BAR QUESTIONS 2005- COMMERCIAL LAW

[grifter]

BAR EXAMINATIONS 2005
MERCANTILE LAW
18 September 2005
8 A.M. -- 12 Noon

INSTRUCTIONS

This questionnaire consists of fifteen (15) numbers
contained in ten (10) pages. Read each question very
carefully. Answer legibly, clearly and concisely. Start each number on a separate page; an answer to a sub-question under the same number may be written continuously on the same and immediately succeeding pages until completed. Do not repeat the question.
HAND IN YOUR NOTEBOOK WITH THIS QUESTIONNAIRE
GOOD LUCK!!!

CHAIRMAN

2005 BAR EXAMINATION COMMITTEE
PLEASE CHECK THE NUMBER OF PAGES IN THIS SET
WARNING: NOT FOR SALE OR UNAUTHORIZED USE
MERCANTILE LAW

- I -

(1.) What is a negotiable instrument? Give the characteristics of a negotiable instrument. (2%)

(2.) Distinguish a negotiable document from a negotiable instrument. (2%)

(3.) State and explain whether the following are negotiable instruments under the Negotiable Instruments Law:

(i) Postal Money Order;

(ii) A certificate of time deposit which states "This is to certify that bearer has deposited in this bank the sum of FOUR THOUSAND PESOS (P4,000.00) only, repayable to the depositor 200 days after date."

(iii) Letters of credit;

(iv) Warehouse receipts;

(v) Treasury warrants payable from a specific fund. (5%)

- II -

(1.) Dagul has a business arrangement with Facundo. The latter would lend money to another, through Dagul, whose name would appear in the promissory note as the lender. Dagul would then immediately indorse the note to Facundo.

Is Dagul an accommodation party? Explain. (2%)

(2.) a) What is a crossed check? What are the effects of
crossing a check? Explain.


b) Distinguish an irregular indorser from a general
indorser.(3%)

(3.) Brad was in desperate need of money to pay his debt to Pete, a loan shark. Pete threatened to take Brad's life if he failed to pay. Brad and Pete went to see Señorita Isobel, Brad's rich cousin, and asked her if she could sign a promissory note in his favor in the amount of P10,000.00 to pay Pete. Fearing that Pete would kill Brad, Señorita Isobel acceded to the request. She affixed her signature on a piece of paper with the assurance of Brad that he will just fill it up later. Brad then filled up the blank paper, making a promissory note for the amount of P100,000.00. He then indorsed and delivered the same to Pete, who accepted the note as payment of the debt.

What defense or defenses can Señorita Isobel set up against Pete? Explain. (3%)

- III -

(1.) Under what conditions may a stock corporation acquire its own shares? (2%)

(2.) Janice rendered some consultancy work for XYZ
Corporation. Her compensation included shares of stock therein.

Can XYZ Corporation issue shares of stock to pay for the services of Janice as its consultant? Discuss your answer. (2%)

- IV -

Divine Corporation is engaged in the manufacture of garments for export. In the course of its business, it was able to obtain loans from individuals and financing institutions. However, due to the drop in the demand for garments in the international market, Divine Corporation could not meet its obligations. It decided to sell all its equipment such as sewing machines, perma-press machines, high speed sewers, cutting tables, ironing tables, etc., as well as its supplies and materials to Top Grade Fashion Corporation, its competitor.

a) How would you classify the transaction?

b) Can Divine Corporation sell the aforesaid items to its
competitor, Top Grade Fashion Corporation? What are the requirements to validly sell the items? Explain.

c) How would you protect the interests of the creditors of Divine Corporation?

d) In case Divine Corporation violated the law, what remedies are available to Top Grade Fashion Corporation against Divine Corporation? (5%)

- V -

(1.) a) Under what circumstances may a corporation declare dividends? (2%)


b) Distinguish dividend from profit; cash dividend from
stock dividend. (2%)


c) From what funds are cash and stock dividends
sourced? Explain why. (2%)

(2.) A Korean national joined a corporation which is engaged in the furniture manufacturing business. He was elected to the Board of Directors. To complement its furniture manufacturing business, the corporation also engaged in the logging business. With the additional logging activity, can the Korean national still
be a member of the Board of Directors? Explain. (3%)

- VI -

Jojo deposited several cartons of goods with SN Warehouse Corporation. The corresponding warehousereceipt was issued to the order of Jojo. He endorsed the warehouse receipt to EJ who paid the
value of the goods deposited. Before EJ could withdraw the goods, Melchor informed SN WarehouseCorporation that the goods belonged to him and were taken by Jojo without his consent. Melchor wants to get the goods, but EJ also wants to withdraw the same.

a) Who has a better right to the goods? Why?

b) If SN Warehouse Corporation is uncertain as to who is entitled to the property, what is the proper recourse of the corporation? Explain. (5%)

- VII -

(1.) Briefly discuss the doctrine of corporate opportunity. (2%)

(2.) Malyn, Schiera and Jaz are the directors of Patio
Investments, a close corporation formed to run the Patio Café, an alfresco coffee shop in Makati City. In 2000, Patio Café began experiencing financial reverses, consequently, some of the checks it issued to its beverage distributors and employees bounced.

In October 2003, Schiera informed Malyn that she found a location for a second café in Taguig City. Malyn objected because of the dire financial condition of the corporation.

Sometime in April 2004, Malyn learned about Fort Patio Café located in Taguig City and that its development was undertaken by a new corporation known as Fort Patio, Inc., where both Schiera and Jaz are directors. Malyn also found that Schiera and Jaz, on behalf of Patio Investments, had obtained a loan of P500,000.00, from PBCom Bank, for the purpose of opening Fort Patio Café. This loan was secured by the assets of Patio Investments and personally guaranteed by Schiera and Jaz.

Malyn then filed a corporate derivative action before the
Regional Trial Court of Makati City against Schiera and Jaz, alleging that the two directors had breached their fiduciary duties by misappropriating money and assets of Patio Investments in the operation of Fort Patio Café.

a) Did Schiera and Jaz violate the principle of corporate
opportunity? Explain.

b) Was it proper for Malyn to file a derivative suit with a prayer for injunctive relief? Explain.

c) Assuming that a derivative suit is proper, may the action continue if the corporation is dissolved during the pendency of the suit? Explain. (5%)

- VIII -

Aaron, a well-known architect, is suffering from financial
reverses. He has four creditors with a total claim of P26 Million. Despite his intention to pay these obligations, his current assets are insufficient to cover all of them. His creditors are about to sue him. Consequently, he was constrained to file a petition for insolvency.

a) Since Aaron was merely forced by circumstances to petition the court to declare him insolvent, can the judge properly treat the petition as one for involuntary insolvency? Explain.

b) If Aaron is declared an insolvent by the court, what would be the effect, if any, of such declaration on his creditors? Explain.

c) Assuming that Aaron has guarantors for his debts, are the guarantors released from their obligations once Aaron is discharged from his debts? Explain.

d) What remedies are available to the guarantors in case they are made to pay the creditors? Explain.
(5%)

- IX -

(1.) What are the effects of an irrevocable designation of a beneficiary under the Insurance Code? Explain.(2%)

(2.) Jacob obtained a life insurance policy for P1 Million
designating irrevocably Diwata, a friend, as his beneficiary. Jacob, however, changed his mind and wants Yob and Jojo, his other friends, to be included as beneficiaries considering that the proceeds of the policy are sufficient for the three friends.

