CompileCommercial Law - Part3

Mercantile Law Q&As (2007-2013) hectorchristopher@yahoo.
com JayArhSals
to nullify the foreclosure and the

(C) the corporate officers mortgages, raising the following issues:
SUGGESTED ANSWER:
When a corporate officer enters into a (A) The execution of only one Affidavit of
contract on behalf of the corporation Good Faith for both mortgages invalidated
without having been so expressly or the two mortgages; (2%) and
impliedly authorized by the Board of SUGGESTED ANSWER:
Directors, even when the act or contract The execution of only one Affidavit of
falls within the corporation’s express, Good Faith for both mortgages is not a
implied or incidental power, then the ground to nullify the said mortgages and
unauthorized act of the corporate officer the foreclosure thereof. Said mortgages
is deemed to be ultra vires. are valid as between immediate parties
(Lilius v. Manila Railroad Company, 62
Phil. 56 (1935)), although they cannot
bind third parties (Philippine Refining v.
Credit Transaction
Jarque, 61 Phil. 229 (1935)).
Chattel Mortgage; Foreclosure (2009)
(B) The mortgage on the shares of stocks
No.III. Armando, a resident of Manila,
should have been registered in the office of
borrowed P3-million from Bernardo,
the Register of Deeds of Manila where he
offering as security his 500 shares of stock
resides, as well as in the stock and transfer
worth P1.5-million in Xerxes Corporation,
book of Xerxes Corporation. (3%)
and his 2007BMW sedan, valued at P2-
million. The mortgage on the shares of
Rule on the foregoing issues with reasons.
stock was registered in the Office of the
Register of Deeds of Makati City where
SUGGESTED ANSWER:
Xerxes Corporation has its principal office.
The mortgage on the shares of stock
The mortgage on the car was registered in
should be registered in the chattel
the Office of the Register of Deeds of
mortgage registry in the Register of
Manila. Armando executed a single Affidavit
Deeds of Makati City where the
of Good Faith, covering both mortgages.
corporation has its principal office and
also in the Register of Deeds of Manila
Armando defaulted on the payment of his
where the mortgagor resides (Chua Guan
obligation; thus, Bernardo foreclosed on the
v. Samahang Magsasaka, Inc., 62 Phil.
two chattel mortgages. Armando filed suit
472 (1935)). Registration of chattel
“Never Let The Odds Keep You From Pursuing What You Know In Your Heart You Were Meant To Do.”-Leroy Satchel Paige
Page 36 of 173
Mercantile Law Q&As (2007-2013) [email protected] JayArhSals
mortgage in the stock and transfer book February 1, 2008, Al obtained another loan
is not required to make the chattel of P10,000 from Bob to be paid on February
mortgage valid. Registration of dealings 15, 2008. He secured this by executing a
in the stock and transfer book under chattel mortgage on a Honda motorcycle.
Section 63 of the Corporation Code On the due date of the first loan Al failed to
applies only to sale or disposition of pay. Bob foreclosed the chattel mortgage
shares, and has no application to but the car was bidded for P6,000 only. Al
mortgages and other forms of also failed to pay the second loan due on
encumbrances (Monserrat v. Ceron, 58 February 15, 2008. Bob filed an action for
Phil. 469 (1933)). collection of sum of money. Al filed a
motion to dismiss claiming that Bob should
(C) Assume that Bernardo extrajudicially first foreclose the mortgage on The Honda
foreclosed on the mortgages, and both the motorcycle before he can file the action for
car and the shares of stocks were sold at sum of money. Decide with reasons. (4%)
public auction. If the proceeds from such SUGGESTED ANSWER:
public sale should be 1-million short of
Bob has the legal right to file a collection
Armando’s total obligation, can Bernardo
suit for a sum of money in lieu of
recover the deficiency? Why or why not?
foreclosing on the chattel mortgage. It
(2%)
has been ruled that a c chattel mortgage
is a security arrangement to support a
SUGGESTED ANSWER:
primary contract (Serra v. Rodriguez,
Yes. Bernardo can recover the
G.R. no. L-25546, 22 April 1974). Since
deficiency. Chattels are given as mere
the chattel mortgage is only a collateral
security, and not as payment or pledge
contract prerogative to choose which of
(CuH ada v. Drilon, 432 SCRA 618
the remedies available to pursue.
(2004)).
However, the filing of the collection suit
constitutes a waiver of the chattel
mortgage (Land Settlement and Dev.
Corp. v. Carlos, 22 SCRA 202, 1968). And
Chattel Mortgage; Foreclosure (2008) even if the collection suit included the
recovery of the P6,000 deficiency on the
No.XVII. On January 1, 2008, Al obtained a
first loan, the same is valid because
loan of P10,000 from Bob to be paid on
unlike in a pledge the lender has the
January 30, 2008, secured by a chattel
legal right to recover the deficiency
mortgage on a Toyota motor car. On
Page 37 of 173
incurred on the foreclosure of a chattel Yes. X executed a real estate mortgage

mortgage (PAMECA Wood Treatment v. containing a “blanket mortgage clause.”
CA, G.R. No. 106435, 14 July 1999). Mortgages given to secure future
advancements are valid and legal
contracts, and the amounts named as
consideration in said contracts do not
limit the amount for which the mortgage
Mortgage; Extrajudicial Foreclosure;
may stand as security if from the four
Blanket Mortgage & Damage Clause
corners of the instrument the intent to
(2012)
secure future and other indebtedness
can be gathered. (Prudential Bank v.
No.VIII. X obtained a Php10Million loan
Alviar, G.R. No. 150197, 28 July 2005)
from BBB Banking Corporation. The loan is
secured by Real Estate Mortgage on his
(B) What is the meaning of a "dragnet
vacation house in Tagaytay City. The
clause" in a Deed of Real Estate Mortgage?
original Deed of Real Estate Mortgage for
Under what circumstances will the "dragnet
the Php10Million was duly registered. The
clause" be applicable? ( 5%)
Deed of Real Estate Mortgage also provides
that "The mortgagor also agrees that this SUGGESTED ANSWERS:
mortgage will secure the payment of
additional loans or credit accommodations Generally, a dragnet clause is a clause in
that may be granted by the mortgagee ... " a deed of real estate mortgage stating
Subsequently, because he needed more that the mortgage secures all the loans
funds, he obtained another Php5Million and advances that the mortgagor may at
loan. On due dates of both loans, X failed to any time owe to the mortgagee. The
pay the Php5Million but fully paid the word “dragnet” is a reference to a net
Php10Million. BBB Banking Corporation drawn through a river or across ground
instituted extrajudicial foreclosure to trap fish or game. It is also known in
proceedings. American jurisprudence as a “blanket
mortgage clause” or an “anaconda
(A) Will the extrajudicial foreclosure prosper clause.” A mortgage with a dragnet
considering that the additional Php5Million clause enables the parties to provide
was not covered by the registration? (5%) continuous dealings, the nature or
extent of which may not be known or
SUGGESTED ANSWERS:
anticipated at the time, and they avoid
the expense and inconvenience of
Page 38 of 173
executing a new security on each new Mortgage; Foreclosure (2012)

