ned by the maer& en!a!in! to pay on demand or at a f=ed or determinable $uture time& a sum certain in money to order or bearer. !$ A bill o$ e=chan!e is an unconditional
order in ritin! addressed by one person to another& si!ned by the person !iin! it& re+uirin! the person to hom it is addressed to pay on demand or at a f=ed or determinable $uture time a sum certain in money to order or to bearer. $ A chec is a bill o$ e=chan!e dran on a
ban payable on demand. B* (2) 7e!otiable promissory note
“1eptember 2@& ## “8or alue receied& I hereby promise to pay uan 1antos or order the sum o$ <7 /B,1A7' ;<1B1 (;2&) thirty () days $rom date hereo$.
A* 'efne the $olloin!* (2) a ne!otiable
promissory note& (#) a bill o$ e=chan!e and () a chec. (%) B* 0ou
are ;edro Cru6. 'ra$t the appropriate contract lan!ua!e $or (2)
Version 1990-2003 Arranged by SULAW Class
(1i!ned) ;edro Cru6 to* ;hilippine 7ational 5an
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Mercantile Law Bar Examination Q & A (1990-2006)
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Commercial 5anin! Co. he 5ylas o$ 1aad re+uires Ne'otia.le 7nstruments Re5uisites (**4)
What are the re+uisites o$ a ne!otiable instrument? SUGGESTED ANSWER:
he re+uisites o$ a ne!otiable instrument are as $ollos* a$ It must be in ritin! and si!ned by the maer or draerK b$ It must contain an unconditional promise or order to pay a sum certain in moneyK c$ It must be payable to order or to bearerK and .$ Where the instrument is addressed to a draee& he must be named or otherise indicated therein ith reasonable certainty. (1ec 2 7I>) Notice Dis#onor (**4)
When is notice o$ dishonor not re+uired to be !ien to the draer? SUGGESTED ANSWER:
7otice o$ dishonor is not re+uired to be !ien to the draer in any o$ the $olloin! cases* a$ Where the draer and draee are the same personK b$ When the draee is a fctitious person or a person not hain! capacity to contractK c$ When the draer is the person to hom the instrument is presented $or paymentK .$ Where the draer has no ri!ht to e=pect or re+uire that the draee or acceptor ill honor the instrumentK e$ Where the draer has countermanded payment (1ec 224 7I>) "arties Accommo6ation "art% (**0)
o accommodate Carmen& maer o$ a promissory note& or!e si!ned as indorser thereon& and the instrument as ne!otiated to 9a-y& a holder $or alue. At the time 9a-y too the instrument& he ne or!e to be an accomodation party only. When the promissory note as not paid& and 9a-y discoered that Carmen had no $unds& he
sued or!e. or!e pleads in de$ense the $act that he had endorsed the instrument ithout receiin! alue there$or& and the $urther $act that 9a-y ne that at the time he too the instrument or!e had not receied any alue or consideration o$ any ind $or his indorsement. Is or!e liable? 'iscuss. SUGGESTED ANSWER:
0es. or!e is liable. 1ec #H o$ the 7I> proides that an accommodation party is liable on the instrument to a holder $or alue& notithstandin! the holder at the time o$ tain! said instrument ne him to be only an accommodation party. his is the nature or the essence o$ accommodation. "arties Accommo6ation "art% (**)
Bn une 2& 2HH& A obtained a loan o$ ;2th $rom 5& payable not later than #'ec2HH. 5 re+uired A to issue him a chec $or that amount to be dated #'ec2HH. 1ince he does not hae any checin! account& A& ith the noled!e o$ 5& re+uested his $riend& C& ;resident o$ 1aad 5anin! Corp (1aad) to accommodate him. C a!reed& he si!ned a chec $or the a$oresaid amount dated #'ec 2HH& dran a!ainst 1aad3s account ith the A5C
that checs issued by it must be si!ned by the ;resident and the reasurer or the Qice;resident. 1ince the reasurer as absent& C re+uested the Qice;resident to cosi!n the chec& hich the latter reluctantly did. he chec as deliered to 5. he chec as dishonored upon presentment on due date $or insu-iciency o$ $unds. a$ Is 1aad liable on the chec as an accommodation party? b$ I$ it is not& ho then& under the aboe $acts& isOare the accommodation party? SUGGESTED ANSWER:
a.) 1aad is not liable on the chec as an accommodation party. he act o$ the corporation in accommodatin! a $riend o$ the ;resident& is ultra ires .Crisologo9ose C$ %R +0, 10Se-1+7# While it may be le!ally possible $or the corporation& hose business is to proide fnancial accommodations in the ordinary course o$ business& such as one !ien by a fnancin! company to be an accommodation party& this situation& hoeer& is not the case in the bar problem. b) Considerin! that both the ;resident and Qice ;resident ere si!natories to the accommodation& they themseles can be sub"ect to the liabilities o$ accommodation parties to the instrument in their personal capacity .Crisologo9ose C$ 10Se-1+7
"arties Accommo6ation "art% (**4)
7ora applied $or a loan o$ ;2th ith 5,9 5an. 5y ay o$ accommodation&
7ora3s sister& Qilma& e=ecuted a promissory note in $aor o$ 5,9 5an. When 7ora de$aulted& 5,9 5an sued Qilma& despite its noled!e that Qilma receied no part o$ the loan. ay Qilma be held liable? <=plain. SUGGESTED ANSWER:
0es& Qilma may be held liable. Qilma is an accommodation party. As such& she is liable on the instrument to a holder $or alue such as 5,9 5an. his is true een i$ 5,9 5an as aare at the time it too the instrument that Qilma is merely an accommodation party and receied no part o$ the loan .See Sec 2, & :ulalio /rudencio C$ %R 3(03, 9ul 1(, +6 1(3 s 7
"arties Accommo6ation "art% (**)
8or the purpose o$ lendin! his name ithout receiin! alue there$ore& ;edro maes a note $or ;#& payable to the order o$ L ho in turn ne!otiates it to 0& the latter noin! that ;edro is not a party $or alue. /* ay 0 recoer $rom ;edro i$ the latter interposes the absence o$ consideration? (%) !* 1upposin! under the same $acts& ;edro pays the said ;#& may he recoer the same amount $rom L? (#%) SUGGESTED ANSWER:
/* 0es. 0 can recoer $rom ;edro. ;edro is
an accommodation party. Absence o$ consideration is in the nature o$ an accommodation. 'e$ense o$ absence o$ consideration cannot be alidly interposed by accommodation party a!ainst a holder in due course.
Mercantile Law Bar Examination Q & A (1990-2006)
!*
I$ ;edro pays the said ;#& to 0& ;edro can recoer the amount $rom L. L is the accommodated party or the party ultimately liable $or the instrument. ;edro is only an accommodation party. Btherise& it ould be un"ust enrichment on the part o$ L i$ he is not to pay ;edro.
"arties Accommo6ation "art% (2003)
1usan Maada borroed ;@& $rom L0S 5an hich re+uired her& to!ether ith 9ose 9eyes ho did not receie any amount $rom the ban& to e=ecute a promissory note payable to the ban& or its order on stated maturities. he note as e=ecuted as so a!reed. What ind o$ liability as incurred by 9ose& that o$ an accommodation party or that o$ a solidary debtor? <=plain. (4%) SUGGESTED ANSWER:
(per 'ondee) 9ose may be held liable. 9ose is an accommodation party. Absence o$ consideration is in the nature o$ an accommodation. 'e$ense o$ absence o$ consideration cannot be alidly interposed by accommodation party a!ainst a holder in due course.
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sum o$ ;@& een i$ he did not receie any consideration $or the promissory note. his is the nature o$ accommodation. 5ut 5en >ope6 can as $or reimbursement $rom uan 1y& the accommodation party. !$ uan 1y is liable to the e=tent o$ ;@& in
the hands o$ a holder in due course (1ec 24 7I>). I$ 5en >ope6 paid the promissory note& uan 1y has the obli!ation to reimburse 5en >ope6 $or the amount paid. I$ uan 1y pays directly to the holder o$ the promissory note& or he pays 5en >ope6 $or the reimbursement o$ the payment by the latter to the holder& the instrument is dischar!ed. "arties Accommo6ation "art% (2001)
'a!ul has a business arran!ement ith 8acundo. he latter ould lend money to another& throu!h 'a!ul& hose name ould appear in the promissory note as the lender. 'a!ul ould then immediately indorse the note to 8acundo. Is 'a!ul an accommodation party? <=plain. (#%) SUGGESTED ANSWER:
"arties Accommo6ation "art% (2003)
uan 1y purchased $rom “A” Appliance Center one !enerator set on installment ith chattel mort!a!e in $aor o$ the endor. A$ter !ettin! hold o$ the !enerator set& uan 1y immediately sold it ithout consent o$ the endor. uan 1y as criminally char!ed ith esta$a. o settle the case e=tra "udicially& uan 1y paid the sum o$ ;#& and $or the balance o$ ;@&. he e=ecuted a promissory note $or said amount ith 5en >ope6 as an accommodation party. uan 1y $ailed to pay the balance. /$ What is the liability o$ 5en >ope6 as an accommodation party? <=plain. !$ What is the liability o$ uan 1y? SUGGESTED ANSWER:
/$ 5en >ope6& as an accommodation party&
is liable as maer to the holder up to the Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
0<1] 'a!ul is an accommodation party because in the case at bar& he is essentially& a person ho si!ns as maer ithout receiin! any consideration& si!ns as an accommodation party merely $or the purpose o$ lendin! the credit o$ his name. And as an accommodation party he cannot set up lac o$ consideration a!ainst any holder& een as to one ho is not a holder in due course. "arties ol6er in Due Course (**3)
>arry issued a ne!otiable promissory note to <elyn and authori6ed the latter to fll up the amount in blan ith his loan account in the sum o$ ;2&. /oeer& <elyn inserted ;@& in iolation o$ the instruction. 1he ne!otiated the note to ulie ho had noled!e o$ the infrmity. ulie in turn ne!otiated said note to 'ei $or alue and ho had no noled!e o$ the infrmity. /$ Can 'ei en$orce the note a!ainst >arry and i$ she can& $or ho much? <=plain. !$ 1upposin! 'ei endorses the note to 5aby $or alue but ho has noled!e o$ the infrmity& can the latter en$orce the note a!ainst >arry?