Can Jacob still add Yob and Jojo as his beneficiaries? Explain. (2%)

- X -

(1.) M/V Pearly Shells, a passenger and cargo vessel, was insured for P40,000,000.00 against "constructive total loss." Due to a typhoon, it sank near Palawan. Luckily, there were no casualties, only injured passengers. The shipowner sent a notice of abandonment of his interest over the vessel to the insurance company which then hired professionals to afloat the vessel for P900,000.00. When re-floated, the vessel needed repairs estimated at P2,000,000.00. The insurance company refused to pay the claim of the shipowner, stating that there was "no constructive total loss."

a) Was there "constructive total loss" to entitle the shipowner to recover from the insurance company? Explain.

b) Was it proper for the shipowner to send a notice of
abandonment to the insurance company? Explain.
(5%)

(2.) a) When does double insurance exist? (2%)

b) What is the nature of the liability of the several insurers in double insurance? Explain. (2%)

- XI -

Ricardo mortgaged his fishpond to AC Bank to secure a P1Million loan. In a separate transaction, he opened a letter of credit with the same bank for $500,000.00 in favor of HS Bank, a foreign bank, to purchase outboard motors. Likewise, Ricardo executed a Surety Agreement in favor of AC Bank.

The outboard motors arrived and were delivered to Ricardo, but he was not able to pay the purchase price thereof.

a) Can AC Bank take possession of the outboard motors? Why?

b) Can AC Bank also foreclose the mortgage over the
fishpond? Explain. (5%)

- XII -

Hi Yielding Corporation filed a complaint against five of its officers for violation of Section 31 of the Corporation Code. The corporation claimed that the said officers were guilty of advancing their personal interests to the prejudice of the corporation, and that they were grossly negligent in handling its affairs. Aside from documents and contracts, the corporation also submitted in evidence records of the officers' U.S. Dollar deposits in several banks overseas - Boston Bank, Bank of Switzerland, and Bank of New York.

For their part, the officers filed a criminal complaint against the directors of Hi Yielding Corporation for violation of Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the Philippines. The officers alleged that their bank deposits were illegally disclosed for want of a court order, and that such deposits were not even the subject of the case against them.

a) Will the complaint filed against the directors of Hi Yielding Corporation prosper? Explain.

b) Was there a violation of the Secrecy of Bank Deposits Law (Republic Act No. 1405)? Explain.
(5%)

- XIII -

(1.) Discuss the "kabit system" in land transportation and its legal consequences. (2%)

(2.) Procopio purchased an Isuzu passenger jeepney from Enteng, a holder of a certificate of public convenience for the operation of public utility vehicle plying the Calamba-Los Baños route.While Procopio continued offering the jeepney for public transport
services, he did not have the registration of the vehicle transferred in his name. Neither did he secure for himself a certificate of public convenience for its operation. Thus, per the records of the Land
Transportation Franchising and Regulatory Board, Enteng remained its registered owner and operator. One day, while the jeepney was traveling southbound, it collided with a ten-wheeler truck owned by Emmanuel. The driver of the truck admitted
responsibility for the accident, explaining that the truck lost its brakes.

Procopio sued Emmanuel for damages, but the latter moved to dismiss the case on the ground that Procopio is not the real party in interest since he is not the registered owner of the jeepney.

Resolve the motion with reasons. (3%)

(3.) Baldo is a driver of Yellow Cab Company under the
boundary system. While cruising along the South Expressway, Baldo's cab figured in a collision, killing his passenger, Pietro. The heirs of Pietro sued Yellow Cab Company for damages, but the latter refused to pay the heirs, insisting that it is not liable because Baldo is
not its employee. Resolve with reasons. (2%)

- XIV -

(1.) On a clear weather, M/V Sundo, carrying insured cargo, left the port of Manila bound for Cebu. While at sea, the vessel encountered a strong typhoon forcing the captain to steer the vessel to the nearest island where it stayed for seven days. The vessel ran
out of provisions for its passengers. Consequently, the vessel proceeded to Leyte to replenish its supplies.

a) Assuming that the cargo was damaged because of such deviation, who between the insurance company and the owner of the cargo bears the loss? Explain.

b) Under what circumstances can a vessel properly proceed to a port other than its port of destination? Explain. (4%)

(2.) Star Shipping Lines accepted 100 cartons of sardines from Master to be delivered to 555 Company in Manila. Only 88 cartons were delivered, however, these were in bad condition.

555 Company claimed from Star Shipping Lines the value of the missing goods, as well as the damaged goods. Star Shipping Lines refused because the former failed to present a bill of lading.

Resolve with reasons the claim of 555 Company. (4%)

- XV -

(1.) S Development Corporation sued Shangrila Corporation for using the "S" logo and the tradename "Shangrila". The former claims that it was the first to register the logo and the tradename in the
Philippines and that it had been using the same in its restaurant business.

Shangrila Corporation counters that it is an affiliate of an international organization which has been using such logo and tradename "Shangrila" for over 20 years.

However, Shangrila Corporation registered the tradename and logo in the Philippines only after the suit was filed.

a) Which of the two corporations has a better right to use the logo and the tradename? Explain.

b) How does the international affiliation of Shangrila
Corporation affect the outcome of the dispute? Explain.
(5%)

(2.) Cezar works in a car manufacturing company owned by Joab. Cezar is quite innovative and loves to tinker with things. With the materials and parts of the car, he was able to invent a gas-saving device that will enable cars to consume less gas. Francis, a co-worker, saw how Cezar created the device and likewise, came up with a similar gadget, also using scrap materials and spare parts of the company. Thereafter, Francis filed an application for registration of his device with the Bureau of Patents. Eighteen months later, Cezar filed his application for the registration of his device with the
Bureau of Patents.

a) Is the gas-saving device patentable? Explain.

b) Assuming that it is patentable, who is entitled to the patent? What, if any, is the remedy of the losing party?

c) Supposing Joab got wind of the inventions of his employees and also laid claim to the patents, asserting that Cezar and Francis were using his materials and company time in making the devices, will his claim prevail over those of his employees? Explain. (5%)

NOTHING FOLLOWS.

[pinkalou]

BAR Question 2002

MERCANTILE LAW

I.

Name three (3) methods by which a stock corporation may be voluntarily dissolved. Explain each method. (5%)


II.

Which of the following corporate acts are valid, void, or voidable? Indicate your answer by writing the paragraph number of the query, followed by your corresponding answer as “Valid,” “Void,” or “Voidable,” as the case may be. If your answer is “Void,” explain your answer. In the case of a “Voidable” answer, specify what conditions must be present or complied with to make the corporate act valid. (5%)

1) XL Foods Corporation, which is engaged in the fastfood business, entered into a contract with its President Jose Cruz, whereby the latter would supply the corporation with its meat and poultry requirements.