transaction. It operates as a convenience
and accommodation to the borrower as it No.VII. X obtained a loan for Php50Million
makes available additional funds to him from SSS Bank. The collateral is his
without his having to execute additional vacation house in Baguio City under a real
security documents, thereby saving estate mortgage. X needed more funds for
time, travel, cost of extra legal services, his business so he again borrowed another
recording fees, etc. (Prudential Bank v. Php10Million, this time from BBB Bank,
Alviar, id.) another bank, using the same collateral.

The loan secured from SSS Bank fell due
The “dragnet clause” may not apply to and X defaulted.
other loans extended by the mortgagee
to the mortgagor for which other (A) If SSS Bank forecloses the real estate
securities were given. In the case of mortgage, what rights, if any, are left with
Prudential Bank v. Alviar, the Supreme 888 Bank as mo1igagee also? (2%)
Court adopted the “reliance on the

SUGGESTED ANSWER:
security test” to the effect that “when
the mortgagor takes another loan [from BBB Bank, as junior mortgagee, would
the mortgage] for which another security have a right to redeem the foreclosed
was given, it could not be inferred that property, together with X, his successors
such loan was made in reliance solely on in interest, any judicial or judgement
the original security with the “dragnet creditor of X, or any other person or
clause,” but, rather, on the new security entity having a lien on the vacation
given.” This means that the existence of house subsequent to the real estate
the new security must be respected and mortgage in favour of SSS Bank (i.e.,
the foreclosure of the old security should other junior mortgagees, if any)(Sec. 6,
only be for the other loans not Act 3135)
separately collateralized and for any

(B) If the value of the Baguio property is
amount not covered by the new security
less than the amount of loan, what would
for the new loan.
be the recourse of SSS Bank? BBB Bank?
(2%)
SUGGESTED ANSWER:
Page 39 of 173
In case of a deficiency, SSS bank could If X defaulted in respect of his loan from
file suit to claim for the deficiency. BBB BBB Bank but fully paid his loan from
Bank could file an ordinary action to SSS Bank, BBB Bank could now foreclose
collect its loan from X. if it does so, it the mortgaged property as it would be
would be deemed to have waived its the only remaining mortgagee of the
mortgage lien. If the judgement in the same.
action to collect is favorable to BBB
Bank, and it becomes final and (E) Does X have any legal remedy after the
executory , BBB Bank could enforce the foreclosure in the event that later on he has
said judgement by execution. It could the money to pay for the loan? (1%)
even levy execution execution on the

SUGGESTED ANSWER:
same mortgaged property, but it would
not have priority over the latter. (Caltex
Yes, X could redeem the property within
Philippines v. IAC, et al., G.R. No. 74730,
one (1) year from the date of registration
August 25,1989)
of the sheriff’s certificate of foreclosure
sale.
(C) If the value of the property is more that
the amount of the loan, who will benefit
(F) If SSS Bank and BBB Bank abandon
from the excess value of the property? (2%)
their rights under the real estate mortgage,
is there any legal recourse available to
SUGGESTED ANSWER:
them? (1%)
If the value of the property is more that

SUGGESTED ANSWER:
the amount of the loan, the excess could
benefit and be claimed by BBB Bank, any
SSS Bank and BBB Bank could each file
judicial or judgement creditor of X, any
an ordinary action to collect its loan
other junior mortgagee, and X.
from X.
(D) If X defaulted with its loan in favor of

BBB Bank but fully paid his loan with SSS
Bank, can BBB Bank foreclose the real Mortgage; Foreclosure (2010)
mortgage executed in its favor? (2%)

No.III. Ozamis Paper Corporation secured
loans from ABC Universal Bank in the
SUGGESTED ANSWER:
aggregate principal amount of P100 million,
evidenced by several promissory notes, and
Page 40 of 173
secured by a continuing guaranty of its and SA v. American Realty Corporation,

principal stockholder Menandro Marquez; a 321 SCRA 659(1999)).
pledge of Marquez’s shares in the
corporation valued at P45 million; and a (C) Can the bank foreclose on the pledged
real estate mortgage over certain parcels of shares of Marquez and recover the
land owned by Marquez. deficiency from the corporation? Explain.
(2%)
The corporation defaulted and the bank SUGGESTED ANSWER:
extra-judicially foreclosed on the real estate If the bank forecloses the pledge, it
mortgage. The bank which was the sole cannot recover the deficiency because
bidder for P75 million, won the award. the foreclosure extinguishes the
principal obligation, whether or not the
(A) Can the bank sue Marquez for the proceeds from the foreclosure are equal
Deficiency of P25 million? Explain. (2%) to the amount of the principal obligation
SUGGESTED ANSWER: (Art. 2115, Civil Code).
Yes, the bank can sue Marquez for the
deficiency of P25million. In extrajudicial
foreclosure of a real estate mortgage, if
Insolvency & Corporate
the proceeds of the sale are insufficient
to pay the debt, the mortgagee has the Recovery
right to sue for the deficiency (Suico
Insolvency; Preferred Claims (2007)
Rattan and Buri Interiors, Inc. v. Court
of Appeals, 490 SCRA 560 (2006)). No.XIII. (A) What are the preferred claims
that shall be satisfied first from the assets
(B) If the bank opts to file an action for of an insolvent corporation? (10%)
collection against the corporation, can it
SUGGESTED ANSWER:
afterwards institute a real action to
foreclose the mortgage? Explain (2%) Under the Insolvency law necessary
SUGGESTED ANSWER: funeral expenses of the debtor is the
No, the bank can no longer file an action most preferred claim. However, this is an
to foreclose the real estate mortgage. insolvent corporation, thus, claims shall
When it filed a collection case, it was be paid in the ff. order:
deemed to have abandoned the real
estate mortgage (Bank of America, NT (1) Debts due for personal services
rendered the insolvent by employees,
Page 41 of 173
laborers, or domestic servants Philippine Islands (Section 50,