o$ trust committed by <elyn a!ainst >arry hich is "ust a personal de$ense. 5ut hain! taen the instrument $rom 'ei& a holder in due course& 5aby has all the ri!hts o$ a holder in due course. 5aby did not participate in the breach o$ trust committed by <elyn ho flled the blan but flled up the instrument ith ;@& instead o$ ;2& as instructed by >arry (1ec @J 7I>) "arties ol6er in Due Course (**4)
What constitutes a holder in due course? SUGGESTED ANSWER:
A holder in due course is one ho has taen the instrument under the $olloin! conditions* /* hat it is complete and re!ular upon its $aceK !* hat he became holder o$ it be$ore it as oerdue and ithout notice that it had been preiously dishonored& i$ such as the $actK * hat he too it in !ood $aith and $or alueK (* hat at the time it as ne!otiated to him& he had no notice o$ any infrmity in the instrument or de$ect in the title o$ the person ne!otiatin! it. (1ec @#& 7I>)
SUGGESTED ANSWER:
/$ 0es& 'ei can en$orce the ne!otiable
promissory note a!ainst >arry in the amount o$ ;@&. 'ei is a holder in due course and the breach o$ trust committed by <elyn cannot be set up by >arry a!ainst 'ei because it is a personal de$ense. As a holder in due course& 'ei is not sub"ect to such personal de$ense. !$ 0es. 5aby is not a holder in due course
because she has noled!e o$ the breach
Version 1990-2003 Arranged by SULAW Class
"arties ol6er in Due Course (**4)
2HH: #.#) <a issued to Imelda a chec in the amount o$ ;@th postdated 1ep & 2HH@& as security $or a diamond rin! to be sold on commission. Bn 1ep 2@& 2HH@& Imelda ne!otiated the chec to inestment hich paid the amount o$ ;4th to her. <a $ailed to sell the rin!& so she returned it to Imelda on 1ep 2H& 2HH@. ,nable to retriee her chec& <a ithdre
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
her $unds $rom the draee ban. hus& hen Inestment presented the chec $or payment& the draee ban dishonored it. >ater on& hen Inestment sued her& <a raised the de$ense o$ absence o$ consideration& the chec hain! been issued merely as security $or the rin! that she could not sell. 'oes <a hae a alid de$ense? <=plain. SUGGESTED ANSWER:
7o. <a does not hae a alid de$ense. 8irst& Inestment is a holder in due course and& as such& holds the postdated chec $ree $rom any de$ect o$ title o$ prior parties and $rom de$enses aailable to prior parties amon! themseles. <a can inoe the de$ense o$ absence o$ consideration a!ainst Inestment only i$ the latter as priy to the purpose $or hich the checs ere issued and& there$ore& not a holder in due course. 1econd& it is not a !round $or the dischar!e o$ the post dated chec 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 $orth in 1ec 22H o$ the 7I> and none o$ those !rounds are aailable to <a. he latter may not unilaterally dischar!e hersel$ $rom her liability by the mere e=pediency o$ ithdrain! her $unds $rom the draee ban. .State nest!ents C$ %R 11163, 9an 11, 3 21s327# "arties ol6er in Due Course (**)
L maes a promissory note $or ;2& payable to A& a minor& to help him buy school boos. A endorses the note to 5 $or alue& ho in turn endorses the note to C. C nos A is a minor. I$ C sues L on the note& can L set up the de$enses o$ minority and lac o$ consideration? (%) SUGGESTED ANSWER:
0es. C is not a holder in due course. he promissory 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 import. 7ot bein! a holder in due course& C is to sub"ect such personal de$enses o$ minority and lac
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o$ consideration. C is a mere assi!nee ho is sub"ect to all de$enses. A8TERNAT7>E ANSWER:
L cannot set up the de$ense o$ the minority o$ A. 'e$ense o$ minority is aailable to the minor only. 1uch de$ense is not aailable to L. L cannot set up the de$ense a!ainst C. >ac o$ consideration is a personal de$ense hich is only aailable beteen immediate parties or a!ainst parties ho are not holders in due course. C3s noled!e that A is a minor does not preent C $rom bein! a holder in due course. C too the promissory note $rom a holder $or alue& 5. "arties ol6er in Due Course 7n6orsement in .lan- (2002) A* A5 issued a promissory note $or ;2&
payable to C' or his order on 1eptember 2@& ##. C' indorsed the note in blan and deliered the same to <8. F/ stole the note $rom <8 and on 1eptember 24& ## presented it to A5 $or payment. When ased by A5& F/ said C'
!ae him the note in payment $or to caans o$ rice. A5 there$ore paid F/ ;2& on the same date. Bn 1eptember 2@& ##& <8 discoered that the note o$ A5 as not in his possession and he ent to A5. It as then that <8 $ound out that A5 had already made payment on the note. Can <8 still claim payment $rom A5? Why? (%) B* As a se+uel to the same $acts narrated aboe& <8& out o$ pity $or A5 ho had already paid ;2&. to F/& decided to $or!ie A5 and instead !o a$ter C' ho indorsed the note in blan to him. Is C' still liable to <8 by irtue o$ the indorsement in blan? Why? (#%) SUGGESTED ANSWER:
B7 maturity date& 9; as at the a$oresaid o-ice ready to pay the note but ;7 did not sho up. What ;7 later did as to sue L> $or the $ace alue o$ the note& plus interest and costs. Will the suit prosper? <=plain. (@%) SUGGESTED ANSWER:
0es. he suit ill prosper as $ar as the $ace alue o$ the note is concerned& but not ith respect to the interest due subse+uent to the maturity o$ the note and the costs o$ collection. 9; as ready and illin! to pay the note at the specifed place o$ payment on the specifed maturity date& but ;7 did not sho up. ;7 lost his ri!ht to recoer the interest due subse+uent to the maturity o$ the note and the costs o$ collection.
A* 7o. <8 cannot claim payment $rom A5.
<8 is not a holder o$ the promissory note. o mae the presentment $or payment& it is necessary to e=hibit the instrument& hich <8 cannot do because he is not in possession thereo$. B* 7o&
because C' instrument by deliery.
ne!otiated
the
"lace o& "a%ment (2000)
;7 is the holder o$ a ne!otiable promissory note ithin the meanin! o$ the 7e!otiable Instruments >a (Act #2). he note as ori!inally issued by 9; to L> as payee. L> indorsed the note to ;7 $or !oods bou!ht by L>. he note mentions the place o$ payment on the specifed maturity date as the o-ice o$ the corporate secretary o$ ;L 5an durin! banin! hours.
'li# Servi#e La! Certi&icate o& $u.lic Conenience (**)
he 5aton! 5aal Corporation fled ith the 5oard o$
7o. A certifcate o$ public conenience may be !ranted to 5aton! 5aal Corporation& thou!h not possessin! a
Mercantile Law Bar Examination Q & A (1990-2006)
le!islatie $ranchise& i$ it meets all the other re+uirements. here is nothin! in the la nor the Constitution& hich indicates that a le!islatie $ranchise is necessary or re+uired $or an entity to operate as supplier o$ electric poer and li!ht to its $actory and its employees liin! ithin the compound. Certi&icate o& "u.lic Conenience inse$ara.ilit% o& certi&icate an6 essel (**2)
Antonio as !ranted a Certifcate o$ ;ublic Conenience (C;C) in 2HJ: to operate a $erry beteen indoro and 5atan!as usin! the motor essel “Q >otus.” /e stopped operations in 2HJJ due to unsericeability o$ the essel. In 2HJH& 5asilio as !ranted a C;C $or the same route. A$ter a $e months& he discoered that Carlos as operatin! on his route under Antonio3s C;C. 5ecause 5asilio fled a complaint $or ille!al operations ith the aritime Industry Authority& Antonio and Carlos "ointly fled an application $or sale and trans$er o$ Antonio3s C;C and substitution o$ the essel “Q >otus” ith another oned by Carlos. 1hould Antonio3s and Carlos3 "oint application be approed? Fier your reasons.
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Public Ser)ice ActI SUGGESTED ANSWER:
he $olloin! are the re+uirements $or the !rantin! o$ a certifcate o$ public conenience& to it* a$ he applicant must be a citi6en o$ the ;hilippines& or acorporation& co partnership or association or!ani6ed under the las o$ the ;hilippines and at least :% o$ the stoc o$ paidup capital o$ hich must belon! to citi6ens o$ the ;hilippines. (1ec 2:a& CA 24:& as amended) b$ he applicant must proe public necessity. c$ he applicant must proe that the operation o$ the public serice proposed and the authori6ation to do business ill promote the public interest in a proper and suitable manner. (1ec 2:a CA 24: as amended) .$ he applicant must be fnancially capable o$ undertain! the proposed serice and meetin! the responsibilities incident to its operation. "o;ers o& t#e "u.lic Serice Commission (**3)
he City o$ anila passed an ordinance bannin! proincial buses $rom the city. he ordinance as challen!ed as inalid under the ;ublic 1erice Act by L
SUGGESTED ANSWER:
he "oint application o$ Antonio and Carlos $or the sale and trans$er o$ Antonio3s C;C and substitution o$ the essel Q >otus ith another essel oned by the trans$eree should not be approed. he certifcate o$ public conenience and Q >otus are inseparable. he unsericeability o$ the essel coered by the certifcate had lieise rendered ine-ectie the certifcate itsel$& and the holder thereo$ may not le!ally trans$er the same to another. .Cohon C$ 1++ s 17#
Certi&icate o& "u.lic Conenience Re5uirements (**1) ?at re-uire'ents 'ust be 'et before a certificate of public con)enience 'ay be grante. un.er te Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
ho had a certifcate o$ public conenience to operate autotrucs ith f=ed routes $rom certain tons in 5ulacan and 9i6al to anila and ithin anila. 8irstly& he claimed that the ordinance as null and oid because& amon! other thin!s& it in e-ect amends his certifcate o$ public conenience& a thin! hich only the ;ublic 1erice Commission can do under 1ec 2: (m) o$ the ;ublic 1erice Act. ,nder said section& the Commission is empoered to amend& modi$y& or reoe a certifcate o$ public conenience a$ter notice and hearin!. 1econdly& he contended that een i$ the ordinance as alid& it is only the Commission hich can re+uire compliance ith its proisions under 1ec 2 (") o$ said Act and since the implementation o$ the ordinance as ithout sanction or approal o$ the Commission& its en$orcement as unauthori6ed and ille!al. /$ ay the reliance o$ L on 1ection 2: (m) o$ the ;ublic 1erice Act be sustained? <=plain. !$ Was L correct in his contention that under 1ection 2 (") o$ the ;ublic 1erice Act it is only the Commissioner hich can re+uire compliance ith the proisions o$ the ordinance? <=plain. SUGGESTED ANSWER:
/$ 7o. he poer ested in the ;ublic
1erice Commission under 1ec 2:m is subordinate to the authority o$ the City o$ anila under 1ec 2J (hh) o$ its reised charter to superintend& re!ulate or control the streets o$ the city o$ anila. (>a!man City o$ anila 2 s @H) !$ 7o. he poers con$erred by la
Version 1990-2003 Arranged by SULAW Class
upon the ;ublic 1erice Commission ere not desi!ned to deny or supersede the re!ulatory poer o$ local !oernments oer motor tra-ic in the streets sub"ect to their control. .ag!an Cit5 of Manila 1 s 07 "u.lic utilities (2000)