2) The board of directors of XL Foods Corporation declared and paid cash dividends without the approval of the stockholders.

3) XL Foods Corporation guaranteed the loan of its sister company XL Meat Products, Inc.


III.

Explain the three (3) distinct but intertwined contract relationships that are indispensable in a letter of credit transaction. (5%)


IV.

As part of the safeguards against imprudent banking, the General banking Law imposes limits or restriction on loans and credit accommodations which may be extended by banks. Identify at least two (2) of these limits or restrictions and explain the rationale of each of them. (5%)

V.

You have been asked to incorporate a new company to be called FSB Savings & Mortgage bank, Inc. List the documents that you must submit to the Securities and Exchange Commission (SEC) to obtain a certificate of incorporation for FSB Savings & Mortgage Bank, Inc. (5%)

VI.

A. What is tender offer? (2%)

B. In what instances is a tender offer required to be made? (3%)


VII.

There are six (6) classes of banks identified in the General Banking Law of 2000. Name at least four (4) of them and explain the distinguishing characteristic or function of each one. (5%)


VIII.

A. Name two (2) characteristics which differentiate a common carrier from a private carrier. (3%)

B. Why is the defense of due diligence in the selection and supervision of an employee not available to a common carrier. (2%)


IX.

Discuss whether or not the following stipulations in a contract of carriage of a common carrier are valid:

1) a stipulation limiting the sum that may be recovered by the shipper or owner to 90% of the value of the goods in case of loss due to theft.

2) A stipulation that in the event of loss, destruction or deterioration of goods on account of the defective condition of the vehicle used in the contract of carriage, the carrier’s liability is limited to the value of the goods appearing in the bill of lading unless the shipper or owner declares a higher value. (5%)


X.

Primetime Corporation (the Borrower) obtained a P 10 million, five-year tem loan from Universal Bank (the bank) in 1996. As security for the loan and as required by the bank, the Borrower gave the following collateral security in favor of the Bank:

1. a real estate mortgage over the land and building owned by the Borrower and located in Quezon City;
2. the joint and several promissory note of Mr. Primo Timbol, the President of the Borrower; and
3. a real estate mortgage over the residential house and lot owned by Mr. Timbol, also located in Quezon City.

Because of business reverses, neither the Borrower nor Mr. Timbol was able to pay the loan. In June 2001, the Bank extrajudicially foreclosed the two real estate mortgages , with the Bank as the only bidder in the foreclosure sale. On September 16, 2001, the certificates of sale of the two properties in favor of the Bank were registered with the Register of Deeds of Quezon City.

Ten months later, both the Borrower and Mr. Timbol were able to raise sufficient funds to redeem their respective properties from the Bank, but the Bank refused to permit redemption on the ground that the period for redemption had already expired, so that the Bank now has absolute ownership of both properties. The Borrower and Mr. Timbol came to you today, September 15, 2002, to find out if the position of the Bank is correct. What would be your answer? State your reasons. (5%)


XI.

Andrew is engaged in the business of building low-cost housing units under contracts with real estate developers. He applied for a loan of P 3 million from ready Credit Bank (the Bank), which required Andrew to provide collateral security for it. Andrew offered to assign to the Bank his receivables amounting to P 4 million form Home Builders Development Corporation (the Obligor). The Bank accepted the offer. Accordingly, Andrew obtained the loan and he executed a promissory note undertaking with interest thereon at the rate of 20% per annum. At the same time, Andrew executed a Deed of Assignment in favor of the Bank, assigning to the Bank his receivables from the obligor. The Deed of Assignment read:

I, Andrew Lee, hereby assign, transfer and convey, absolutely and unconditionally, to ready Credit bank (hereinafter called the Bank) all of my right, title and interest in and to my accounts receivable from Home Builders Development Corporation (hereinafter called the Obligor) arising from delivery of housing units with a total contract price of P 4,000,000.00 , the description and contract value of which are attached hereto as Annex A (hereinafter called the receivables)

Andrew failed to pay the loan on its due date on September 1, 2002. When the Bank attempted to collect from the Obligor, the Bank discovered that the latter had already closed operations and liquidate all its assets. The Bank sued Andrew for collection, but Andrew moved to dismiss the complaint on the ground that the debt had already been paid by reason of his execution of the aforesaid Deed of Assignment which, being absolute and unconditional, was in essence a dacion en pago. The Bank opposed the motion, contending that the Deed of Assignment was only a security for the loan.

If you were the judge, how would you resolve the motion to dismiss filed by Andrew? Explain. (5%)


XII.

As of June 1, 2002, Edzo System Corporation (Edzo) was indebted to the following creditors:

1. Ace Equipment Supplies – for various personal computers and accessories sold to Edzo on credit amounting to P 300,000.00
2. Handyman Garage – for mechanical repairs (parts and service) performed on Edzo’s company car amounting to P 10,000.00
3. Joselyn Reyes – former employee of Edzo who sued Edzo for unlawful termination of employment and was able to obtain a final judgment against Edzo for P 100,000.00
4. Bureau or Internal Revenue – for unpaid value-added taxes amounting to P 30,000.00
5. Integrity Bank – which granted Edzo a loan in 2002 in the amount of P 500,000.00. the loan was not secured by any asset of Edzo, but it was guaranteed unconditionally and solidarily by Edzo’s President and controlling stockholder, Eduardo Z. Ong, as accommodation surety.

The loan owed to Integrity Bank fell due on June 15, 2002. Despite pleas for extension of payment by Edzo, the bank demanded immediate payment. Because the bank threatened to proceed against the surety, Eduardo Z. Ong, Edzo decided to pay up all of its obligations to Integrity Bank. On June 20, 2002, Edzo paid to Integrity Bank the full principal amount of P 500,000.00 , plus accrued interests amounting to P 55,000.00. As a result, Edzo had hardly any cash left for operation and decided to close its business. After paying the unpaid salaries of its employees, Edzo filed a petition for insolvency on July 1, 2002.

In the insolvency proceedings in court, the assignee in insolvency sought to invalidate the payment may be Edzo to Integrity Bank for being a fraudulent transfer because it was made within 30 days before the filing of the insolvency petition. In defense, Integrity Bank asserted that the payment to it was for a legitimate debt that was not covered by the prohibition because it was “a valuable pecuniary consideration made in good faith,” thus falling within the exception specified in the Insolvency Law.

As judge in the pending insolvency case, how would you decide the respective contention of the assignee in insolvency and of Integrity Bank? Explain. (5%)


XIII.

Based on the same facts as stated in the proceeding question, how would you as judge in the insolvency proceedings, rank the respective credits or claims of the five (5) creditors mentioned above in terms of preference or priority against each other? (5%)

XIV.

A. Define the following: 1) a negotiable promissory note, 2) a bill of exchange and 3) a check. (3%)

B. You are Pedro Cruz. Draft appropriate contract language for 1) your negotiable promissory note and 2) your check, each containing the essential elements of a negotiable instrument. (2%)


XV.