immediately preceding the Insolvency Law).
commencement of proceeding in
insolvency; (B) How shall the remaining non-preferred
creditors share in the estate of the insolvent
(2) Compensation due the laborers or corporation above?
their dependents under the provisions of SUGGESTED ANSWER:
act numbered thirty-four hundred and The remaining non-preferred creditors,
twenty-eight, known as the workmen’s whose debts are duly proved and
Compensation Act, as amended by Act allowed, shall be entitled to share pro-
Numbered Thirty-eight hundred and rata in the assets, without priority or
twelve, and under the provisions of Act preference whatsoever (Section 49,
Numbered Eighteen hundred and Insolvency Law; Article 2251, Civil
seventy-four, known as the Employees’ Code).
Liability Act, and of other laws providing
for payment of indemnity for damages in
cases of labor accidents;
Rehabilitation; Proceeding;
(3) Legal expenses, and expenses Rehabilitation & Insolvency (2012)
incurred in the administration of the
No.XVIII. (A) Can be distressed corporation
insolvent’s estate for the common
file a petition for corporation rehabilitation
interest of the creditors, when properly
after the dismissal of its earlier petition for
authorized and approved by the court;
insolvency? Why? (2%)
SUGGESTED ANSWER:
(4) Debts, taxes, and assessments due
the Insular Government; Yes, when a distressed corporation’s
petition for insolvency has been
(5) Debts, taxes, and assessments due to dismissed, it can only mean that it still
any province or provinces of the possesses more than enough assets to
Philippine Islands; cover all its liabilities, and consequently,
it can still be “rehabilitated” (PAL v.
(6) Debts, taxes, and assessments due to Zamora, G.R. No. 166996, 06 February
any municipality or municipalities of the 2007, and Sec. 5[d], Securities
Regulation Act).
Page 42 of 173
Although in Ching v. LBP, G.R. No.

Under Sec. 6(d) of P.D. 902-A, a petition 73123, 02 September 1991, it was held
for corporate rehabilitation is allowed that when a petitioning corporate debtor
only “in cases where the has been denied rehabilitation, the SEC
corporation**possesses sufficient may declare a corporation insolvent as
property to cover all its debts but an incident and in continuation of its
foresees the impossibility of meeting already acquired jurisdiction over
them when they respectively fall due or petitioner, such a procedure does not
in cases where the corporation** has no seem warranted under the Interim Rules
sufficient assets to cover liabilities, but of Procedure for Corporate
is under the management of a Rehabilitation.
rehabilitation receiver or management
committee created pursuant to this Sec. 27, Rule 4 of the Interim Rules
Decree.” state that, “the court shall upon motion,
motu porprio or upon the
Under Sec. 1, Rule 4, Interim Rule of recommendation of the Rehabilitation
Procedure for Corporate Rehabilitation. Receiver, terminate the proceedings,
A petitioner corporate debtor must be without proceeding to
one who is “Any debtor who foresees the insolvency/dissolution.” In other words,
impossibility of meeting its debts when a different petition for insolvency
they respectively fall due,” which means proceedings fall with the general
that it is not insolvent, but merely jurisdiction of RTC, whereas petition for
illiquid, which under Section 2 provides corporate rehabilitation fall within the
the minimum that the debtor is original and exclusive jurisdiction of
“rehabilitable” thus: “the manner by RTC special Commercial Courts.
which the debtor may be rehabilitated
and how such rehabilitation may benefit (C) Explain the key phrase ―equality is
the general body of creditors, employees equity‖ in corporate rehabilitation
and stock holders. proceedings. (2%)
SUGGESTED ANSWER:
(B) Can the corporation file a petition for
The principle of “equality in equity”
rehabilitation first, and after it is dismissed
means that when a corporation is placed
file a petition foR insolvency? Why? (2%)
under the control of a court-appointed
SUGGESTED ANSWER:
rehabilitation receiver, then “all the
Page 43 of 173
creditors should stand on equal footing. (A) Can XYC Company still be able to draw
Not anyone of them should be given any on their irrevocable Standby Letter of Credit
preference by paying one or some of when due? Explain your answer. (5%)
them ahead of the others. This is
SUGGESTED ANSWER:
precisely the reason for the suspension
of all pending claims against the Yes, As an exception to a Stay or
corporation under receivership” Suspension Order included in a
(Sobrejuanite v. ASB Dev. Corp., G.R. No. Commencement Order issued pursuant
165675, 30 September 2005: Ruby to Section 16(q) of the FRIA, Section
Industrial v. Lim, G.R. Nos. 124185-87, 18(c) if the said law provides that a Stay
20 January 1998). or Suspension Order shall not apply “to

the enforcement of claims against
sureties and other persons solidarily
liable with the debtor, and third party or
accommodation mortgagors as well as
Rehabilitation; Stay Order (2012) issuers of letters of credit x xx.”
Similarly, assuming that it has not been
No.I. ABC Company filed a Petition for
superseded by the FRIA, Section 7(b) of
Rehabilitation with the Court. An Order
the Supreme Court Rules of Procedure
was issued by the Court, (1) staying
on Corporate Rehabilitation (2008)
enforcement of all claims, whether money
provides that a stay order shall not cover
or otherwise against ABC Company, its
claims against letters of credit and
guarantors and sureties not solidarily liable
similar security arrangements issued by
with the company; and (2) prohibiting ABC
a third party to secure the payment of
Company from making payments of its
the debtor’s obligations. This was the
liabilities, outstanding as of the date of the
basis of the decision in the case of
filing of the Petition. XYC Company is a
Metropolitan Waterworks and Sewerage
holder of an irrevocable Standby Letter of
System v. Hon. Reynaldo B. Daway, et al.
Credit which was previously procured by
(G.R. No. 160732, June 21,2004).
ABC Company in favor of XYC Company to
secure performance of certain obligations.
In the light of the Order issued by the
Court.
Page 44 of 173
Insurance Law Concealment; Material Concealment