WWW Communications Inc. is an e commerce company hose present business actiity is limited to proidin! its clients ith all types o$ in$ormation technolo!y hardare. It plans to re$ocus its corporate direction o$ !radually conertin! itsel$ into a $ull coner!ence or!ani6ation. oards this ob"ectie& the company has been a!!ressiely ac+uirin! telecommunications businesses and broadcast media enterprises& and consolidatin! their corporate structures. he ultimate plan is to hae only to or!ani6ations* one to on the $acilities o$ the combined businesses and to deelop and produce content materials& and another to operate the $acilities and proide mass media and commercial telecommunications serices. WWW Communications ill be the Ea!ship entity hich ill on the $acilities o$ the con!lomerate and proide content to the other ne corporation hich& in turn& ill operate those $acilities and proide the serices. WWW Communications sees your pro$essional adice on hether or not its reor!ani6ed business actiity ould be considered a public utility re+uirin! a $ranchise or certifcate or any other $orm o$ authori6ation $rom the !oernment. What ill be your adice? <=plain (@%) SUGGESTED ANSWER:
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
he reor!ani6ed business actiity o$ WWW Communications Inc. ould not be considered a public utility re+uirin! a $ranchise or certifcate or any other $orm o$ authori6ation $rom the !oernment. It ons the $acilities& but does not operate them. Reocation o& Certi&icate (**3) /$ 9obert is a holder o$ a certifcate o$
public conenience to operate a ta=icab serice in anila and suburbs. Bne eenin!& one o$ his ta=icab units as boarded by three robbers as they escaped a$ter sta!in! a holdup. 5ecause o$ said incident& the >895 reoed the certifcate o$ public conenience o$ 9obert on the !round that said operator $ailed to render sa$e& proper and ade+uate serice as re+uired under 1ec 2Ha o$ the ;ublic 1erice Act. a$ Was the reocation o$ the certifcate o$ public conenience o$ 9obert "ustifed? <=plain. b$ When can the Commission (5oard) e=ercise its poer to suspend or reoe certifcate o$ public conenience? SUGGESTED ANSWER:
2a) 7o. A sin!le holdup incident hich does not lin 9obert3s ta=icab cannot be construed that he rendered a serice that is unsa$e& inade+uate and improper .Man8anal $useGo 16( s 367 2b) ,nder 1ec 2Ha o$ the ;ublic 1erice Act& the Commission (5oard) can suspend or reoe a certifcate o$ public conenience hen the operator $ails to proide a serice that is sa$e& proper or ade+uate& and re$uses to render any serice hich can be reasonably demanded and $urnished. Reocation o& Certi&icate (**3)
;epay& a holder o$ a certifcate o$ public conenience& $ailed to re!ister to the complete number o$ units re+uired by her certifcate. /oeer& she tried to "usti$y such $ailure by the accidents that alle!edly be$ell her& claimin! that she as so
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shoced and burdened by the successie accidents and mis$ortunes that she did not no hat she as doin!& she as con$used and thron otan!ent momentarily& althou!h she alays had the money and fnancial ability to buy ne trucs and repair the destroyed one. Are the reasons !ien by ;epay su-icient !rounds to e=cuse her $rom completin! units? <=plain. SUGGESTED ANSWER:
7o. he reasons !ien by ;epay are not su-icient !rounds to e=cuse her $rom completin! her units. he same could be undertaen by her children or by other authori6ed representaties (1ec 2:n ;ub 1er ActK /alili /erras 2 s :H)
Se#rities Reglation 7nsi6er (200)
s. B5 as employed in A1 Inestment 5an. WIC& a medical dru! company& retained the 5an to assess hether it is desirable to mae a tender o-er $or 'B; company& a dru! manu$acturer. B5 oerheard in the
course o$ her or the plans o$ WIC. 5y hersel$ and thru associates& she purchased 'B; stocs aailable at the stoc e=chan!e priced at ;# per share. When WICDs tender o-er as announced& 'B; stocs "umped to ; per share. hus B5 earned a si6able proft. Is B5 liable $or breach and misuse o$ confdential or insider in$ormation !ained $rom her employment? Is she also liable $or dama!es to sellers or buyers ith hom she traded? I$ so& hat is the measure o$ such dama!es? <=plain brieEy. (@%) SUGGESTED ANSWER:
B5 is an insider (as defned in 1ubsection .J() o$ the 1ecurities 9e!ulation Code) since she is an employee o$ the 5an& the fnancial adiser o$ 'B;& and this relationship !ies her access to material in$ormation about the issuer ('B;) and the latterDs securities (shares)& hich in$ormation is not !enerally aailable to the public. Accordin!ly& B5 is !uilty o$ insider tradin! under 1ection # o$ the 1ecurities 9e!ulation Code& hich re+uires disclosure hen tradin! in securities. B5 is also liable $or dama!es to sellers or buyers ith hom she traded. ,nder 1ubsection :.2 o$ the 1ecurities 9e!ulation Code& the dama!es aarded could be an amount not e=ceedin! triple the amount o$ the transaction plus actual dama!es. <=emplary dama!es may also be aarded in case o$ bad $aith& $raud& maleolence or antonness in the iolation o$ the 1ecurities 9e!ulation Code or its implementin! rules. he court is also authori6ed to aard attorneyDs $ees not
e=ceedin! % o$ the aard.
7nsi6er Tra6in' (**1)
,nder the 9eised 1ecurities Act& it is unla$ul $or an insider to sell or buy a security o$ the issuer i$ he nos a $act o$ special si!nifcance ith respect to the issuer or the security that is not !enerally aailable& ithout disclosin! such $act to the other party. *a$ What does the term “insider” mean as used in the 9eised 1ecurities act? *b$ When is a $act considered to be “o$ special si!nifcance” under the same Act? *c$ What are the liabilities o$ a person ho iolates the pertinent proisions o$ the 9eised 1ecurities Act re!ardin! the un$air use o$ inside in$ormation? SUGGESTED ANSWER:
a. “Insider” means 2) the issuer& #) a director or o-icer o$& or a person controllin!& controlled by& or under common control ith& the issuer& ) a person hose relationship or $ormer relationship to the issuer !ies or !ae him access to a $act o$ special si!nifcance about the issuer or the security that is not !enerally aailable& or 4) a person ho learns such a $act $rom any o$ the $ore!oin! insiders ith noled!e that the person $rom hom he learns the $act is such an insider (1ec b& 91A) b. It is one hich& in addition to bein! material& ould be liely to a-ect the maret price o$ a security to a si!nifcant e=tent on bein! made !enerally aailable& or one hich a reasonable person ould consider especially
Mercantile Law Bar Examination Q & A (1990-2006)
important under the circumstances in determinin! his course o$ action in the li!ht o$ such $actors as the de!ree o$ its specifcity& the e=tent o$ its di-erence $rom in$ormation !enerally aailable preiously& and its nature and reliability. (1ec. c& 91A) c. he person may be liable to 2) a fne o$ not less than ;@th nor more than ;@th or #) imprisonment o$ not less than years nor more than #2 years& ) or both such fne and imprisonment in the discretion o$ the court. I$ the person is a corporation& partnership& association or other "uridical entity& the penalty shall be imposed upon the o-icers o$ the corporation& etc. responsible $or the iolation. And i$ such an o-icer is an alien& he shall& in addition to the penalties prescribed& be deported ithout $urther proceedin!s a$ter serice o$ sentence. (1ec @: 91A) 7nsi6er Tra6in' ani$ulatie "ractices (**)
Fie a case here a person ho is not an issuin! corporation& director or o-icer thereo$& or a person controllin!& controlled by or under common control ith the issuin! corporation& is also considered an “insider.” !$ In 1ecurities >a& hat is a “shortsin!” transaction. $ In “insider tradin!&” hat is a “$act o$ special si!nifcance”? /$
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person buys securities and sells or disposes o$ the same ithin a period o$ si= (:) months. A8TERNAT7>E ANSWER:
!$ It is a purchase by any person $or the
issuer or any person controllin!& controlled by& or under common control ith the issuer& or a purchase sub"ect to the control o$ the issuer or any such person& resultin! in benefcial onership o$ more than 2% o$ any class o$ shares (1ec # 9 1ec Act) $ In “insider tradin!&” a “$act o$ special
si!nifcance” is& in addition to bein! material& such $act as ould liely& on bein! made !enerally aailable& to a-ect the maret price o$ a security to a si!nifcant e=tent& or hich a reasonable person ould consider as especially important under the circumstances in determinin! his course o$ action in the li!ht o$ such $actors as the de!ree o$ its specifcity& the e=tent o$ its di-erence $rom in$ormation !enerally aailable preiously& and its nature and reliability (1ec par c 91ecAct) ani$ulatie "ractices (200)
1uppose A is the oner o$ seeral inactie securities. o create an appearance o$ actie tradin! $or such securities&
SUGGESTED ANSWER:
/$ It may be a case here a person& hose
relationship or $ormer relationship to the issuer !ies or !ae him access to a $act o$ special si!nifcance about the issuer or the security that is not !enerally aailable& or a person& ho learns such a $act $rom any o$ the insiders& ith noled!e that the person $rom hom he learns the $act& is such an insider (1ec & par (b) 9e 1ecurities Act) !$ A “shortsin!” is a transaction here a Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
A connies ith 5 by hich A ill o-er $or sale some o$ his securities and 5 ill buy them at a certain f=ed price& ith the understandin! that althou!h there ould be an apparent sale& A ill retain the benefcial onership thereo$. a$ Is the arran!ement la$ul? (%) b$ I$ the sale materiali6es& hat is it called? (#%) SUGGESTED ANSWER:
a$ 7o. he arran!ement is not la$ul. It
is an artifcial manipulation o$ the price o$ securities. his is prohibited by the 1ecurities 9e!ulation Code. b$ I$ the sale materiali6es& it is called a ash sale or simulated sale. Securities Re'ulation Co6e "ur$ose (**)
What is the principal purpose o$ las and re!ulations !oernin! securities in the ;hilippines? (#%) SUGGESTED ANSWER:
he principal purpose o$ las and re!ulations !oernin! securities in the ;hilippines is to protect the public a!ainst the ne$arious practices o$ unscrupulous broers and salesmen in sellin! securities. Securities De&inition (**4)
'efne securities SUGGESTED ANSWER:
1tocs& bonds notes& conertible debentures& arrants or other documents that represent a share in a company or a debt oned by a company or !oernment entity. <idences o$ obli!ations to pay money or o$ ri!hts to participate in earnin!s and distribution o$ corporate assets. Instruments !iin! to their le!al
Version 1990-2003 Arranged by SULAW Class
holders ri!hts to money or other propertyK they are there$ore instruments hich hae intrinsic alue and are reco!ni6ed and used as such in the re!ular channels o$ commerce. (0ote Sec a of the +evised Securities #ct does not really define the term Psecurities'M!