Which of the following stipulations or features of a promissory note (PN) affect or do not affect its negotiability, assuming that the PN is otherwise negotiable? Indicate your answer by writing the paragraph number of the stipulation or feature of the PN as shown below and your corresponding answer either “Affected” or “Not affected.” Explain. (5%)

1. The date of the PN is “February 30, 2002.”

2. The PN bears interest payable on the last day of each calendar quarter a rate equal to five percent (5%) above the then prevailing 91-day Treasury Bill rate as published at the beginning of such calendar quarter.

3. The PN gives the maker the option to make payment either in money or in quantity of palay of equivalent value.

4. The PN gives the holder the option either to require payment in money or to require the maker to serve as the bodyguard or escort of the holder for 30 days.


XVI.
A. AB issued a promissory note for P 1,000.00 payable to CD or his order on September 15, 2002. CD indorsed the note in blank and delivered the same to EF. GH stole the note form EF and on September 14, 2002 presented it to AB for payment. When asked by AB, GH said CD gave him the note in payment for two cavans of rice. AB therefor paid GH P 1,000.00 on the same date. On September 15, 2002, EF discovered that the note of AB was not in his possession and he went to AB. It was then that EF found out that ABG had already made payment of the note. Can EF still claim payment from AB? Why? (3%)
B. As a sequel to the same facts narrated above, EF, out of pity for AB who had already paid P1,000.00 to GH, decide to forgive AB and instead go after DC who indorsed the note in blank to him. Is CD still liable to EF by virtue of the indorsement in blank? Why? (2%)

XVII.

Distinguish insurable interest in property insurance from insurable interest in live insurance. (5%)

[pinkalou]

QUESTIONS AND ANSWERS
COMMERCIAL LAW BAR EXAMINATION 2000

I.

A.) What is a joint account?

B.) Distinguish joint account from partnership.


SUGGESTED ANSWER:


A.) A joint account is a transaction of merchants where other merchants agree to contribute the amount of capital agreed upon, and participating in the favorable or unfavorable results thereof in the proportion they may determine.
B.) The following are the distinctions between joint account and partnership:

Partnership Joint account
1. A partnership has a firm name

2. It has a juridical personality and may sue or be sued

3. Partnership has a common fund

4. In partnership, all general partners have the right of management

5. In terms of liquidation, a partnership may, by agreement be entrusted to a partner or partners. 1. A joint account has no firm name and is conducted in the name of the ostensible partner.

2. It has no juridical personality and can sue or be sued only in the name of the ostensible partner.

3. It has no common fund.

4. The ostensible partner manages its business operations.

5. Liquidation in a joint account can only be done by the ostensible partner.

II.

GP is a suspected jueteng lord who is rumored to be enjoying police and military protection. The envy of many drug lords who are had not escaped the dragnet of the law, GP was summoned to a hearing of the Committee on Racketeering and Other Syndicated Crimes of the House of Representatives, which was conducting a congressional investigation “ in aid of legislation” on the involvement of the police and military personnel, and possibly even of local government officials, in the illegal activities of suspected gambling and drug lords. Subpoenaed to attend the investigation were officers of certain identified banks with a directive to them to bring the records and documents of bank deposits of individuals mentioned in the subpoenas, among them GP. GP and the banks opposed the production of the bank’s records of deposits on the ground that no such inquiry is allowed under the Law on Secrecy of Bank Deposits (R.A. 1405 as amended ). Is the opposition of GP and the banks valid? Explain.

SUGGESTED ANSWER:
Yes. The opposition is valid. GP is not a public official. The investigation does not involve one of the exceptions to the prohibition against disclosure of any information concerning bank deposits under the Law on Secrecy of Bank Deposits. Th e Committee conducting the investigation is not a competent court or the Ombudsman authorized under the law to issue a subpoena for the production of the bank record involving such disclosure.

III.

Company X, engaged in the business of manufacturing car parts and accessories, operates a factory with equipment, machinery and tools for this purpose. The manufactured goods are sold wholesale to distributors and dealers throughout the Philippines. Company X was among the business entities adversely hit by the 1997 Asian business crisis. Its sales dropped with the decline in car sales and its operating costs escalated, while its creditor banks and other financial institutions tightened their loan portfolios. Company X was faced with the dismissal choice of either suspending its operations or selling its business. It chose the latter. Having struck a deal with Company Z, a more viable entity engaged in the same business, Company X sold its entire business to the former without much fanfare or any form of publicity. In fact, evidence exist that the transaction was furtively entered into to avoid the prying eyes of company ‘s creditors. The creditor banks and other financial institutions sued Company X for the violation of the Bulk Sales Law. Decide.

SUGGESTED ANSWER:

Company X violated the Bulk Sales Law when it sold its entire business to Company Z furtively to avoid the prying eyes of the creditors. Its manufactured goods are sold wholesale to distributors and dealers. The sale of all or substantially all of its stocks, not in the ordinary course of business, constitute bulk sale. The transaction being a bulk sale, entering into such transaction without complying with the requirements of the Bulk Sales Law. Company X violated said law.

ALTERNATIVE ANSWER:

The suit filed by the creditor banks and other financial institutions against Company X will not prosper. The transaction between Company X and Company Z is not bulk sales. The sale of his whole business by a manufacturer is not a bulk sale. Company X did not violate the Bulk Sales Law.


IV.

S stored hardware materials in the bonded warehouse of W, a licensed warehouseman under the General Bonded Warehouse Law(Act 3893 as amended). W issued the corresponding warehouse receipt in the form he ordinarily uses for such purpose in the course of his business. All the essential terms required under section 2 of the Warehouse Receipt Law (Act 2137 as amended) are embodied in the form. In addition, the receipt issued to S contains a stipulation that W would not be responsible fort he loss of all or any portion of the hardware materials covered by the receipt even if such loss is caused by the negligence of W or his representative or his employees. S endorsed and negotiated the warehouse receipt to B, who demanded delivery of the goods were nowhere to be found in his warehouse. He claims he is not liable because of the free-from-liability clause stipulated in the receipt. Do you agree with W’s contention? Explain.


SUGGESTED ANSWER:

No. I do not agree with the contention of W. The stipulation that W would not be responsible for the loss of all or any portion of the hardware materials covered by the receirt even if such loss is caused by the negligence of W or his representative or employee is void. The law requires that a warehouseman should exercise due diligence in the care and custody of the things deposited in his warehouse.





V.

A.) MP bought a used cellphone from JR. JR preferred cash but MP is a friend so JR accepted MP’s promissory note for P10,000.00. JR thought of converting the note note into cash by endorsing it to his brother KR. The promissory note is a piece of paper with the following hand-printed notation: “MP WILL PAY JR TEN THOUSAND RESOS IN PAYMENT FOR HIS CELLPHONE 1 WEEK FROM TODAY”. Below this notation MP’s signature with “8/1/00” next to it, indicating the date of the promissory note. When JR presented MP’s note to Kr, the latter said it was not a negotiable instrument under the law and so could not be a valid substitute for cash. JR took the opposite view, insisting on the note’s negotiability. You are asked to referee. Which of the opposing views is correct? Explain.