(2013)
Beneficiary; Death of Insured Due to
No.II. Benny applied for life insurance for
Beneficiary (2008)
Php 1.5 Million. The insurance company
No.VI. On January 1, 2000, Antonio Rivera approved his application and issued an
secured a life insurance from SOS insurance policy effective Nov, 6, 2008.
Insurance Corp. for P1 Million with Gemma Benny named his children as his
Rivera, his adopted daughter, as the beneficiaries. On April 6, 2010, Benny died
beneficiary. Antonio Rivera died on March of hepatoma, a liver ailment.
4, 2005 and in the police investigation, it
was ascertained that Gemma Rivera The insurance company denied the
participated as an accessory in the killing of children’s claim for the proceeds of the
Antonio Rivera. Can SOS Insurance Corp. insurance policy on the ground that Benny
avoid liability by setting up as a defense the failed to disclose in his application two
participation of Gemma Rivera in the killing previous consultations with his doctors for
of Antonio Rivera? Discuss with diabetes and hypertension, and that he had
reasons.(4%) been diagnosed to be suffering from
hepatoma. The insurance company also
SUGGESTED ANSWER:
rescinded the policy and refunded the
Under Sec. 12 of the Insurance Code. premiums paid.
The interest of a beneficiary shall be Was the insurance company correct? (8%)
forfeited when the beneficiary is the SUGGESTED ANSWER
principal, accomplice, or accessory in The insurance company correctly
willfully bringing about the death of the rescinded the policy because of
insured. In which event, the nearest concealment (Section 27 of Insurance
relative of the insured shall receive the Code). Benny did not disclose that he
proceeds of said insurance, if not was suffering from diabetes,
otherwise disqualified. Thus, the hypertension, and hepatoma. The
insurance company must still pay out concealment is material, because these
the proceed of the life insurance policy are serious ailments (Florendo v. Philam
to the nearest qualified relative of the Plans, Inc., 666 SCRA 618, 2012). Benny
insured. died less than two years from the date of
the issuance of the policy (Section 48 of
Insurance Code).
Page 45 of 173
Insurable Interest; Building Destroyed by Globe & Rutgers Fire Insurance

Fire (2010) Company, 57 Phil. 576 (1932)). Second,
fire insurance policies contain a
No.X. To secure a loan of P10 million, Mario
warranty that the insured will not store
mortgaged his building to Armando. In
hazardous materials within the insured
accordance with the loan arrangements,
premises. Mario breached this warranty
Mario had the building insured with First
when he stored inflammable materials in
Insurance Company for P10 million,
the building. (Young v. Midland Textile
designating Armando as the beneficiary.
Insurance Company, 30 Phil. 617
Armando also took an insurance of the
(1915)).These two factors exonerate First
building upon his own interest with Second
Insurance Company from liability to
Insurance Company for P5 million.
Armando as mortgagee even though it
The building was totally destroyed by fire, a
was Mario who committed them (Section
peril insured against under both insurance
8 of the Insurance Code).
policies. It was subsequent determined that
the fire had been intentionally started by
(B) What happens to the P10 million debt of
Mario and that in violation of the loan
Mario to Armando? Explain. (3%)
agreement, he had been storing
SUGGESTED ANSWER:
inflammable materials in the building.
Since Armando would have collected P5
million from Second Insurance
(A) How much, if any, can Armando recover
Company, this amount should be
from either or both insurance companies?
considered as partial payment of the
(2%)
loan. Armando can only collect the
SUGGESTED ANSWER:
balance of P5 million (Panlileo v. Cosio,
Armando can receive P5 million from
supra). Second Insurance Company can
Second Insurance Company. As
recover from Mario the amount of P5
mortgagee, he had an insurable interest
million it paid, because it became
in the building (Panlileo v. Cosio, 97
subrogated to the rights of Armando
Phil. 919 (1955)). Armando cannot
(Panlileo v. Cosio, supra).
collect anything from First Insurance
Company. First Insurance Company is
not liable for the loss of the building.
First, it was due to a willful act of Mario,
who committed arson (Section 87 of the
Insurance Code; East Furnitures, Inc. v.
Page 46 of 173
Insurance; Double Insurance, Validity SUGGESTED ANSWER:

(2012)
Yes. If X obtained an open policy then
No.V X borrowed from CCC Bank. She she could claim an amount
mortgaged her house and lot in favor of the corresponding to the extent of the
bank. X insured her house. The bank also damage based on the value of the house
got the house insured. determined as of the date the damage
occurred, but not to exceed the face
(A) Is this double insurance? Explain your value of the insurance policy; however, if
answer. (3%) she obtained a valued policy then she
could claim an amount corresponding to
SUGGESTED ANSWER:
the extent of the damage based on the
agreed upon valuation of the house.
No, there is no double insurance. Double
insurance exists where the same person
As for CCC Bank, it could claim an
is insured by several insurers separately
amount corresponding to the extent of
with respect to the same subject and
the damage but not to exceed the
interest. (Sec. 93, Insurance Code)
amount of the loan it extended to X or
so much thereof as may remain unpaid.
(B) Is this legally valid? Explain your
answer. (3%)
SUGGESTED ANSWER:
Yes, X and CCC Bank can both insure the Insurance; Perfection of Insurance
house as they have different insurable Contracts (2009)
interest therein. X, the borrower

No.IV. Antarctica Life Assurance
mortgagor, has an insurable interest in
Corporation (ALAC) publicly offered a
the house being the owner thereof while
specially designed insurance policy covering
CCC Bank, the lender, also has an
persons between the ages of 50 to 75 who
insurable interest in the house as
may be afflicted with serious and
mortgagee thereof.
debilitating illnesses. Quirico applied for
insurance coverage, stating that he was
(C) In case of damage, can X and CCC Bank
already 80 years old. Nonetheless, ALAC
separately claim for the insurance
approved his application.
proceeds? (4%)
Page 47 of 173
Quirico then requested ALAC for the

issuance of a cover note while he was trying The cover note is a receipt whereby the
to raise funds to pay the insurance company agrees to insure the insured for
premium. ALAC granted the request. Ten 60 days pending the issuance of a
days after he received the cover note, regular policy. No separate premium is
Quirico had a heart seizure and had to be to be paid on a cover note. It is not a
hospitalized. He then filed a claim on the separate policy but is integrated in the
policy. regular policy to be subsequently issued.
(A) Can ALAC validly deny the claim on the

ground that the insurance coverage, as
publicly offered, was available only to
Insurance; Property Insurance;
persons 50 to 75 years of age? Why or why
Assignments (2009)
not? (2%)
No.XIII. Ciriaco leased a commercial