Securities Sellin' o& Securities eanin' (2002)
## (2J) <+uity Bnline Corporation ()& a 7e 0or corporation& has a securities broera!e serice on the Internet a$ter obtainin! all re+uisite ,.1. licenses and permits to do so. 3s ebsite (.eonline..com)& hich is hosted by a serer in 8lorida& enables Internet users to trade online in securities listed in the arious stoc e=chan!es in the ,.1. buys and sells ,.1. listed securities $or the accounts o$ its clients all oer the orld& ho coney their buy and sell instructions to throu!h the Internet. has no o-ices& employees or representaties outside the ,.1. he ebsite has icons $or many countries& includin! an icon “8or 8ilipino raders” containin! the day3s prices o$ ,.1. listed securities e=pressed in ,.1. dollars and their ;hilippine peso e+uialent. Frace Fon6ales& a resident o$ aati& is a re!ular customer o$ the ebsite and has been purchasin! and sellin! securities throu!h ith the use o$ her American <=press credit card. Frace has neer traeled outside the ;hilippines. A$ter a series o$ erroneous stoc pics& she had incurred a net indebtedness o$ ,1R&. ith & at hich time she cancelled her American <=press credit card. A$ter a
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Page
number o$ demand letters sent to Frace& all o$ them unansered& & throu!h a aati la frm& fled a complaint $or collection a!ainst Frace ith the 9e!ional rial Court o$ aati. Frace& throu!h her layer& fled a motion to dismiss on the !round that (a) as doin! business in the ;hilippines ithout a license and as there$ore barred $rom brin!in! suit and (b) iolated the 1ecurities 9e!ulation Code by sellin! or o-erin! to sell securities ithin the ;hilippines ithout re!isterin! the securities ith the ;hilippine 1 opposed the motion to dismiss& contendin! that it had neer established a physical presence in the ;hilippines& and that all o$ the actiities related to plainti-s tradin! in ,.1. securities all transpired outside the ;hilippines. I$ you are the "ud!e& decide the motion to dismiss by rulin! on the respectie contentions o$ the parties on the basis o$ the $acts presented aboe. (2%) SUGGESTED ANSWER:
he !rounds o$ the motion to dismiss are both untenable. is not doin! business in the ;hilippines& and it did not iolate the 1ecurites Act& because it as not sellin! securities in the country. he contention o$ is correct& because it neer did any business in the ;hilippines. All its transactions in +uestion ere consummated outside the ;hilippines. Ten6er <&&er (2002)
## (:) A* What is a tender o-er? B* In hat instances is re+uired to be made?
a
tender
o-er
SUGGESTED ANSWER:
A* ender
o-er is a publicly announced intention o$ a person actin! alone or in concert ith other persons to ac+uire e+uity securities o$ a public company. It may also be defned as a method o$ tain! oer a company by asin! stocholders to sell their shares at a price hi!her than the current maret price and on a particular date.
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B* Instances here tender o-er is re+uired to
be made* a$ he person intends to ac+uire 2@% or more o$ the e+uity share o$ a public company pursuant to an a!reement made beteen or amon! the person and one or more sellers. b$ he person intends to ac+uire % or more o$ the e+uity shares o$ a public company ithin a period o$ 2# months. c$ he person intends to ac+uire e+uity shares o$ a public company that ould result in onership o$ more than @% o$ the said shares.
Trans%ortation La! ,oun6ar% S%stem (2001)
5aldo is a drier o$ 0ello Cab Company under the boundary system. While cruisin! alon! the 1outh <=pressay& 5aldo3s cab f!ured in a collision& illin! his
passen!er& ;ietro. he heirs o$ ;ietro sued 0ello Cab Company $or dama!es& but the latter re$used to pay the heirs& insistin! that it is not liable because 5aldo is not its employee. 9esole ith reasons. (#%) SUGGESTED ANSWER:
0ello Cab Company shall be liable ith 5aldo& on a solidary basis& $or the death o$ passen!er ;ietro. 5aldo is an employee o$ 0ello Cab under the boundary system. As such& the death o$ passen!er ;ietro is breach o$ contract o$ carria!e& main! both the common carrier 0ello Cab and its employee& 5aldo& solidarily liable. .ernande8 # )olor, %#R, &o# 162+6, 9ul5 3, 2(7
Carria'e ,reac# o& Contract "resum$tion o& Ne'li'ence (**0)
;eter so hailed a ta=icab oned and operated by immy Chen! and drien by /ermie Corte6. ;eter ased Corte6 to tae him to his o-ice in alate. Bn the ay to alate& the ta=icab collided ith a passen!er "eepney& as a result o$ hich ;eter as in"ured& i.e.& he $ractured his le$t le!. ;eter sued immy $or dama!es& based upon a contract o$ carria!e& and ;eter on. immy anted to challen!e the decision be$ore the 1C on the !round that the trial court erred in not main! an e=press fndin! as to hether or not immy as responsible $or the collision and& hence& ciilly liable to ;eter. /e ent to see you $or adice. What ill you tell him? <=plain. SUGGESTED ANSWER:
I ill counsel immy to desist $rom challen!in! the decision. he action o$
;eter bein! based on culpa contractual& the carrier3s ne!li!ence is presumed upon the breach o$ contract. he burden o$ proo$ instead ould lie on immy to establish that despite an e=ercise o$ utmost dili!ence the collision could not hae been aoided. Carria'e ,reac# o& Contract "resum$tion o& Ne'li'ence (**+)
In a court case inolin! claims $or dama!es arisin! $rom death and in"ury o$ bus passen!ers& counsel $or the bus operator fles a demurrer to eidence ar!uin! that the complaint should be dismissed because the plainti-s did not submit any eidence that the operator or its employees ere ne!li!ent. I$ you ere the "ud!e& ould you dismiss the complaint? SUGGESTED ANSWER:
7o. In the carria!e o$ passen!ers& the $ailure o$ the common carrier to brin! the passen!ers sa$ely to their destination immediately raises the presumption that such $ailure is attributable to the carrier3s $ault or ne!li!ence. In the case at bar& the $act o$ death and in"ury o$ the bus passen!ers raises the presumption o$ $ault or ne!li!ence on the part o$ the carrier. he carrier must rebut such presumption. Btherise& the conclusion can be properly made that the carrier $ailed to e=ercise e=traordinary dili!ence as re+uired by la. Carria'e /ortuitous Eent (**1)
. 'i6on rucin! entered into a haulin! contract ith 8air!oods Co hereby the $ormer bound itsel$ to haul the latter3s # sacs o$ 1oya bean meal $rom anila
Mercantile Law Bar Examination Q & A (1990-2006)
;ort Area to Calamba& >a!una. o carry out $aith$ully its obli!ation 'i6on subcontracted ith a!una to stran!ers suddenly stopped the truc and hi"aced the car!o. Inesti!ation by the police disclosed that one o$ the hi"acers as armed ith a bladed eapon hile the other as unarmed. 8or $ailure to delier the 4 sacs& 8air!oods sued 'i6on $or dama!es. 'i6on in turn set up a rd party complaint a!ainst 9eyes hich the latter re!istered on the !round that the loss as due to $orce ma"eure. 'id the hi"acin! constitute $orce ma"eure to e=culpate 9eyes $rom any liability to 'i6on? 'iscuss $ully. SUGGESTED ANSWER:
7o. he hi"acin! in this case cannot be considered $orce ma"eure. Bnly one o$ the to hi"acers as armed ith a bladed eapon. As a!ainst the 4 male employees o$ 9eyes& # hi"acers& ith only one o$ them bein! armed ith a bladed eapon& cannot be considered $orce ma"eure. he hi"acers did not act ith !rae or irresistible threat& iolence or $orce.
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liable $or acts o$ other passen!ers. 5ut the common carrier cannot reliee itsel$ $rom liability i$ the common carrier3s employees could hae preented the act or omission by e=ercisin! due dili!ence. In this case& the passen!er ased the drier to eep an eye on the ba! hich as placed beside the drier3s seat. I$ the drier e=ercised due dili!ence& he could hae preented the loss o$ the ba!. Carria'e "ro#i.ite6 >ali6 Sti$ulations (2002)
'iscuss hether or not the $olloin! stipulations in a contract o$ carria!e o$ a common carrier are alid* /* a stipulation limitin! the sum that may be recoered by the shipper or oner to H% o$ the alue o$ the !oods in case o$ loss due to the$t. !* a stipulation that in the eent o$ loss& destruction or deterioration o$ !oods on account o$ the de$ectie condition o$ the ehicle used in the contract o$ carria!e& the carrier3s liability is limited to the alue o$ the !oods appearin! in the bill o$ ladin! unless the shipper or oner declares a hi!her alue (@%) SUGGESTED ANSWER:
Carria'e 8ia.ilit% 8ost ,a''a'e or Acts o& "assen'ers (**+)
2HH (2@) Antonio& a payin! passen!er& boarded a bus bound $or 5atan!as City. /e chose a seat at the $ront ro& near the bus drier& and told the bus drier that he had aluable items in his hand carried ba! hich he then placed beside the drier3s seat. 7ot hain! slept $or #4 hours& he re+uested the drier to eep an eye on the ba! should he do6e o- durin! the trip. While Antonio as asleep& another passen!er too the ba! aay and ali!hted at Calamba& >a!una. Could the common carrier be held liable by Antonio $or the loss? SUGGESTED ANSWER:
0es. Brdinarily& the common carrier is not Version 1990-2003 Arranged by SULAW Class
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/*
!*
he stipulation is considered unreasonable& un"ust and contrary to public policy under Article 24@ o$ the Ciil Code. he stipulation limitin! the carrier3s liability to the alue o$ the !oods appearin! in the bill o$ ladin! unless the shipper or oner declares a hi!her alue& is e=pressly reco!ni6ed in Article 24H o$ the Ciil Code.
Carria'e >aluation o& Dama'e6 Car'o (**3)
A shipped thirteen pieces o$ lu!!a!e throu!h >F Airlines $rom eheran to anila as eidenced by >F Air Waybill hich disclosed that the actual !ross ei!ht o$ the lu!!a!e as 2J !. S did not declare an inentory o$ the contents or the alue o$ the 2 pieces o$ lu!!a!e. A$ter the said pieces o$ lu!!a!e arried in anila& the consi!nee as able to claim $rom the car!o broer only 2# pieces& ith a total ei!ht o$ 24 !. L adised the airline o$ the loss o$ one o$ the 2 pieces o$ lu!!a!e and o$ the contents thereo$. <-orts o$ the airline to trace the missin! lu!!a!e ere $ruitless. 1ince the airline $ailed to comply ith the demand o$ L to produce the missin! lu!!a!e& L fled an action $or breach o$ contract ith dama!es a!ainst >F Airlines. In its anser& >F Airlines alle!ed that the Warsa Conention hich limits the liability o$ the carrier& i$ any& ith respect to car!o to a sum o$ R# per ilo or RH. per pound& unless a hi!her alue is declared in adance and additional char!es are paid by the passen!er and the conditions o$ the contract as set $orth in the air aybill& e=pressly sub"ect the
Version 1990-2003 Arranged by SULAW Class
contract o$ the carria!e o$ car!o to the Warsa Conention. ay the alle!ation o$ >F Airlines be sustained? <=plain. SUGGESTED ANSWER:
0es. ,nless the contents o$ a car!o are declared or the contents o$ a lost lu!!a!e are proed by the satis$actory eidence other than the sel$serin! declaration o$ one party& the contract should be en$orced as it is the only reasonable basis to arrie at a "ust aard. he passen!er or shipper is bound by the terms o$ the passen!er ticet or the aybill. ./ana!a Ra-adas 2 s 67
Common Carrier (**4)
'efne a common carrier? SUGGESTED ANSWER:
A common carrier is a person& corporation& frm or association en!a!ed in the business o$ carryin! or transportin! passen!ers or !oods or both& by land& ater or air $or compensation& o-erin! its serices to the public (Art 2#& Ciil Code) Common Carrier ,reac# o& Contract Dama'es (2003)
Qiian artin as booed by ;A>& hich acted as a ticetin! a!ent o$ 8ar . he ticet shoed that Qiian as scheduled to leae anila at @* p.m. on @ anuary ## aboard 8ar
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turned out that the ticet as inadertently cut and ron!ly orded. ;A> employees mannin! the airport3s !round serices neertheless scheduled her to Ey to hours later aboard their plane. 1he a!reed and arried in /on!on! sa$ely. he aircra$t used by 8ar and 8ar
(per dondee) 7o& there as breach o$ contract and that she as accommodated ell ith the assistance o$ ;A> employees to tae the Ei!ht ithout undue delay. Common Carrier De&enses (2002)
Why is the de$ense o$ due dili!ence in the selection and superision o$ an employee not aailable to a common carrier? (#%) SUGGESTED ANSWER:
he de$ense o$ due dili!ence in the selection and superision o$ an employee is not aailable to a common carrier because the de!ree o$ dili!ence re+uired o$ a common carrier is not the dili!ence o$ a !ood $ather o$ a $amily but e=traordinary dili!ence& i.e.& dili!ence o$ the !reatest sill and utmost $oresi!ht. Common Carrier De&enses /ortuitous Eents (**)
arites& a payin! bus passen!er& as hit aboe her le$t eye by a stone hurled at the bus by an unidentifed bystander as the bus as speedin! throu!h the 7ational /i!hay. he bus oner3s personnel lost no time in brin!in! arites to the proincial hospital here she as confned and treated. arites ants to sue the bus company $or dama!es and sees your adice hether she can le!ally hold the bus company liable. What ill you adise her? SUGGESTED ANSWER:
arites can not le!ally hold the bus company liable. here is no shoin! that any such incident preiously happened so
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as to impose an obli!ation on part o$ the personnel o$ the bus company to arn the passen!ers and to tae the necessary precaution. 1uch hurlin! o$ a stone constitutes $ortuitous eent in this case. he bus company is not an insurer. ./ila-il C$ 1+ s 3(67 Common Carrier De&enses 8imitation o& 8ia.ilit% (**) L
too a plane $rom anila bound $or 'aao ia Cebu here there as a chan!e o$ planes. L arried in 'aao sa$ely but to his dismay& his to suitcases ere le$t behind in Cebu. he airline company assured L that the suitcases ould come in the ne=t Ei!ht but they neer did. L claimed ;#& $or the loss o$ both suitcases& but the airline as illin! to pay only ;@ because the airline ticet stipulated that unless a hi!her alue as declared& any claim $or loss cannot e=ceed ;#@ $or each piece o$ lu!!a!e. L reasoned out that he did not si!n the stipulation and in $act had not een read it.