B.) This an indorsee of a promissory note that simply states: “ PAY TO JUAN OR ORDER 400 PESOS”. The note has no date, no place of payment and no consideration mentioned. It was signe by MK and written under his letterhead specifying the address, which happens to be his residence. TH accepted the promissory note as payment for services he rendered to SH, who in turn received the note from Juan Tan as payment for a prepaid cellphone card worth 400 pesos. The payee acknowledged having received the note on August 1, 2000. A Bar reviewee had told TH , who happens to be your friend, that TH is not a holder in due course under article 52 of the Negotiable Instrument Law(Act 2031) and therefore does not enjoy the rights and protection under the statute. TH ask for your advice specifically in connection with the note being undated and not mentioning a place of payment and any consideration. What would your advice be?

SUGGESTED ANSWER:

KR is right. The promissory note is not negotiable. It is not issued to order or bearer. There is no word of negotiability contained therein. It is not issued in accordance with section 1 of the Negotiable Instrument Law.

The fact that the instrument is undated and does not mention the place of payment does not militate against its negotiable. The date and place of payment are not material particulars required to make an instrument negotiable.

The fact that no mention is made of any consideration is not material. Consideration is presumed.



VI.


A.) PN makes a promissory note for P5,000.00, but leaves the name of the payee in blank because he wanted to verify its correct spelling first. He mindlessly left the note on top of its desk at the end of the workday. When he returned the following morning, the note was missing. It turned up later when X presented it to PN for payment. Before X, T, who turned out to have filched the note from PN’s office, had endorsed the note after inserting his own name in the blank space as payee. PN dishonored the note, contending that he did not authorized its completion and delivery. But X said he had no participation in, or knowledge about, the pilferage and alteration of the note and therefore enjoys the rights of a holder in due course under the Negotiable Instruments Law. Who is correct and why?

B.) Can the payeee in a promissory note be a holder in due course within the meaning of the Negotiable Instruments Law(Act 2031) Explain your answer.




SUGGESTED ANSWER:

A.) PN is right. The instrument is incomplete and undelivered. It did not create any contract that would bind PN to an obligation to pay the amount thereof.

B.) A payee in a promissory note cannot be a “holder in due course” within the meaning of the Negotiable Instrument La, Because a payee is an immediate party in relation to the maker. The payee is subject to whatever defenses, real or personal, available to the maker of the promissory note.

ALTERNATIVE ANSWER:

B.) A payee can be a “ holder in due course”. A holder is defined as the payee or indorsee of the instrument who is in possession of it. Every holder is deemed prima facie to be a holder in due course.


VII.


PN is the holder of a negotiable promissory note within the meaning of the Negotiable Instrument Law. The note was originally issued by RP to XL as payee. XL indorsed the note to PN for goods bought by XL. The note mentions the place of payment on the specified maturity date as the office of the corporate secretary of PX Bank during banking hours. On maturity date, RP was at the aforesaid office ready to pay the note but PN did not show up. What PN later did was to sue XL for the face value of the note, plus interest and costs. Will the suit prosper? Explain.

SUGGESTED ANSWER:


Yes. The suit will prosper as far as the face value of the note is concerned, but not with respect to the interest due subsequent to the maturity of the note and the cost of collection. RP was ready and willing to pay the note at the specified maturity dateent to the maturity of the note and the cost of collection.


VIII.


A.) May a member of a Moro Islamic Liberation Front (MILF) or its breakaway group, the Abu Sayyaf, be insured with a company licensed to do business under the Insurance Code of the Philippines (P.D. 1460)? Explain.

B.) BD has a bank deposit of half a million pesos. Since the limit of the insurance coverage of the Philippine Deposit Insurance Corporation Act (R.A. 3591) is only one tenth of BD’s deposit, he would like some protection for the excess by taking out an insurance against all risks or contingencies of loss arising from any unsound or unsafe banking practices including unforeseen adverse effects of the continuing crisis involving the banking and the financial sector in the Asian Region. Does BD have an insurable interest within the meaning of the Insurance Code of the Philippines (P.D.1460)?

SUGGESTED ANSWER:


A.) A member of the MILF or the Abu Sayyaf may be insured with the company licensed to do business under the Insurance Code of the Philippines. What is prohibited to be insured is a public enemy. A public enemy is a citizen or national of a country which the Philippines is at war. Such member of the MILF or the Abu Sayyaf is not a citizen or national of another country, but of the Philippines.

B.) Yes. BD has insurable interest in his bank deposit. In case of loss of said deposit , more particularly the extent of thee amount in excess of the limit covered by the Philippine Deposit Insurance Corporation Act, BD will be d**nified. He will suffer pecuniary loss of P400,000.00, that is, his bank deposit of a half a million pesos minus P100,000.00 which is the maximum amount recoverable from the PDIC.

IX.


A.) Name at least three instances when an insured is entitled to a return of the premium paid.

B.) What warranties are implied in Marine insurance?


SUGGESTED ANSWER:


A.) Three(3) Instances when an insured is entitled to a return of the premium are:

1. To the whole premium, if no part of his interest in the thing insured be exposed to any of the perils insured against.
2. Where the insurance is made for a definite period of time and the insured surrender his policy, to such portion of the premium as corresponds with the unexpired time at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued.
3. When the contract is voidable on account of the fraud or misrepresentation of the insurer or of his agent or on account of facts the existence of which the insured was ignorant without his fault; or when, by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.

ALTERNATIVE ANSWER:

In case of over insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.

SUGGESTED ANSWER:

B.) The following warranties are implied in marine insurance:

1. That the ship is seaworthy to make the voyage and/or to take certain cargoes;
2. That the ship shall not deviate from the voyage insured;
3. That the ship shall carry the necessary documents to show nationality or neutrality and that it will not carry document which will cast reasonable suspicion thereon;
4. That the ship shall not carry contraband, especially if it is making a voyage through belligerent waters.


X.

IS, an elderly bachelor with no known relatives, obtained life insurance coverage for P250,000.00 from the Starbrite Insurance Corporation, an entity licensed to engage in the insurable business under the Insurance Code of the Philippines (P.D. 1460). He also insured his residential house for twice that amount with the same corporation. He immediately assgned all his rights to the insurance proceeds to BX, a friend-companion living with him. Three years later, IS died in a fire the gutted his insured house two days after he had sold it. There is no evidence of suicide or arson or involvement of BX in these events. BX demanded payment of the insurance proceeds from the two policies, the premiums for which IS had been faithfully paying during all the time he was alive. Starbrite refused payment, contending that BX had no insurable interest and therefore was not entitled to received the proceeds from IS’s insurance coverage on his life and also on his property. Is Starbrite’s contention valid? Explain


SUGGESTED ANSWER:

Starbrite is correct with respect to the insurance coverage on the property of IS. The beneficiary in the property insurance policy or the assignee thereof must have insurable interest in the property insured. BX, a mere friend-companion of IS, has no insurable interest in the residential house of IS. BX is not entitled to receive the proceeds from IS’s insurance on his property.

As to the insurance coverage on the life of IS, BX is entitled to receive the proceeds. There is no requirement that BX should have insurable interest in the life of IS. It was IS himself who took the insurance on his own life.