SUGGESTED ANSWER: apartment from Supreme Building
No. By approving the application of Corporation (SBC). One of the provisions of
Quirino who disclosed that he was the one-year lease contract states:
already 80 years old, ALAC waived the
age requirement. ALAC is now stopped ―18.xxx The LESSEE shall not insure
from raising such defense of age of the against fire the chattels, merchandise,
insured. textiles, goods and effects placed at any
stall or store or space in the leased
(B) Did ALAC’s issuance of a cover note premises without first obtaining the written
result in the perfection of an insurance consent of the LESSOR. If the LESSEE
contract between Quirico and ALAC? obtains fire insurance coverage without the
Explain. (3%) consent of the LESSOR, the insurance
policy is deemed assigned and transferred
SUGGESTED ANSWER: to the LESSOR for the latter’s benefit.‖
The issuance of a cover note by ALAC
resulted in the perfection of the contract Notwithstanding the stipulation in the
of insurance. In that case, it is only contract, without the consent of SBC,
because there is delay in the issuance of Ciriaco insured the merchandise inside the
the policy that the cover notes was leased premises against loss by fire in the
issued.
Page 48 of 173
amount of P500, 000 with First United

Insurance Corporation (FUIC). On April 5, 2010, the car was involved in an
accident that resulted in its total loss.
A day before the lease contract expired, fire
broke out inside the leased premises, On April 10, 2010, the drawee bank
damaging Ciriaco’s merchandise. Having returned Enrique’s check with the notation
learned of the insurance earlier procured by ―Insurance funds.‖ Upon notification,
Ciriaco, SBC demanded from FUIC that the Enrique immediately deposited additional
proceeds of the insurance policy be paid funds with the bank and asked the insurer
directly to it, as provided in the lease to redeposit the check.
contract.
Enrique thereupon claimed indemnity from
Who is legally entitled to receive the the insurer. Is the insurer liable under the
insurance proceeds? Explain. (4%) insurance coverage? Why or why not? (3%)
SUGGESTED ANSWER: SUGGESTED ANSWER:
Ciriaco is entitled to receive the The insurer is not liable under the
proceeds of the insurance policy. The insurance policy. Under Article 1249 of
stipulation that the policy is deemed the Civil Code, the delivery of a check
assigned and transferred to SBC is void, produces the effect of payment only
because SBC has no insurable interest in when it is encashed. The loss occurred
the merchandise of Ciriaco (Cha v. Court on April 5, 2010. When the check was
of Appeals, 277 SCRA 690 (1997)) deposited, it was returned on April 10,
2010, for insufficiency of funds. The
check was honored only after Enrique
deposited additional funds with the
bank. Hence, it did not produce the
Insurance; Property Insurance; Late
effect of payment (Vitug, Commercial
Payment of Premiums (2010)
Laws and Jurisprudence, Vol. I, p.250).
No.XI. Enrique obtained from Seguro

Insurance Company a comprehensive ALTERNATIVE ANSWER:
motor vehicle insurance to cover his top of Yes. The insurer is liable. The insurance
the line Aston martin. The policy was policy was issued. In effect, there was a
issued on March 31, 2010 and, on even grant of credit for the payment of the
date, Enrique paid the premium with a premium. The insurer can deduct the
personal check postdated April 6, 2010.
Page 49 of 173
amount of the check from the proceeds (B) Would your answer in (a) be the same if
of the insurance. it was found that the proximate cause of
the fire was an explosion and that fire was
but the immediate cause of loss and there
is no excepted peril under the policy?
SUGGESTED ANSWER:
Insurance; Property Insurance; Payment
Yes, recovery under the insurance
of Premiums by Check (2007)
contract is allowed if the cause of the
No.IV. Alfredo took out a policy to insure loss was either the proximate or the
this commercial building fire. The broker immediate cause as long as an excepted
for the insurance company agreed to give a peril, if any was not the proximate cause
15-day credit within which pay the of the loss (Section 86, Insurance Code
insurance premium. Upon delivery of the of the Philippines).
policy on May 15, 2006, Alfredo issued a

postdated check payable on May 30, 2006. (C) If the fire was found to have been
On May 28, 2006, a fire broke out and caused by Alfredo’s own negligence, can he
destroyed the building owned by Alfredo. still recover on the policy?
(10%)
Reason briefly in (a), (b) and (c).
(A) May Alfredo recover on the insurance

policy? SUGGESTED ANSWER:
Yes, mere negligence on the part of the
SUGGESTED ANSWER: insured will not prevent recovery under
Yes, Alfredo may recover on the policy. the insurance policy. The law merely
It is valid to stipulate that the insured prevents recovery when the cause of loss
will be granted credit term for payment is the willful act of the insured, alone or
of premium. Payment by means of a in connivance with others (Section 87,
check which was accepted by the Insurance Code of The Philippines).
insurer, bearing a date prior to the loss,

would be sufficient. The subsequent
effects of encashment retroact to the
date of the check (UCPB General
Insurance Co., Inc. v. Masagana
Telamart, Inc., 356 SCRA 307 [2001]).
Page 50 of 173
Insurance; Property Insurance; Payment St. Peter Manufacturing Company is

of Premiums even after Loss (2013) entitled to recover for the loss from
stable Insurance Company. Stable
No.VII. Stable Insurance Co. (SIC) and St.
Insurance Company granted a credit
Peter Manufacturing Co. (SPMC) have had a
term to pay the premiums. This is not
long-standing insurance relationship with
against the law, because the standing
each other; SPMC secures the
business practice of allowing St. Peter
comprehensive fire insurance on its plant
Manufacturing Company to pay the
and facilities from SIC. The standing
premiums after 60 or 90 days, was relied
business practice between them has been
upon in good faith by SPMC. Stable
to allow SPMC a credit period of 90 days
Insurance Company is in estoppels
from the renewal of the policy with which to
(UCPB General Insurance Company, Inc.
pay the premium.
v. Masagana Telemart, Inc. 356 SCRA
307, 2001).
Soon after the new policy was issued and
before premium payments could be made, a
fire gutted the covered plant and facilities to
Insurer: Effects: Several Insurers (2008)
the ground. The day after the fire, SPMC
issued a manager’s check to SIC for the fire No.VII. Terrazas de Patio Verde, a
insurance premium, for which it was issued condominium building, has a value of P50
a receipt; a week later SPMC issued its Million. The owner insured the building
notice of loss. against fire with three (3) insurance
companies for the following amounts:
SIC responded by issuing its own
Northern Insurance Corp. – P20 Million
manager’s check for the amount of the
premiums SPMC had paid, and denied Southern Insurance Corp. – P30 Million
SPMC’s claim on the ground that under the
―cash and carry‖ principle governing fire Eastern Insurance Corp. – P50 Million
insurance, no coverage existed at the time