L did not declare a !reater alue despite the $act that the cler had called his attention to the stipulation in the ticet. 'ecide the case (@%) SUGGESTED ANSWER:
<en i$ he did not si!n the ticet& L is bound by the stipulation that any claim $or loss cannot e=ceed ;#@ $or each lu!!a!e. /e did not declare a hi!her alue. L is entitled to ;@ $or the to lu!!a!es lost.
Common Carrier De&enses 8imitation o& 8ia.ilit% (200) Suppose A was ri.ing on an airplane of a co''on carrier wen te acci.ent appene. an. A suffere. serious in9uries* 1n an action by A against te co''on carrier te latter clai'e. tat /$ there as a stipulation in the ticet
issued to A absolutely e=emptin! the carrier $rom liability $rom the passen!er3s death or in"uries ad notices ere posted by the common carrier dispensin! ith the e=traordinary dili!ence o$ the carrier& and !$ A as !ien a discount on his plane $are thereby reducin! the liability o$ the common carrier ith respect to A in particular. a$ Are those alid de$enses? (2%) b$ What are the de$enses aailable to any common carrier to limit or e=empt it $rom liability? (4%) SUGGESTED ANSWER:
a$ 7o.
hese are not alid de$enses because they are contrary to la as they are in iolation o$ the e=traordinary dili!ence re+uired o$ common carriers. (Article 2@& 2@J 7e Ciil Code) b$ he de$enses aailable to any common
carrier to limit or e=empt it $rom liability are* /* obserance o$ e=traordinary dili!ence& !* or the pro=imate cause o$ the incident is a $ortuitous eent or $orce ma"eure& * act or omission o$ the shipper or oner o$ the !oods& (* the character o$ the !oods or de$ects in the pacin! or in the containers& and #* order or act o$ competent public authority& ithout the common carrier bein! !uilty o$ een simple ne!li!ence (Article 24& 7CC). Common Carrier Duration o& 8ia.ilit% (**4)
A bus o$ F> ransit on its ay to 'aao stopped to enable a passen!er to ali!ht. At that moment& 1antia!o& ho had been aitin! $or a ride& boarded the bus. /oeer& the bus drier $ailed to notice 1antia!o ho as still standin! on the bus plat$orm& and stepped on the accelerator. 5ecause o$ the sudden motion& 1antia!o slipped and $ell don su-erin! serious in"uries. ay 1antia!o hold F> ransit liable $or breach o$ contract o$ carria!e? <=plain. SUGGESTED ANSWER:
1antia!o may hold F> ransit liable $or breach o$ contract o$ carria!e. It as the duty o$ the drier& hen he stopped the bus& to do no act that ould hae the e-ect o$ increasin! the peril to a passen!er such as 1antia!o hile he as attemptin! to board the same. When a bus is not in motion there is no necessity $or a
Mercantile Law Bar Examination Q & A (1990-2006)
person ho ants to ride the same to si!nal his intention to board. A public utility bus& once it stops& is in e-ect main! a continuous o-er to bus riders. It is the duty o$ common carriers o$ passen!ers to stop their coneyances $or a reasonable len!th o$ time in order to a-ord passen!ers an opportunity to board and enter& and they are liable $or in"uries su-ered by boardin! passen!ers resultin! $rom the sudden startin! up or "erin! o$ their coneyances hile they are doin! so. 1antia!o& by steppin! and standin! on the plat$orm o$ the bus& is already considered a passen!er and is entitled to all the ri!hts and protection pertainin! to a contract o$ carria!e. .)ang4a ?rans Co C$ 00+2 Oct ,1 22s0(7 Common Carrier Dut% to E9amine ,a''a'es Rail;a% an6 Airline (**2)
arino as a passen!er on a train. Another passen!er& uancho& had taen a !allon o$ !asoline placed in a plastic ba! into the same coach here arino as ridin!. he !asoline i!nited and e=ploded causin! in"ury to arino ho fled a ciil suit $or dama!es a!ainst the railay company claimin! that uancho should hae been sub"ected to inspection by its conductor. he railay company disclaimed liability resultin! $rom the e=plosion contendin! that it as unaare o$ the contents o$ the plastic ba! and inoin! the ri!ht o$ uancho to priacy. a$ 1hould the railay company be held liable $or dama!es? b$ I$ it ere an airline company inoled& ould your anser be the same? <=plain brieEy.
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b$ I$
it ere an airline company& the common carrier should be made liable. In case o$ air carriers& it is not la$ul to carry Eammable materials in passen!er aircra$ts& and airline companies may open and inesti!ate suspicious paca!es and car!oes (9A :#@) Common Carrier Test (**4)
What is the test $or determinin! hether or not one is a common carrier? SUGGESTED ANSWER:
he test $or determinin! hether or not one is a common carrier is hether the person or entity& $or some business purpose and ith !eneral or limited clientele& o-ers the serice o$ carryin! or transportin! passen!ers or !oods or both $or compensation. Common Carriers De&enses (**4) /$ A rucin!& a small company& operates
to trucs $or hire on selectie basis. It caters only to a $e customers& and its trucs do not mae re!ular or scheduled trips. It does not een hae a certifcate o$ public conenience.
SUGGESTED ANSWER:
a$ 7o. he railay company is not liable $or
dama!es. In oerland transportation& the common carrier is not bound nor empoered to mae an e=amination on the contents o$ paca!es or ba!s& particularly those handcarried by passen!ers. Version 1990-2003 Arranged by SULAW Class
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Bn one occasion& 9eynaldo contracted A to transport $or a $ee& 2 sacs o$ rice $rom anila to arlac. /oeer& A $ailed to delier the car!o& because its truc as hi"aced hen the drier stopped in 5ulacan to isit his !irl$riend. a$ ay 9eynaldo hold A liable as a common carrier? b$ ay A set up the hi"acin! as a de$ense to de$eat 9eynaldo3s claim? SUGGESTED ANSWER:
a$ 9eynaldo may hold A rucin! liable
as a common carrier. he $acts that A rucin! operates only to trucs $or hire on a selectie basis& caters only to a $e customers& does not mae re!ular or scheduled trips& and does not hae a certifcate o$ public conenience are o$ no moment as the la does not distin!uish beteen one hose principal business actiity is the carryin! o$ persons or !oods or both and anyone ho does such carryin! only as an ancillary actiity& •
•
•
the la aoids main! any distinction beteen a person or enterprise o-erin! transportation serice on a re!ular or scheduled basis and one o-erin! such serice on an occasional& episodic or unscheduled basis& and the la re$rains $rom main! a distinction beteen a carrier o-erin! its serices to the !eneral public and one ho o-ers serices or solicits business only $rom a narro se!ment o$ the !eneral population
Version 1990-2003 Arranged by SULAW Class
./edro de %u8!an C$ (+22 )ec 22,++ 16+s6127 SUGGESTED ANSWER:
b$ A
rucin! may not set up the hi"acin! as a de$ense to de$eat 9eynaldo3s claim as the $acts !ien do not indicate that the same as attended by the use o$ !rae or irresistible threat& iolence& or $orce. It ould appear that the truc as le$t unattended by its drier and as taen hile he as isitin! his !irl$riend. ( /edro de %u8!an C$ (+22 )ec 22,++ 16+ scra 612). Common Carriers 8ia.ilit% &or 8oss (**)
Ale"andor Camalin! o$ Ale!ria& Cebu& is en!a!ed in buyin! copra& charcoal& freood& and used bottles and in resellin! them in Cebu City. /e uses # bi! Isu6u trucs $or the purposeK hoeer& he has no certifcate o$ public conenience or $ranchise to do business as a common carrier. Bn the return trips to Ale!ria& he loads his trucs ith arious merchandise o$ other merchants in Ale!ria and the nei!hborin! municipalities o$ 5adian and Finatilan. /e char!es them $rei!ht rates much loer than the re!ular rates. In one o$ the return trips& hich le$t Cebu City at J* p.m. 2 car!o truc as loaded ith seeral bo=es o$ sardines& alued at ;2th& belon!in! to one o$ his customers& ;edro 9abor. While passin! the 6i!6a! road beteen Carcar and 5arili& Cebu& hich is miday beteen Cebu City and Ale!ria& the truc as hi"aced by armed men ho too all the bo=es o$
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sardines and idnapped the drier and his helper& releasin! them in Cebu City only # days later. ;edro 9abor sou!ht to recoer $rom Ale"andro the alue o$ the sardines. he latter contends that he is not liable there$ore because he is not a common carrier under the Ciil Code and& een !rantin! $or the sae o$ 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. I$ you ere the "ud!e& ould you sustain the contention o$ Ale"andro? SUGGESTED ANSWER:
I$ I ere the ud!e& I ould hold Ale"andro as hain! en!a!ed as a common carrier. A person ho o-ers his serices to carry passen!ers or !oods $or a $ee is a common carrier re!ardless o$ hether he has a certifcate o$ public conenience or not& hether it is his main business or incidental to such business& hether it is scheduled or unscheduled serice& and hether he o-ers his serices to the !eneral public or to a limited $e .)e %u8!an C$ %R (+22 2)ec1++7
I ill hoeer& 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. I$ it can be established that the loss& despite the e=ercise o$ e=traordinary dili!ence& could not hae been aoided& liability does not ensue a!ainst the carrier. he hi"acin! by armed men o$ the truc used by Ale"andro is one o$ such cases .)e %u8!an C$ %R (+22 2)ec1++7#
Common s! "riate Carrier De&enses (2002)
7ame to (#) characteristics hich di-erentiate a common carrier $rom a priate carrier. (%). SUGGESTED ANSWER:
o (#) characteristics that di-erentiate a common carrier $rom a priate carrier are* /* A common carrier o-ers its serice to the publicK a priate carrier does not.