[pinkalou]

PArt II
Commercial law BQ 2000



XI.

a) X Company procured a group accident insurance policy for its construction employees variously assigned to its provincial infrastructure projects. Y Insurance Company underwrote the coverage, the premiums of which were paid for entirely by X Company without any employee contributions. While the policy was in effect, five of the covered employees perished at sea on their way to their provincial assignments. Their wives sued Y Insurance Company for payment of death benefits under the policy. While the suit was pending, the wives signed a power of attorney designating an X Company executive, PJ, as their authorized representative to enter into a settlement with the insurance company. When a settlement was reached, PJ, instructed the insurance company to issue the settlement check to the order of X Company, which will undertake the payment to the individual claimants of their respective shares. PJ misappropriated the settlement amount and the wives pursued their case against Y Insurance Company. Will the suit prosper? Explain. (3%)

b) X was riding a suburban utility vehicle (SUV) covered by a comprehensive motor vehicle liability insurance (CMLVI) underwritten by FastPay Insurance Company when it collided with a speeding bus owned by RM Travel, Inc. The collision resulted in serious injuries to X; Y, a passenger of the bus; and Z, a pedestrian waiting for a ride at the scene of the collision. The police report established that the bus was the offending vehicle. The bus had a CMLVI policy issued by Dragon Insurance Corporation. X, Y and Z jointly sued RM Travel and Dragon Insurance for indemnity under the Insurance Code of the Philippines (P.D. 1460). The lower court applied the “no-fault” indemnity policy of the statute, dismissed the suit against RM Travel, and ordered Dragon Insurance to pay indemnity to all three plaintiffs. Do you agree with the court’s judgment? Explain. (2%)

SUGGESTED ANSWER:

a) Yes. The suit will prosper. Y Insurance Company is liable. X Company, through its executive, PJ, acted as agent of Y Insurance Company. The latter is thus bound by the misconduct of its agent. It is the usual practice in the group insurance business that the employer-policyholder is the agent of the insurer.

b) No. The cause if action of Y is based on the contract of carriage, while that of X and Z is based on torts. The court should not have dismissed the suit against RM Travel. The court should have ordered Dragon Insurance to pay each of X, Y and Z to the extent of the insurance coverage, but whatever amount is agreed upon in the policy should be answered first by RM Travel and the succeeding amount should be paid by Dragon Insurance up to the amount of the insurance coverage. The excess of the claims of X, Y and Z, over and above such insurance coverage, if any, should be answered or paid by RM Travel.

XII.

X has a Tamaraw FX among other cars. Every other day during the workweek, he goes to his office in Quezon City using his Tamaraw FX and picks up friends as passengers at designated points along the way. His passengers pay him a flat fee for the ride, usually P20 per person, one way. Although a lawyer, he never bothered to obtain a license to engage in this type of income-generating activity. He believes that he is not a common carrier within the purview of the law. Do you agree with him? Explain. (5%)

SUGGESTED ANSWER:

No. I do not agree with X. A common carrier holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally. The fact that X has a limited clientele does not exclude him from the definition of a common carrier. The law does not make any distinction between one whose principal business activity is the carrying of persons or goods or both, and the one who does such carrying only as an ancillary activity or in the local idiom, as a “sideline”.

XIII.

a) X Shipping Company spent almost a fortune in refitting and repairing its luxury passenger vessel, the MV Marina, which piled the inter-island routes of the company from La Union in the north to Davao City in the south. The MV Marina met an untimely fate during its post-repair voyage. It sank off the coast of Zambales while en route to La Union from Manila. The investigation showed that the captain alone was negligent. There were no casualties in that disaster. Faced with a claim for the payment of the refitting liability on the basis of the hypothecary or limited liability rule under Article 587 of the Code of Commerce. Is X Shipping Company’s asssertion valid? Explain. (3%)

b) MV SuperFast, a passenger-cargo vessel owned by SF Shipping Company plying in the inter-island routes, was on its way to Zamboanga City from the Manila port when it accidentally, and without fault or negligence of anyone on the ship, hit a huge floating object. The accident caused damage to the vessel and loss of an accompanying crated cargo of passenger PR. In order to lighten the vessel and save it from sinking and in order to avoid risk of damage to or loss of the rest of the shipped items (none of which was located on the deck), some had to be jettisoned. SF Shipping thereafter filed a complaint demanding all the other cargo owners to share in the total repair costs incurred by the company and in the value of the lost and jettisoned cargoes. In answer to the complaint, the shippers’ sole contention was that, under the Code of Commerce, each damaged party should bear its or his own damage and those that did not suffer any loss or damage were not obligated to make any contribution in favor of those who did. Is the shippers’ contention valid? Explain. (2%)

SUGGESTED ANSWER:

a) No. The assertion of X Shipping Company is not valid. The total destruction of the vessel does not affect the liability of the shipowner for repairs on the vessel completed before its loss.

b) No. The shippers’ contention is not valid. The owners of the cargo jettisoned, to save the vessel from sinking and to save the rest of the cargoes, are entitled to contribution. The jettisoning of said cargoes constitute general average loss which entitles the owners thereof to contribution from the owner of the vessel and also from the owners of the cargoes saved.

SF Shipping is not entitled to contribution/reimbursement for the costs of repairs on the vessel from the shippers.

XIV.

a) MV Mariposa, one of five passenger ships owned by the Marina Navigation Company, sank off the coast of Mindoro while en route to Iloilo City. More than 200 passengers perished in the disaster. Evidence showed that the ship captain ignored typhoon bulletins issued by PAGASA during the 24-hour period immediately prior to the vessel’s departure from Manila. The bulletins warned all types of sea crafts to avoid the typhoon’s expected path near Mindoro. To make matters worse, he took more load than was allowed for the ship’s rated capacity. Sued for damages by the victim’s surviving relatives, Marina Navigation Company contended 1) that its liability, if any, had been extinguished with the sinking of MV Mariposa; and 2) that assuming it had not been so extinguished, such liability should be limited to the loss of the cargo. Are these contentions meritorious in the context of applicable provisions of the Code of Commerce? (3%)

b) RC imported computer motherboards from the United States and had them shipped to Manila aboard an ocean-going cargo ship owned by BC Shipping Company. When the cargo arrived at the Manila seaport and delivered to RC, the crate appeared intact; but upon inspection of the contents, RC discovered that the items inside had all been badly damaged. He did not file any notice of damage or anything with anyone, least of all with BC Shipping Company. What he did was to proceed directly to your office to consult you about whether he should have given a notice of damage and how long a time he had to initiate a suit under the provisions of the Carriage of Goods By Sea Act (C.A. 65). What would your advice be? (2%)

SUGGESTED ANSWER:

a) Yes. The contentions of Marina Navigation Company are meritorious. The captain of MV Mariposa is guilty of negligence in ignoring the typhoon bulletins issued by PAGASA and in overloading the vessel. But only the captain of the vessel MV Mariposa is guilty of negligence. The shipowner is not. Therefore, the shipowner can invoke the doctrine of limited liability.

b) My advice would be that RC should give notice of the damage sustained by the cargo within three (3) days and that he has to file the suit to recover the damage sustained by the cargo within one (1) year from the date of the delivery of the of the cargo to him.