(A) Is the owner’s taking of insurance for
the fire occurred because the insurance
the building with three (3) insurers valid?
premium had not been paid.
Discuss. (3%)
Is SPMC entitled to recover for the loss form
SUGGESTED ANSWER:
SIC? (8%)
Taking out insurance covering the same
SUGGESTED ANSWER:
property, same insurable interest and
same risk with three insurance
Page 51 of 173
companies is “double insurance,” insurance Corp. is liable to the extent of

recognized under Sec. 93 of the its coverage but may recover one-half of
Insurance Code. However, in American the total indemnity from the co-insurers
Home Assurance Co. v, Chua, G.R. No. in the proportion of 60% (Southern
130421, 28 June 1999, the court Insurance) – 40% (Northern Insurance).
referred to the common inclusion of the
“other insurance clause” in fire
insurance policies, requiring disclosure
Intellectual Property
of co-insurance of the same property
with other insurers. Agreements: Technology Transfer
Agreements; Requisites & Prohibitions
(B) The Building was totally razed by fire. If (2010)
the owner decides to claim from Eastern
No.VI. (A) What contractual stipulations are
Insurance Corp. only P50 Million, will the
required in all technology transfer
claim prosper? Explain. (2%)
agreements? (2%)
SUGGESTED ANSWER:
Insured can recover from Eastern SUGGESTED ANSWER:

Insurance Corp. up to the extent of his The following stipulations are required
loss. However, Eastern may refuse to pay in all technology transfer agreements:
if the policy contains an “other
insurance clause” stipulating that non- (1) The laws of the Philippines shall
disclosure of double insurance will avoid govern its interpretation and in the
the policy (Geagonia v. Country Bankers event of litigation, the venue shall be
Insurance, G.R. No. 114427, 06 February the proper court in the place where the
1995.) As there is no indication of a licensee has its principal office;
contractual prohibition on double or
other insurance, all insurance contracts (2) Continued access to improvements in
over the building are deemed valid and techniques and processes related to the
enforceable. technology shall be made available
during the period of the technology
The law prohibits double or over-
transfer arrangement;
recovery, not double insurance. Since
Eastern insured the property up 50% of
(3) In case it shall provide for
the total coverage, it is liable for only
arbitration, the Procedure of Arbitration
50% of the total actual loss. Eastern
Page 52 of 173
of the Arbitration Law of the Philippines

or the Arbitration Rules of the United
Article of Commerce; As Trademark,
Nations Commission on International
Patent & Copyright (2010)
Trade Law or the Rules of Arbitration of
the International Chamber of Commerce No.VI. (C) Can an article of commerce serve
(ICC) shall apply and the venue of as a trademark and at the same time enjoy
arbitration shall be the Philippines or patent and copyright protection? Explain
any neutral country; and give an example. (2%)
SUGGESTED ANSWER:
(4) The Philippine taxes on all payments A stamped or marked container of goods
relating to the technology transfer can be registered as trademark
agreement shall be borne by the licensor (subsections 113.1 of the Intellectual
(Sec. 88, Intellectual Property Code). Property Code). An original ornamental
design or model for articles of
(B) Enumerate three stipulations that are manufacturer can be copyrighted
prohibited in technology transfer (Subsection 172.1 of the Intellectual
agreements. (3%) Property Code). An ornamental design
SUGGESTED ANSWER: cannot be patented, because aesthetic
The following stipulations are prohibited creations cannot be patented (Section 22
in technology transfer agreements: of the Intellectual Property Code).
However, it can be registered as an
(1) Those that contain restrictions industrial design (Subsections 113.1 and
regarding the volume and structure of 172.1 of the Intellectual Code). Thus, a
production; container of goods which has an original
ornamental design can be registered as
(2) Those that prohibit the use of trademark, can be copyrighted, and can
competitive technologies in a non- be registered as an industrial design.
exclusive agreement; and
ALTERNATIVE ANSWER:
It is entirely possible for an article of
(3) Those that establish a full or partial
commerce to bear a registered
purchase option in favor of the licensor
trademark, be protected by a patent and
(Subsections 87.3, 87.4 and 87.5 of the
have most, or some part of it
Intellectual Property Code).
copyrighted. A book is a good example.
The name of the publisher or the
Page 53 of 173
colophon used in the book may be Intellectual Property Code) His rights
registered trademarks, the ink used in existed from the moment of its creation
producing the book may be covered by a (Section 172 of the Intellectual Property
patent, and the text and design of the Code; Unilever Philippines (PRC) v. Court
book may be covered by copyrighted. of Appeals, 498 SCRA 334, 2006). The
registration of the painting by Bernie
with the National Library did not confer
Copyright (2013) copyright upon him. The registration is