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!* A common carrier is re+uired to obsere
e=traordinary dili!enceK carrier is not so re+uired.
a
priate
Ha.it S%stem (2001)
'iscuss the “abit system” in land transportation and its le!al conse+uences. (#%) SUGGESTED ANSWER:
2e kabit syste' is an arrange'ent were a person grante. a certificate of public con)enience allows oter persons to operate teir 'otor )eicles un.er is license for a fee or percentage of teir earnings (Fim v' "ourt of #ppeals and 4onale, 4'+, 0o' )58)7,
2e law en9oining te kabit syste' ai's to i.entify te person responsible for an acci.ent in or.er to protect te ri.ing public* 2e policy as no force wen te public at large is neiter .ecei)e. nor in)ol)e.* 57*.,
he la does not penali6e the parties to a abit a!reement. 5ut the abit system is contrary to public
policy and there$ore oid and ine=istent. (Art. 24HZ2[& Ciil Code) Ha.it S%stem A'ent o& t#e Re'istere6 <;ner (2001)
;rocopio purchased an Isu6u passen!er "eepney $rom os 5a\os route. While ;rocopio continued o-erin! the "eepney $or public transport serices& he did not hae the re!istration o$ the ehicle trans$erred in his name. 7either did he secure $or himsel$ a certifcate o$ public conenience $or its operation. hus& per the records o$ the >and ransportation 8ranchisin! and 9e!ulatory 5oard&
nor in)ol)e.* (Fim v' "ourt of #ppeals, 4'+' 0o' )58)7,
8or the transportation o$ its car!o $rom the ;ort o$ anila to the ;ort o$ Mobe& apan& Bsaa P Co.& chartered “bareboat” OQ Ilo! o$ Mara!atan Corporation. OQ Ilo! 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? (4%) SUGGESTED ANSWER:
(per 'ondee) Bsaa and Co. shall bear the loss because under a demise or bareboat charter& the charterer (Bsaa P Co.) mans the essel ith his on people and becomes& in e-ect& the oner $or the oya!e or serice stipulated& sub"ect to liability $or dama!es caused by ne!li!ence.
SUGGESTED ANSWER:
2e 'otion to .is'iss soul. be .enie. because Procopio as te real owner of te 9eepney is te real party in interest* Procopio falls un.er te Habit syste'* Eowe)er te legal restriction as regar.s te Habit syste' .oes not apply in tis case because te public at large is not .ecei)e.
"rior <$erator Rule (2003)
5ayan 5us >ines had been operatin! satis$actorily a bus serice oer the route anila to arlac and ice ersa ia the cArthur /i!hay. With the up!radin! o$ the ne 7orth <=pressay& 5ayan 5us >ines serice became
Mercantile Law Bar Examination Q & A (1990-2006)
seemin!ly inade+uate despite its e-orts o$ improin! the same. ;aso ransportation& Inc.& no applies $or the issuance to it by the >and ransportation 8ranchisin! and 9e!ulatory 5oard o$ a certifcate o$ public conenience $or the same anilaarlacanila route. Could 5ayan 5us >ines& Inc.& inoe the “prior operator” rules a!ainst ;aso ransportation& Inc.? Why? (:%) SUGGESTED ANSWER:
(per 'ondee) 7o& 5ayan 5us >ines& Inc.& cannot inoe the “prior operator” rules a!ainst ;aso ransportation& Inc. because such “;rior or Bld Bperator 9ule” under the ;ublic 1erice Act only applies as a policy o$ the la o$ the ;ublic 1erice Commission to issue a certifcate o$ public conenience to a second operator hen prior operator is renderin! su-icient& ade+uate and satis$actory serice& and ho in all thin!s and respects is complyin! ith the rule and re!ulation o$ the Commission. In the $acts o$ the case at bar& 5ayan 5us >ines serice became seemin!ly inade+uate despite its e-orts o$ improin! the same. /ence& in the interest o$ proidin! e-icient public transport serices& the use o$ the Dprior operatorD and the Dpriority o$ flin!D rules shall is untenable n this case.
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he 1herileied on the "eepney belon!in! to ohnny but re!istered in the name o$ Qan. ohnny fled a rd party claim ith the 1heri- alle!in! onership o$ the "eepney leied upon and statin! that the "eepney as re!istered in the name o$ Qan merely to enable ohnny to mae use o$ Qan3s certifcate o$ public conenience. ay the 1heri- proceed ith the public auction o$ ohnny3s "eepney. 'iscuss ith reasons. SUGGESTED ANSWER:
0es& the 1heri- may proceed ith the auction sale o$ ohnny3s "eepney. In contemplation o$ la as re!ards the public and third persons& the ehicle is considered the property o$ the re!istered operator .Santos Si*ug 1( S 027 Trans?S#i$ment ,ill o& 8a6in' .in6in' contract (**3)
9 Inc entered into a contract ith C Co o$ apan to e=port anaha $ans alued at R#&. As payment thereo$& a letter o$ credit as issued to 9 by the buyer. he letter o$ credit re+uired the issuance o$ an onboard bill o$ ladin! and prohibited the transshipment. he ;resident o$ 9 then contracted a shippin! a!ent to ship the anaha $ans throu!h B Containers >ines& speci$yin! the re+uirements o$ the letter o$ credit. /oeer& the bill o$ ladin! issued by the shippin! lines bore the notation
Re'istere6 <;ner Conclusie "resum$tion (**0)
ohnny ons a 1arao "eepney. /e ased his nei!hbor Qan i$ he could operate the said "eepney under Qan3s certifcate o$ public conenience. Qan a!reed and& accordin!ly& ohnny re!istered his "eepney under Qan name. Bn une 2& 2HH& one o$ the passen!er "eepneys operated by Qan bumped omas. omas as in"ured and in due time& he fled a complaint $or dama!es a!ainst Qan and his drier $or the in"uries he su-ered. he court rendered "ud!ment in $aor o$ omas and ordered Qan and his drier& "ointly and seerally& to pay omas actual and moral dama!es& attorney3s $ees& and costs. Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
“receied $or shipment” and contained an entry indicatin! transshipment in /on!on!. he ;resident o$ 9 personally receied and si!ned the bill o$ ladin! and despite the entries& he deliered the correspondin! chec in payment o$ the $rei!ht. he shipment as deliered at the port o$ dischar!e but the buyer re$used to accept the anaha $ans because there as no onboard bill o$ ladin!& and there as transshipment since the !oods ere trans$erred in /on!on! $rom Q ;acifc& the $eeder essel& to Q Briental& a mother essel. 9 ar!ued that the same cannot be considered transshipment because both essels belon! to the same shippin! company. /$ Was there transshipment? <=plain !$ 9 $urther ar!ued that assumin! that there as transshipment& it cannot be deemed to hae a!reed thereto een i$ it si!ned the bill o$ ladin! containin! such entry because it as made non to the shippin! lines $rom the start that transshipment as prohibited under the letter o$ credit and that& there$ore& it had no intention to allo transshipment o$ the sub"ect car!o. Is the ar!ument tenable? 9eason. SUGGESTED ANSWER:
/$ 0es. ransshipment is the act o$ tain!
car!o out o$ one ship and loadin! it in another. It is immaterial hether or not the same person& frm& or entity ons the to essels. (a!ellan CA #2 s 2#) !$ 7o. 9 is bound by the terms o$ the
Version 1990-2003 Arranged by SULAW Class
bill o$ ladin! hen it accepted the bill o$ ladin! ith $ull noled!e o$ its contents hich included transshipment in /on!on!. Acceptance under such circumstances maes the bill o$ ladin! a bindin! contract. (a!ellan Ca #2 s 2#)
Trst Re#ei%ts La! Trust /eceipts %a&' Acts B +missions' Covere (200;)
;hat acts or o!issions are -enali8ed under the ?rust Recei-ts 3a4< .2#0=7 S>GG5S25D A=S?5+:
he rust 9eceipts >a (;.'. 7o. 22@) declares the $ail ure to turn oer !oods or proceeds reali6ed $rom sale thereo$& as a criminal o-ense under Art. 2@(l)(b) o$ 9eised ;enal Code. he la is iolated heneer the entrustee or person to hom trust receipts ere issued $ails to* (a) return the !oods coered by the trust receiptsK or (b) return the proceeds o$ the sale o$ said !oods .Metro-olitan Bank # ?onda, %#R# &o# 13((36, $ugust 16, 27#
&s a"k o$ intent to 3e$ra%3 a 1ar to the prose"%tion o$ these a"ts or o!issions4 (+.5) SU##ES$E% A&SWE':
=o* 2e 2rust +eceipts Law is )iolate. wene)er te entrustee fails to: /$ turn o)er te procee.s of te sale of te goo.s or !$ return te goo.s co)ere. by te trust receipts if te goo.s are not sol.* 2e 'ere failure to account or return gi)es rise to te cri'e wic is 'alu' proibitu'* 2ere is no re-uire'ent to pro)e intent to .efrau. Cing )* Secretary of 7ustice G*+* =o* /,(/3 February , !"",% Colinares )* Court of Appeals G*+* =o* 0"6!6 Septe'ber # !"""% 8ng )* Court of Appeals G*+* =o* //06#6 April !0 !""$*
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? A (1990-2006)
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Trusts Recei$t 8a; (2003)
2rust +eceipts Law% Liability for estafa /00/$ r. 7oble& as the ;resident o$ A5C radin! Inc e=ecuted a trust receipt in $aor o$ 5;I 5an to secure the importation by his company o$ certain !oods. A$ter release and sale o$ the imported !oods& the proceeds $rom the sale ere not turned oer to 5;I. Would 5;I be "ustifed in flin! a case $or esta$a a!ainst 7oble? SUGGESTED ANSWER:
5;I ould be "ustifed in flin! a case $or esta$a under ;' 22@ a!ainst 7oble. he $act that the trust receipt as issued in $aor o$ a ban& instead o$ a seller& to secure the importation o$ the !oods did not preclude the application o$ the rust 9eceipt >a. (;' 22@) ,nder the la& any o-icer or employee o$ a corporation responsible $or the iolation o$ a trust receipt is sub"ect to the penal liability thereunder .Sia /eo-le 166s6007 A8TERNAT7>E ANSWER:
he flin! o$ a case $or esta$a under the penal proisions o$ the 9;C ould not be "ustifed. It has been held in Sia /eo-le .161 s 6007 that corporate o-icers and directors are not criminally liable $or a iolation o$ said Code. # conditions are re+uired be$ore a corporate o-icer may be criminally liable $or an o-ense committed by the corporationK i6* /* here must be a specifc proision o$ la mandatin! a corporation to act or not to actK and !*
here must be an e=plicit statement in the la itsel$ that& in case o$ such iolation by a corporation& the o-icers and directors thereo$ are to be personally and criminally liable there$ore.
hese conditions are not met in the penal proisions o$ the 9;C on trust receipts. Trust Recei$ts 8a; 8ia.ilit% &or Esta&a (**+)
A buys !oods $rom a $orei!n supplier usin!
his credit line ith a ban to pay $or the !oods. ,pon arrial o$ the !oods at the pier& the ban re+uires A to si!n a trust receipt be$ore A is alloed to tae deliery o$ the !oods. he trust receipt contains the usual lan!ua!e. A disposes o$ the !oods and receies payment but does not pay the ban. he ban fles a criminal action a!ainst A $or iolation o$ the rust 9eceipts >a. A asserts that the trust receipt is only to secure his debt and that a criminal action cannot lie a!ainst him because that ould be iolatie o$ his constitutional ri!ht a!ainst “imprisonment $or nonpayment o$ a debt.” Is he correct? SUGGESTED ANSWER:
7o. Qiolation o$ a trust receipt is criminal as it is punished as esta$a under Art 2@ o$ the 9;C. here is a public policy inoled hich is to assure the entruster the reimbursement o$ the amount adanced or the balance thereo$ $or the !oods sub"ect o$ the trust receipt. he e=ecution o$ the trust receipt or the use thereo$ promotes the smooth Eo o$ commerce as it helps the importer or buyer o$ the !oods coered thereby.