XV.

WWW Communications Inc. is an e-commerce company whose present business activity is limited to providing its clients with all types of information technology hardware. It plans to re-focus its corporate direction of gradually converting itself into a full convergence organization. Towards this objective, the company has been aggressively acquiring telecommunications businesses and broadcast media enterprises, and consolidating their corporate structures. The ultimate plan is to have only two organizations: one to own the facilities of the combined businesses and to develop and produce content materials, and another to operate the facilities and provide mass media and commercial telecommunications services. WWW Communications will be the flagship entity which will own the facilities of all the conglomerate and provide content to the other new corporation which, in turn, will operate those facilities and provide the services. WWW Communications seeks your professional advice on whether or not its reorganized business activity would be considered a public utility requiring a franchise or certificate or any other form of authorization from the government. What will be your answer? Explain. (5%)





SUGGESTED ANSWER:

The reorganized business activity of WWW Communications Inc. would not be considered a public requiring a franchise or certificate of any other form of authorization from the government. It owns the facilities, but does not operate the same.

XVI.

Nine individuals formed a private corporation pursuant to the provisions of the Corporation Code of the Philippines (Batas Pambansa Blg. 68). Incorporator S was elected director and president -- general manager. Part of his emolument is a Ford Expedition, which the corporation owns. After a few years, S lost his corporate positions but he refused to return the motor vehicle claiming that as a stockholder with a substantial equity share, he owns that portion of the corporate assets now in his possession. Is the contention of S valid? Explain. (5%)

SUGGESTED ANSWER:

No. The contention of S is not valid. The Ford Expedition is owned by the corporation. The corporation has a legal personality separate and distinct from that of its stockholder. What the corporation owns is its own property and not the property of any stockholder even how substantial the equity share that stockholder owns.

XVII.

Marulas Creative Technology Inc., an e-business enterprise engaged in the manufacture of a computer multimedia accessories, rents an office and store space at a commercial building owned by X. Being a start-up company, Marulas enjoyed some leniency in its rent payments; but after three years, X put a stop to it and asked Marulas president and general manager, Y, who is a stockholder, to pay back the rentals amounting to a hundred thousand pesos or to vacate the premises at the end of the month. Marulas neither paid its debt nor vacated the premises. X sued Marulas and Y for collection of the unpaid rentals, plus interest and costs of litigation. Will the suit prosper against X? Against Y? (5%)

SUGGESTED ANSWER:

Yes, the suit will prosper against Marulas. It is the one renting the office and store space, as lessee, from the owner of the building, X, as lessor.

But the suit against Y will not prosper. Y, as president and general manager, and also stockholder of Marulas Creative Technology, Inc., has a legal personality separate and distinct from that of the corporation. The liability of the corporation is that of the corporation and not that of its officers and stockholders who are not liable for corporate liabilities.

XVIII.

a) At the annual stockholders’ meeting of MS Corporation, the stockholders unanimously passed a resolution authorizing the Board of Directors to amend the corporate by-laws so as to disqualify any stockholder who is also a director or stockholder of a competing business from being elected to the Board of Directors of MS Corporation. The by-laws were accordingly amended. GK, a stockholder of MS Corporation and a majority stockholder of a competitor, sought election to the Board of Directors of MS Corporation. His nomination was denied on the ground that he was ineligible to run for the position. Seeking a nullification of the offending disqualification provision, GK consults you about its validity under the Corporation Code of the Philippines (BP Blg. 68). What would your legal advice be? (3%)

b) The Securities and Exchange Commission approved the amendment of the articles of incorporation of GHQ Corporation shortening its corporate life to only 25 years in accordance with Section 120 of the Corporation Code. As shortened, the corporation continued its business operations until May 30, 1997, the last day of its corporate existence. Prior to said date, there were a number of pending civil actions, none of which was expected to be completed or resolved within five years from May 30, 1997.

If the creditors had sought your professional help at that time about whether or not their cases could be pursued beyond May 30, 1997, what would have been your advice?

SUGGESTED ANSWER:

a) The provision in the amended by-laws, disqualifying any stockholder who is also a director or stockholder of a competing business from being elected to the Board of Directors of MS Corporation, is valid. The corporation is empowered to adopt a code of by-laws for its government not inconsistent with the Corporation Code. Such disqualifying provision is not inconsistent with the Corporation Code.

b) The cases can be pursued even beyond May 30, 1997, the last day of the corporate existence of GHQ Corporation. The Corporation is not actually dissolved upon the expiration of its corporate term. There is still the period for liquidation or winding up.


XIX.

a) The Monetary Board of the Bangko Sentral closed Urban Bank after it encountered crippling financial difficulties that resulted in a bank run. X, one of the members of the Board of Directors of the bank, attended and stayed throughout the entire meeting of the Board that was held well in advance of the bank run and before news had begun to trickle to the business community about the dire financial pit the bank had fallen into. Immediately after the meeting, X caused the preparation and issuance of a manager’s check payable to himself in the sum of five million pesos equivalent to the amount placed or invested in the bank by a business acquaintance. He now claims that he is keeping the funds in trust for the owner and that he had committed no violation of the General Banking Act (R.A. 337, as amended) for which he should be punished. Do you agree that there has been no violation of the statute? (3%)

b) After many years of shopping in the Metro Manila area, housewife HW has developed the sound habit of making cash purchases only, none on credit. In one shopping trip to Mega Mall, she got the shock of her shopping life for the first time, a store’s smart salesgirl refused to accept her coins in payment for a purchase worth not more than one hundred pesos. HW was paying seventy pesos in 25-centavo coins and twenty five pesos in 10-centavo coins. Strange as it may seem, the girl told HW that her coins were not “legal tender”. Do you agree with the salesgirl in respect of her understanding of “legal tender”? Explain. (2%)

SUGGESTED ANSWER:

a) No. I do not agree that there is no violation of the statute (R.A. 337, as amended). X violated Sec. 85 when he caused the preparation and issuance of a manager’s check payable to himself in the sum of five million pesos. This is paying out or permitting to paid out funds of the bank after the latter has become insolvent. This act is prohibited by fine of not less than P1,000.00 nor more than P10,000.00 and by imprisonment for not less than two nor more than ten years.

b) No. The salesgirl’s understanding that coins are not legal tender is not correct. Coins are legal tender in amounts not exceeding fifty pesos for denominations from twenty five centavos and above, and in amounts not exceeding twenty pesos for denominations ten centavos and less.

XX.