merely for the purpose of completing the
No.IV. Ruby is a fine arts student in a
records of the National Library. (Section
university. He stays in a boarding house
191 of the Intellectual Property Code).
with Bernie as his roommate. During his
free time, Rudy would paint and leave his
finished works lying around the boarding
house. One day, Rudy saw one of his works
– an abstract painting entitled Manila Traffic Copyright; Commissioned Artist (2008)
Jam – on display at the university cafeteria.
No.XVI. In 1999, Mocha warn, an American
The cafeteria operator said he purchased the
musician, had a bit rap single called Warm
painting from Bernie who represented
Warm Honey which he himself composed
himself as its painter and owner
and performed. The single was produced by
a California record company, Galactic
Rudy and the cafeteria operator immediately
Records. Many notice that some passages
confronted Bernie. While admitting that he
from Warm Warm Honey sounded eerily
did not do the painting,. Bernie claimed
similar to parts of Under Hassle, a 1978 hit
ownership of its copyright since he had
song by the British rock and Majesty. A
already registered it in his name with the
copyright infringement suit was filed in the
National Library as provided in the
United States against Mocha Warm by
Intellectual Property Code.
Majesty. It was later settled out of court,
with Majesty receiving attribution as co-
Who owns the copyright to the painting?
author of Warm Warm Honey as well as a
Explain (8%).
share in the royalties.
SUGGESTED ANSWER.
Rudy owns the copyright to the painting
By 2002, Moeha Warm was nearing
because he was the one who actually
bankruptcy and he sold his economic rights
created it. (Section 178.1 of the
Page 54 of 173
over Warm Warm Honey to Galactic In the case of Mocha Warm and Majesty,
Records for $10,000. who are the attributed co-authors, and in
spite of the sale of the economic right to
In 2008, Planet Films, a Filipino movie Galactic Records, they retain their moral
producing company, commissioned DJ Chef rights to the copyrighted rap, which
Jean, a Filipino musician, to produce an include the right to demand attribution
original re-mix of Warm Warm Honey for to them of the authorship (Sec. 193,
use in one of its latest films, Astig!. DJ Chef IPC).
Jean remixed Warm Warm Honey with a
salsa beat, and interspersed as well a Which respect to DJ Chef Jean, in spite
recital of poetic stanza by John Blake, 1 of his death, and although he was
17th century Scottish poet. DJ Chef Jean commissioned by Planet Films for the
died shortly after submitting the remixed remix, the rule is that the person who so
Warm Warm Honey to Planet Films. commissioned work shall have
ownership of the work, but copyright
Prior to the release of Astig!. Mocha Warm thereto shall remain with creator, unless
learns of the remixed Warm Warm Honey there is a written stipulation to the
and demands that he be publicly identified contrary.
as the author of the remixed song is all the
CD covers and publicity releases of Planet Even if no copyright exist in favor of
Films. poet John Blake, intellectual integrity
requires that the authors of creative
(A) Who are the parties or entities entitled work should properly be credited.
to be credited as author of the remixed
Warm Warm Honey? Reason out your (B) Who are the particular parties or
answers. (3%) entities who exercise copyright over the
SUGGESTED ANSWER: remixed Warm Warm Honey? Explain. (3%)
SUGGESTED ANSWER:
The parties entitled to be credited as
authors of the remixed Warm Warm The parties who exercise copyright or
Honey are Mocha Warm, Majesty, DJ economic rights over the remixed Warm
Chef Jean and John Blake, for the Warm Honey would be Galactic Records
segments that was the product of their and Planet Films. In the case of Galactic
respective intellectual efforts. Records, it bought the economic rights
of Mocha Warm. In the case of Planet
Page 55 of 173
Films, it commissioned the remixed Eloise may publish the columns without
work. securing authorization from New Media
Enterprises. Under Sec. 172 of the
Intellectual Property Code, original
intellectual creations in the literary and
artistic domain are protected from the
Copyright; Commissioned Work (2008)
moment of their creation and shall
No.XV. Eloise, an accomplished writer, was include those in periodicals and
hired by Petong to write a bimonthly newspapers. Under Sec. 178, copyright
newspaper column for Diario de Manila, a ownership shall belong to the author. In
newly-established newspaper of which case of commissioned work, the person
Petong was the editor-in-chief. Eloise was to who so commissioned work shall have
be paid P1,000 for each column that was ownership of work, but copyright shall
published. In the course of two months, remain with creator, unless there is a
Eloise submitted three columns which, written stipulation to the contrary.
after some slight editing, were printed in

the newspaper. However, Diario de Manila (B) Assume that New Media Enterprises
proved unprofitable and closed only after plans to publish Eloise’s columns in its own
two months. Due to the minimal amounts anthology entitled, ―The Best of Diario de
involved, Eloise chose not to pursue any Manila‖ Eloise wants to prevent the
claim for payment from the newspaper, publication of her columns in that
which was owned by New Media anthology since she was never paid by the
Enterprises. newspaper. Name one irrefutable legal

argument Eloise could cite to enjoin New
Three years later, Eloise was planning to Media Enterprises from including her
publish an anthology of her works, and columns in its anthology. (2%)
wanted to include the three columns that SUGGESTED ANSWER:
appeared in the Diario de Manila in her

Under the IPC, the copyright or
anthology She asks for you legal advice:
economic rights to the columns she
authored pertains only to Eloise. She can
(A) Does Eloise have to secure authorization
invoke the right to either “authorize or
from New Media Enterprises to be able to
prevent” reproduction of the work,
publish her Diario de Manila columns in
including the public distribution of the
her own anthology? Explain fully. (4%)
original and each copy of the work “by
SUGGESTED ANSWER:
Page 56 of 173
sale or other forms of transfer of protecting electronic documents. What

ownership,” Since this would be the are involved here are text messages, not
effect of including her column in the letter in their ordinary sense. Hence, the
anthology. protection under the copyright law does
not extend to text messages (Section
172, Intellectual Property Code).
Copyright; Infringement (2007)

The messages that Diana and Piolo
No.III. Diana and Piolo are famous
exchanged through the use of messaging
personalities in showbusiness who kept
service do not constitute literary and
their love affair secret. They use a special
artistic works under Section 172 of the
instant messaging service which allows
Intellectual Property Code. They are not
them to see one another’s typing on their
letter under Section 172(d).
own screen as each letter key is pressed.
When Greg, the controller of the service
For copyright to subsist in a “message”,
facility, found out their identities, he kept a
it must qualify as a “work” (Section 172
copy of all the messages Diana and Piolo
Intellectual Property Code). Whether the
sent each other and published them. Is
messages are entitled or not to copyright
Greg liable for copyright infringement?
protection would have to be resolved in
Reason briefly. (5%)
the light of the provision of the
SUGGESTED ANSWER:
Intellectual Property Code.
Yes, Greg is liable for copyright
infringement. Letter are among the
Note: Since the law on this matter is not
works which are protected from the
clear, it is suggested that either of the above
moment of their creation (Section 172,
of the above suggested answers should be
intellectual Property Code; Columbia
given full credit.
Pictures, Inc. v Court of Appeals, 261
SCRA 144 [1996]). The publication of the
letters without the consent of their
writers constitutes infringement of
copyright. Denicola Test (2009)
No.I. (A) The Denicola Test in intellectual