;5 P Co.& Inc.& a manu$acturer o$ steel and steel products& imported certain ra materials $or use by it in the manu$acture o$ its products. he importation as e-ected throu!h a trust receipt arran!ement ith A5 5anin! corporation. When it applied $or the issuance by A5 5anin! Corporation o$ a letter o$ credit& ;5 P Co.& Inc.& did not mae any representation to the ban that it ould be sellin! hat it had imported. It $ailed to pay the ban. When demand as made upon it to account $or the importation& to return the articles& or to turnoer the proceeds o$ the sale thereo$ to the ban& ;5 P Co.& Inc.& also $ailed. he ban sued ;5 P Co.3s ;resident ho as the si!natory o$ the trust receipt $or esta$a. he ;resident put up the de$ense that he could not be made liable because there as no deceit resultin! in the iolation o$ the trust receipt. /e also submitted that there as no iolation o$ the trust receipt because the ra materials ere not sold but used by the corporation in the manu$acture o$ its products. Would those de$enses be sustainable? Why? (:%) SUGGESTED ANSWER:
7o& the de$enses are not sustainable. he lac o$ deceit should not be sustained because the mere $ailure to account $or the importation& or return the articles constitutes the abuse o$ confdence in the crime o$ esta$a. he $act that the !oods
aren3t sold but are used in the manu$acture o$ its products is immaterial because a iolation o$ the trust receipts la happened hen it $ailed to account $or the !oods or return them to the 5an upon demand.
Usry La! Usur% 8a; (**)
5orroer obtained a loan $rom a money lendin! enterprise $or hich he issued a promissory note undertain! to pay at the end o$ a period o$ days the principal plus interest at the rate @.@% per month plus #% per annum as serice char!e. Bn maturity o$ the loan& borroer $ailed to pay the principal debt as ell as the stipulated interest and serice char!e. /ence& he as sued. /* /o ould you dispose o$ the issues raised by the borroer? !* hat the stipulated interest rate is e=cessie and unconscionable? (%) * Is the interest rate usurious? (%) +ecommendation Since the subGect matter of these two (! questions is not included within the scope of the Bar Huestions in 6ercantile Faw, it is suggested that whatever answer is given by the examinee, or the lac/ of answer should be given full credit' f the examinee gives a good answer, he should be given additional credit' SUGGESTED ANSWER:
a* he rate o$ interest o$ @.@% per month is
e=cessie and unconscionable.
Mercantile Law Bar Examination Q & A (1990-2006)
b* he
interest cannot be considered usurious. he ,sury >a has been suspended in its application& and the interest rates are made “Eoatin!.”
Ware$ose Re#ei%ts La!
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surrender the receipt o$ hich he is a holderK illin! to si!n a receipt $or the deliery o$ the !oodsK and pays the arehouseman3s liens that is& his $ees and adances& i$ any.
he sheri- cannot comply ith these re+uisites especially the frst& as he is not the holder o$ the receipt.
,ill o& 8a6in' (**)
What do you understand by a “bill o$ ladin!?” (#%) !* <=plain the to$old character o$ a “bill o$ ladin!.” (%) /*
SUGGESTED ANSWER:
/* A bill o$ ladin! may be defned as
a ritten acnoled!ement o$ the receipt o$ !oods and an a!reement to transport and to delier them at a specifed place to a person named therein or on his order. !* A
bill o$ ladin! has a to$old character& namely& a) it is a receipt o$ the !oods to be transportedK and b) it constitutes a contract o$ carria!e o$ the !oods.
Delier% o& t#e Goo6s (**)
When is a arehouseman bound to delier the !oods& upon a demand made either by the holder o$ a receipt $or the !oods or by the depositor? SUGGESTED ANSWER:
he arehouseman is bound to delier the !oods upon demand made either by the holder o$ the receipt $or the !oods or by the depositor i$ the demand is accompanied by /* an o-er to satis$y the arehouseman3s lien& !* an o-er to surrender the receipt& i$ ne!otiable& ith such indorsements as ould be necessary $or the ne!otiation thereo$&
Delier% o& Goo6s Re5uisites (**)
>u6on Warehousin! Co receied $rom ;edro # caans o$ rice $or deposit in its arehouse $or hich a ne!otiable receipt as issued. While the !oods ere stored in said arehouse& Cicero obtained a "ud!ment a!ainst ;edro $or the recoer o$ a sum o$ money. he sheri- proceeded to ley upon the !oods on a rit o$ e=ecution and directed the arehouseman to delier the !oods. Is the arehouseman under obli!ation to comply ith the sheri-s order? (@%) SUGGESTED ANSWER:
7o. here as a alid ne!otiable receipt as there as a alid deliery o$ # caans o$ rice $or deposit. In such case& the arehouseman (>WC) is not obli!ed to delier the # caans o$ rice deposited to any person& e=cept to the one ho can comply ith sec J o$ the Warehouse 9eceipts >a& namely* Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
*
and readiness and illin!ness to si!n hen the !oods are deliered i$ so re+uested by the arehouseman (1ec J Warehouse 9eceipts >a).
Garnis#ment or Attac#ment o& Goo6s (***)
A Warehouse Company receied $or sa$eeepin! 2 ba!s o$ rice $rom a merchant. o eidence the transaction& the Warehouse Company issued a receipt e=pressly proidin! that the !oods be deliered to the order o$ said merchant. A month a$ter& a creditor obtained "ud!ment a!ainst the said merchant $or a sum o$ money. he sheri- proceeded to ley on the rice and directed the Warehouse Company to delier to him the deposited rice. a* What
adice ill you !ie the Warehouse Company? <=plain (#%) b* Assumin! that a ee prior to the ley& the receipt as sold to a rice mill on the basis o$ hich it fled a claim ith the sheri-. Would the rice mill hae better ri!hts to the rice than the creditor? <=plain your anser. (#%)
Company cannot be compelled to delier the actual possession o$ the rice until the receipt is surrendered to it or impounded by the court. b* 0es. he rice mill& as a holder $or alue
o$ the receipt& has a better ri!ht to the rice than the creditor. It is the rice mill that can surrender the receipt hich is in its possession and can comply ith the other re+uirements hich ill obli!e the arehouseman to delier the rice& namely& to si!n a receipt $or the deliery o$ the rice& and to pay the arehouseman3s liens and $ees and other char!es. Ne'otia.le Documents o& Title (**2)
8or a car!o o$ machinery shipped $rom abroad to a su!ar central in 'uma!uete& 7e!ros Briental& the 5ill o$ >adin! (5O>) stipulated “to shipper3s order&” ith notice o$ arrial to be addressed to the Central. he car!o arried at its destination and as released to the Central ithout surrender o$ the 5O> on the basis o$ the latter3s undertain! to hold the carrier $ree and harmless $rom any liability.
SUGGESTED ANSWER:
a* he 2 ba!s o$ rice ere deliered to
the Warehouse Company by a merchant& and a ne!otiable receipt as issued there$or. he rice cannot therea$ter& hile in the possession o$ the Warehouse Company& be attached by !arnishment or otherise& or be leied upon under an e=ecution unless the receipt be frst surrendered to the arehouseman& or its ne!otiation en"oined. he Warehouse
Version 1990-2003 Arranged by SULAW Class
1ubse+uently& a 5an to hom the central as indebted& claimed the car!o and presented the ori!inal o$ the 5O> statin! that the Central had $ailed to settle its obli!ations ith the 5an. Was there misdeliery by the carrier to the su!ar central considerin! the non surrender o$ the 5O>? Why? SUGGESTED ANSWER:
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
here as no misdeliery by the carrier since the car!o as considered consi!ned to the 1u!ar central per the “1hipper3s Brder” (ines CA 2H s @2#) A8TERNAT7>E ANSWER:
here as misdeliery. he 5O> as a ne!otiable document o$ title because it as to the “1hipper3s Brder.” /ence& the common carrier should hae deliered the car!o to the Central only upon surrender o$ the 5O>. he nonsurrender o$ the 5O> ill mae it liable to holders in due course. <;ners#i$ o& Goo6s Store6 (**2)
o !uarantee the payment o$ a loan obtained $rom a ban& 9aul pled!ed @ bales o$ tobacco deposited in a arehouse to said ban and endorsed in blan the arehouse receipt. 5e$ore 9aul could pay $or the loan& the tobacco disappeared $rom the arehouse. Who should bear the loss G the pled!or or the ban? Why? SUGGESTED ANSWER:
he pled!or should bear the loss. In the pled!e o$ a arehouse receipt the onership o$ the !oods remain ith depositor or his trans$eree. Any contract or real security& amon! them a pled!e& does not amount to or result in an assumption o$ ris o$ loss by the creditor. he Warehouse 9eceipts >a did not deiate $rom this rule. Ri'#t to t#e Goo6s (2001)
o"o deposited seeral cartons o$ !oods ith 17 Warehouse Corporation. he correspondin! arehouse receipt as issued to the order o$ o"o. /e endorsed the arehouse receipt to < ho paid the alue o$ the !oods deposited. 5e$ore < could ithdra the !oods& elchor in$ormed 17 Warehouse Corporation that the !oods belon!ed to him and ere taen by o"o ithout his consent. elchor ants to !et the !oods& but < also ants to ithdra the same. (@%) Who has a better ri!ht to the !oods? •
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Why? SUGGESTED ANSWER:
< has a better ri!ht to the !oods& bein! coered by a ne!otiable document o$ title& namely the arehouse receipts issued to the Norder o$ o"o.N ,nder the 1ales proisions o$ the Ciil Code on ne!otiable documents o$ title& and under the proisions o$ the Warehouse 9eceipts >a& hen !oods deposited ith the bailee are coered by a ne!otiable document o$ title& the endorsement and deliery o$ the document trans$ers onership o$ the !oods to the trans$eree. 5y operation o$ la& the trans$eree obtains the direct obli!ation o$ the bailee to hold the !oods in his name.N (Art. 2@2& Ciil CodeK 1ection 42& Warehouse 9eceipts >a) 1ince < is the holder o$ the arehouse receipt& he has the better ri!ht to the !oods. 17 Warehouse is obli!ed to hold the !oods in his name. •
I$ 17 Warehouse Corporation is uncertain as to ho is entitled to the property& hat is the proper recourse o$ the corporation? <=plain.