Embassy Appliances sells home theater components that are designed and customized as entertainment centers for consumers within the medium-to-high price bracket. Most, if not all, of these packages are sold on installment basis, usually by means of credit cards allowing a maximum of 36 equal monthly payments. Preferred credit cards of this type are those issued by banks, which regularly hold mall-wide sales blitzes participated in by appliance retailers like Embassy Appliances. You are a buyer of a home theater center at Embassy Appliances. The salesclerk who is attending to you simply swipes your credit card on the electronic approval machine (which momentarily prints out your charge slip since you have unlimited credit), tears the slip from the machine, hands the same over to you for your signature, and without more, proceeds to arrange the delivery and installation of your new home theater system. You know you will receive a statement on your credit card purchases from the bank containing an option to pay only a minimum amount, which is usually 1/36 of the total price you were charged for your purchase. Did Embassy Appliances comply with the provisions of the Truth in Lending Act (R.A. 3765)? (5%)

SUGGESTED ANSWER:

There is no need for Embassy Appliances to comply with the Truth in Lending Act. The transaction is not a sale on installment basis. Embassy Appliances is a seller on cash basis. It is the credit card company which allows the buyer to enjoy the privilege of paying the price on installment basis.

[pinkalou]

BAR EXAMINATION 2006
MERCANTILE LAW

17 September 2006 8 A.M. - 12 Noon
INSTRUCTIONS

This questionnaire consists of sixteen (16) numbers contained in eight (8) pages. Read each question very carefully. Answer legibly, clearly, and concisely. Start each number on a separate page; an answer to a sub-question under the same number may be written continuously on the same page and immediately succeeding pages until completed. Do not repeat the question. A mere "Yes" or "No" answer without any corresponding discussion will not be given any credit.

HAND IN YOUR NOTEBOOK WITH THIS QUESTIONNAIRE

GOOD LUCK!!!


Signed ANGELINA S. GUTIERREZ
Chairperson
20006 Bar Examination Committee
PLEASE CHECK THE NUMBER OF PAGES IN THIS SET
WARNING: NOT FOR SALE OR UNAUTHORIZED USE

MERCANTILE LAW

- I -

What is the doctrine of "piercing the veil of corporate entity?" Explain 2.5%

To what circumstances will the doctrine apply? 2.5%

What is the minimum and maximum number of incorporators required to incorporate a stock corporation? is this also the same minimum and maximum number of dicrectors required in a stock corporation? 2.5%

Must all incorporators and directors be residents of the Philippines? 2.5%

- II -

Discuss the legal consequences when a bank honors a forged check. 5%

- III -

Jun was about to leave for a business trip. As his usual practice, he signed several blank checks. He instructed Ruth, his secretary, to fill them as payment for his obligations. Ruth filled one check with her name as payee, placed P30,000.00 thereon, endorsed and delivered it to Marie. She accepted the check in good faith as payment for goods she delivered to Ruth. Eventually, Ruth regretted what she did and apologized to Jun. Immediately he directed the drawee bank to dishonor the check. When Marie encashed the check. it was dishonored.

Is Jun liable to Marie? 5%

Supposing the check was stolen while in Ruth's possession and a thief filled the blank check, endorsed and delibvered it to Marie in payment for the goods he purchased from her, is Jun liable to Marie if the check is dishonored? 5%

- IV -

Rudy is jobless but is reputed to be a jueteng operator. He has never been charged or convicted of any crime. He maintains several bank accounts and has purchased 5 houses and lots for his children from the Luansing Realty I Inc. Since he does not have any visible job, the company reported his purchases to the Anti-Money Laundering Council (AMLC). Thereafter, AMLC charged him with violation of the Anti-Money Laundering Law. Upon request of the AMLC, the bank disclosed to it Rudy's bank deposits amounting to P100 Million. Subsequently, he was charged in court for violation of the Anti-Money Laundering Law.

Can Rudy move to dismiss the case on the ground that he has no criminal record? 2.5%

To raise funds for his defense, Rudy sold the houses and lots to a friend. Can Luansing Realty, Inc. be compelled to transfer to the buyer ownership of the houses and lots? 2.5%

In disclosing Rudy's bank accout:)ts to the AMLC, did the bank violate any law? 2.5%

Supposing the titles of the houses and lots are in possession of the Luansing Realty I Inc., is it under obligation to deliver the titles to Rudy? 2.5%

- V -

The Peninsula Insurance Company offered to insure Francis' brand new car against all risks in the sum of P1 Million for 1 year. The policy was issued with the premium fixed at P60,000.00 payable in 6 months. Francis only paid the first two months installments. Despite demands, he failed to pay the subsequent installments. Five months after the issuance of the policy, the vehicle was carnapped. Francis filed with the insurance company a claim for its value. However, the company denied his claim on the ground that he failed to pay the premium resulting in the cancellation of the policy.

Can Francis recover from the Peninsula Insurance Company? 5%

- VI -

In several policy addresses extensively covered by media since his appointment on December 21, 2005, Chief Justice Artemio V. Panganiban vowed to leave a judiciary characterized by "four Ins" and to focus in solving the "four ACID" problems that corrode the administration of justice in our country.

Explain this "four Ins" and "four ACID" problems. 2.5%

The Chief Justice also said that the judiciary must "safeguard the liberty" and "nurture the prosperity" of our people.

Explain this philosophy. Cite Decisions of the Supreme Court implementing each of these twin beacons of the Chief Justice. 2.5%

- VII -

What is a mutual insurance company or association? 2.5%

Distinguish between the role of a conservator and that of a receiver of a bank. 2.5%

- VIII -

Pio is the president of Western Bank. His wife applied for a loan with the said bank to finance an internet cafe. The loan officer told her that her application will not be approved because the grant of loans to related interests of bank directors, officers, and stockholders is prohibited by the General Banking Law.

Explain whether the loan officer is correct. 5%

- IX -

The Blue Star Corporation filed with the Regional Trial Court a petition for rehabilitation on the ground that it foresaw the impossibility of paying its obligations as they fall due. Finding the petition sufficient in form and substance, the court issued an Order appointing a rehabilitation receiver and staying the enforcement of all claims against the corporation.

What is the rationale for the Stay Order? 5%

- X -

What acts or omissions are penalized under the Trust Receipts Law? 2.5%

Is lack of intent to defraud a bar to the prosecution of these acts or omissions? 2.5%

- XI -

Under Republic Act No.1405 (The Bank Secrecy Law), bank deposits are considered absolutely confidential and may not be examined, inquired or looked into by any person, government official, bureau or office.

What are the exceptions? 5%

- XII -

Is the Securities and Exchange Commission the venue for actions involving intra-corporate controversies? 2%

- XIII -

Supposing Albert Einstein were alive today and he filed with the Intellectual Property Office (IPO) an application for patent for his theory of relativity expressed in the formula E=mc2. The IPO disapproved Einstein's application on the ground that his theory of relativity is not patentable.

Is the IPO's action correct? 5%

- XIV -

In a written legal opinion for a client on the difference between apprenticeship and learnership, Liza quoted without permission a labor law expert's comment appearing in his book entitled "Annotations on the Labor Code."

Can the labor law expert hold Liza liable for infringement of copyright for quoting a portion of his book without his permission? 5%

- XV -

A real estate mortgage may be foreclosed judicially or extrajudicially.

In what instance maya mortgagee extrajudicially foreclose a real estate mortgage? 5%

- XVI -

Pursuant to a writ of execution issued by the Regional Trial Court in "Express Bank v. Don Rubio," the sheriff levied and sold at public auction 8 photocopying machines of Don Rubio. Is the sheriff's sale covered by the Bulk Sales Law? 5%

NOTHING FOLLOWS.