SUGGESTED ANSWER:
17 Warehouse can fle an I7<9;>a states& NI$ more than one person claims the title or possession o$ the !oods& the arehouse may& either as a de$ense to an action brou!ht a!ainst him $or nondeliery o$ the !oods or as an ori!inal suit& hicheer is appropriate& re+uire all non claimants to interplead.N
>ali6it% o& sti$ulations e9cusin' ;are#ouseman &rom ne'li'ence (2000)
SUGGESTED ANSWER:
1 stored hardare materials in the bonded arehouse o$ W& a licensed arehouseman under the Feneral 5onded Warehouse >a (Act JH as amended). W issued the correspondin! arehouse receipt in the $orm he ordinarily uses $or such purpose in the course o$ his business. All the essential terms re+uired under 1ection # o$ the Warehouse 9eceipts >a (Act #2 as amended) are embodied in the $orm. In addition& the receipt issued to 1 contains a stipulation that W ould not be responsible $or the loss o$ all or any portion o$ the hardare materials coered by the receipt een i$ such loss is caused by the ne!li!ence o$ W or his representaties or employees. 1 endorsed and ne!otiated the arehouse receipt to 5& ho demanded deliery o$ the !oods. W could not delier because the !oods ere nohere to be $ound in his arehouse. /e claims he is not liable because o$ the $ree$romliability clause stipulated in the receipt. 'o you a!ree ith W3s contention? <=plain. (@%)
/$ 5 has a better ri!ht than 1. he ri!ht
SUGGESTED ANSWER:
o$ the unpaid seller& 1& to the !oods as de$eated by the act o$ A in endorsin! the receipt to 5.
7o. I do not a!ree ith the contention o$ W. he stipulation that W ould not be responsible $or the loss o$ all or any portion o$ the hardare materials coered by the receipt een i$ such loss is caused by the ne!li!ence o$ W or his representatie or employees is oid. he la re+uires that a arehouseman should e=ercise due dili!ence in the care and custody o$ the thin!s deposited in his arehouse.
Un$ai6 Seller Ne'otiation o& t#e Recei$t (**3)
A purchased $rom 1 2@ caans o$ palay on credit. A deposited the palay in W3s arehouse. W issued to A a ne!otiable arehouse receipt in the name o$ A. herea$ter& A ne!otiated the receipt to 5 ho purchased the said receipt $or alue and in !ood $aith. /$ Who has a better ri!ht to the deposit& 1& the unpaid endor or b& the purchaser o$ the receipt $or alue and in !ood $aith? Why? !$ When can the arehouseman be obli!ed to delier the palay to A?
!$ he arehouseman can be obli!ed to
delier the palay to A i$ 5 ne!otiates bac the receipt to A. In that case& A becomes a holder a!ain o$ the receipt& and A can comply ith 1ec J o$ the Warehouse 9eceipts >a.
Mercantile Law Bar Examination Q & A (1990-2006)
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#. he Chie$ ustice also said that the "udiciary must Nsa$e!uard the libertyN and Nnurture the prosperityN o$
Mis#ellaneos Ener'% Re'ulator% Commission: Juris6iction "o;er (200)
CF& acustomer& sued <9A>CB in the 9e!ional rial Court to disclose the basis o$ the computation o$ the purchased poer ad"ustment (;;A). he trial court ruled it had no "urisdiction oer the case because& as contended by the de$endant& the customer not only demanded a breadon o$ <9A>CBDs bill ith respect to ;;A but +uestioned as ell the imposition o$ the ;;A& a matter to be decided by the 5oard o$
he trial courtDs rulin! is correct. As held in anila CB. In $act pursuant to <=ecutie Brder 7o. 4J (April 2& 2HHJ)& this poer has been trans$erred to the
problems that corrode the administration o$ "ustice in our country. <=plain this N$our InsN and N$our ACI'N problems. SU44ESTE) ANSWER(
,pon assumin! his o-ice& Chie$ ustice ;an!aniban oed to lead a "udiciary characteri6ed by the N$our Ins*N Inte!rity& Independence& Industry and Intelli!enceK one that is morally coura!eous to resist inEuence& inter$erence& indi-erence and insolence. /e enisions a "udiciary that is imperious to the pla!ue o$ undue inEuence brou!ht about by inship& relationship& $riendship and $elloship. /e calls on the "udiciary to battle the N8our ACI'N problems corrodin! our "ustice system* (2) limited access to "ustice by the poorK (#) corruptionK () incompetenceK and (4) delay in the deliery o$ +uality "ud!ments. he "udicial department should dischar!e its $unctions ith transparency& accountability and di!nity. (012# BE0E t is respectfully suggested that all Bar "andidates receive a '5% bonus for the above question regardless of the answer!
/our AC7D "ro.lems o& "#ili$$ine Ju6iciar% (2004)
In seeral policy addresses e=tensiely coered by media since his appointment on 'ecember #2& #@& Chie$ ustice Artemio Q. ;an!aniban oed to leae a "udiciary characteri6ed by N$our InsN and to $ocus in solin! the N$our ACI'N Version 1990-2003 Arranged by SULAW Class
Version 1990-2006 U pdated by
our people. <=plain this philosophy. Cite 'ecisions o$ the 1upreme Court implementin! each o$ these tin beacons o$ the Chie$ ustice. (#.@%) SU44ESTE) ANSWER(
he Chie$ usticeDs philosophy N1a$e!uardin! >iberty& 7urturin! ;rosperityN embodies the 1upreme CourtDs approach in decisionmain! in the e=ercise o$ its constitutional poer o$ "udicial reie hich proides* In cases inolin! liberty& the scales o$ "ustice should ei!ht heaily a!ainst !oernment and in $aor o$ the poor& the oppressed& the mar!inali6ed& the dispossessed and the eaK and that las and action that restrict $undamental ri!hts come to the court Nith a heay presumption a!ainst their constitutional alidity. Bn the other hand& as a !eneral rule& the 1upreme Court must adopt a de$erential or respect$ul attitude toards actions taen by the !oernmental a!encies that hae primary responsibility $or the economic deelopment o$ the countryK and only hen an act has been clearly made or e=ecuted ith !rae abuse o$ discretion does the Court !et inoled in policy issues.
and the 3residentQs exercise of Execu$ tive 3rivilege (Senate of the 3hilippines v' Ermita, 4'+' 0o' )-*777, #pril ;, ;;-!' 8n te oter an. cases tat relate to Jnurturing te prosperityJ of te people inclu.e te -uestion te constitutionality of te Mining Law (Fa Bugal$BQFaan v' +amos, 4'+' 0o' )788, &ec' ), ;;$ an. te ?28 Agree'ent 2anada v' #ngara, 4'+' ))8*5, 6ay ,)**7 $* Goernment Dere'ulation s! "riatiation o& an 7n6ustr% (200) What is the di-erence beteen !oernment dere!ulation and the priati6ation o$ an industry? <=plain brieEy. (#%) SUGGESTED ANSWER:
Foernment dere!ulation is the rela=ation or remoal o$ re!ulatory constraints on frms or indiiduals& ith a ie to promotin! competition and maretoriented approaches toard pricin!& output& entry& and other related economic decisions. ;riati6ation o$ an industry re$ers to the trans$er o$ onership and control by the !oernment o$ assets& frms and operations in an industry to priate inestors. "olitical 8a; WT< (***)
Decisions i'ple'enting te Jsafeguar.ing of libertyJ in< clu.e tose in)ol)ing te constitutionality of Presi.ential Procla'ation =o* /"/3 (&avid v' #rroyo, 4'+' 0o' )7).*;, 6ay ., ;;-!C the validity of "alibrated 3re$emptive +esponse ("3+! and B'3' Big' 88; or the 3ublic #ssembly #ct (Bayan v' Ermita, 4'+' 0o' )-*88, #pril 5, ;;-!C and the legality of Executive 1rder 0o' -
Version 1990-2003 Arranged by SULAW Class
Foernment plans to impose an additional duty on imported su!ar on top o$ the current tari- rate. he intent is to ensure that the landed cost o$ su!ar shall not be loer than ;J per ba!. his is the price at hich locally produced su!ar ould be sold in order to enable su!ar producers to reali6e reasonable profts. Without
Version 1990-2006 U pdated by
Mercantile Law Bar Examination Q & A (1990-2006)
this additional duty& the current lo price o$ su!ar in the orld maret ill surely pull the domestic price to leels loer than the cost to producer domestic su!ar G a situation that could spell the demise o$ the ;hil su!ar industry. a$ 'iscuss the alidity o$ this proposal to impose an additional ley on imported su!ar (%) b$ Would the proposal be consistent ith the tenets o$ the World rade Br!ani6ation (WB)? (%)
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,nited 7ations& o$ hich >Q is a member& she said& as ell as the reciprocity proisions o$ the World rade Br!ani6ation (WB) A!reement o$ 2HH4& o$ hich ;7F and >Q are parties. Aside $rom denyin! them e+ual protection& accordin! to 5C& the la ill also deprie her $amily their lielihood ithout due process nor "ust compensation. Assumin! that the le!al system o$ >Q is similar to ours& ould rs. 5CDs contention be tenable or not? 9eason brieEy. (@%) SUGGESTED ANSWER:
+eco''en.ation: Since te sub9ect 'atter of tese two !$ -uestions is not inclu.e. witin te scope of te Bar uestions in Mercantile Law it is suggeste. tat wate)er answer is gi)en by te e4a'inee or te lack of answer soul. be gi)en full cre.it* 1f te e4a'inee gi)es a goo. answer e soul. be gi)en a..itional cre.it* SUGGESTED ANSWER:
a$ he proposal to impose an additional
duty on imported su!ar on top o$ the current tari- rate is alid& not bein! prohibited by the Constitution. It ould enable producers to reali6e reasonable profts& and ould allo the su!ar industry o$ the country to surie. b$ 7o.
he proposal ould not be consistent ith the tenets o$ the WB hich call $or the liberali6ation o$ trade. /oeer& such proposal may be acceptable ithin the alloable period under the WB $or ad"ustment o$ the local industry "o;er o& t#e State: Re'ulatin' o& Domestic Tra6e (200) In
its e=ercise o$ police poer and business re!ulation& the le!islature o$ >Q 1tate passed a la prohibitin! aliens $rom en!a!in! in domestic timber trade. Qiolators includin! dummies ould& a$ter proper trial& be fned and imprisoned or deported. rs. 5C& a citi6en o$ >Q but married to SC& an alien merchant o$ ;7F& fled suit to inalidate the la or e=empt $rom its coera!e their timber business. 1he contended that the la is& inter alia& !raely oppressie and discriminatory. It iolated the ,niersal 'eclaration o$ /uman 9i!hts (,'/9) passed in 2H4J by the
rs. 5CDs contention is not tenable. 8irst& the ,'/9 does not purport to limit the ri!ht o$ states (lie >Q) to re!ulate domestic trade. 1econd& the WB A!reement inoles international trade beteen states or !oernments& not domestic trade in timber or other commodities. hird& nationality is an accepted norm $or main! classifcations that do not run counter to the