ALTERNATIVE ANSWER
property law states that if design elements
No, Greg is not liable for copyright
of an article reflect a merger of aesthetic
infringement. There is no copyright
and functional considerations, the artistic
Page 57 of 173
aspects of the work cannot be conceptually

separable from the utilitarian aspects; thus, (A) Monaliza filed a complaint against
the article cannot be copyrighted. Valentino damages based on, among other
SUGGESTED ANSWER: grounds, violation of her intellectual
True. Applying the Denicola Test in property rights. Does she have any cause of
Brandir International, Inc. v.Cascade action? Explain. (2%)
Pacific Lumber Co. (834 F. 2d 1142, SUGGESTED ANSWER:
1988 Copr.L.Dec. P26), the United States Monaliza cannot sue Valentino for
Court of Appeals for the Second Circuit violation of her intellectual property
held that if there is any aesthetic rights, because she was not the one who
element which can be separated from took the pictures (Subsection 178.1 of
the utilitarian elements, then the the Intellectual Property Code). She may
aesthetic element may be copyrighted. sue Valentino instead for violation of her
right to privacy. He surreptitiously took
(Note: It is suggested that the candidate photographs of her and then sold the
be given full credit for whatever answer photographs to a magazine and uploaded
or lack of it. Further, it is suggested that them to his personal blog in the Internet
terms or any matter originating from (Tolentino, Commentaries and
foreign laws or jurisprudence should not Jurisprudence on the Civil Code of the
be asked.) Philippines, Vol. I, 1987 ed., p. 169).
(B) Valentino’s friend Francesco stole the
Infringement; Claims (2010) photographs and duplicated them and sold

them to a magazine publication. Valentino
No.XV. While vacationing in Boracay,
sued Francisco for infringement and
Valentino surreptitiously took photographs
damages. Does Valentino have any cause of
of his girlfriend Monaliza in her skimpy
action? Explain. (2%)
bikini. Two weeks later, her photographs
SUGGESTED ANSWER:
appeared in the Internet and in a national
Valentino cannot sue Francesco for
celebrity magazine.
infringement, because he has already
sold the photographs to a magazine
Monaliza found out that Valentino had sold
(Angeles vs. Premier Productions, Inc., 6
the photographs to the magazine, adding
CAR (2s) 159).
insult to injury, uploaded them to his
personal blog on the Internet.
ALTERNATIVE ANSWER:
Page 58 of 173
Yes, as the author of the photographs, Lacoste International, the French firm that
Valentino has exclusive economic rights manufactures lacoste apparel and owns the
thereto, which include the rights to Lacoste trademark, decided to cash in on
reproduce, to distribute, to perform, to the universal popularity of the boxing icon.
display, and to prepare derivative works It reprinted the photographs, with the
based upon the copyrighted work. He permission of the newspaper publishers,
sold only the photographs to the and went on a world-wide blitz of print
magazine; however, he still retained commercials in which Sonny is shown
some economic rights thereto. Thus, he wearing a Lacoste shirt alongside the
has a cause of action against phrase ―Sonny Bachao just loves Lacoste.‖
infringement against Francesco.
When Sonny sees the Lacoste
(C) Does Monaliza have any cause of action advertisements, he hires you as lawyer and
against Francesco? Explain. (2%) asks you to sue Lacoste International
SUGGESTED ANSWER: before a Philippine court:
Monaliza can also sue Francesco for
violation of her right to privacy. (A) For trademark Infringement in the
Philippines because Lacoste International
used his image without his permission:
(2%)
SUGGESTED ANSWER:
Infringement; Trademark, Copyright
Sonny Bachao cannot sue for
(2009)
infringement of trademark. The
No.XV. After disposing of his last opponent photographs showing him wearing a
in only two rounds in Las Vegas, the Lacoste shirt were not registered as a
renowned Filipino boxer Sonny Bachao trademark (Pearl & Dean (Phil.), Inc. v.
arrived at the Ninoy Aquino International Shoemart, Inc., 409 SCRA 231 (2003)).
Airport met by thousands of hero-

worshipping fans and hundreds of media (B) For copyright infringement because of
photographers. The following day, a colored the unauthorized use of the published
photograph of Sonny wearing a black polo photographs; (2%)and
shirt embroidered with the 2-inch Lacoste SUGGESTED ANSWER:
Crocodile logo appearedon the front page of Sonny Bachao cannot sue for
every Philippine newspaper. infringement of copyright for the

unauthorized use of the photographs
Page 59 of 173
showing him wearing a Lacoste shirt. Philippines without license to do

The copyright to the photographs belong business, cannot sue or intervene in any
to the newspapers which published them action, it may be sued or proceeded
inasmuch as the photographs were the against before our courts or
result of the performance of the regular administrative tribunal (De Joya v.
duties of the photographers (Subsection Marquez, 481 SCRA 376 (2006)).
173.3 (b), Intellectual Property Code
(IPC)).Moreover, the newspaper
publishers authorized the reproduction
of the photographs (Section 177,
Patent: Non-Patentable; Method of
Intellectual Property Code).
Diagnosis & Treatment (2010)
(C) For injunction in order to stop Lacoste No.XIX. Dr. Nobel discovered a new method
International from featuring him in their of treating Alzheimer’s involving a special
commercials. (2%) method of diagnosing the disease, treating
it with a new medicine that has been
Will these actions prosper? Explain. discovered after long experimentation and
SUGGESTED ANSWER: field testing, and novel mental isometric
The complaint for injunction to stop exercises. He comes to you for advice on
Lacoste International from featuring him how he can have his discoveries protected.
in its advertisements will prosper. This Can he legally protect his new method of
is a violation of subsection 123, 4(c) of diagnosis, the new medicine, and the new
the IPC and Art.169 in relation to method of treatment? If no, why? If yes,
Art.170 of the IPC. how? (4%)
(D) Can Lacoste International validly invoke SUGGESTED ANSWER:

the defense that it is not a Philippine Dr. Nobel can be protected by a patent
company and, therefore, Philippine courts for the new medicine as it falls within
have no jurisdiction? Explain. (2%) the scope of Sec. 21 of the Intellectual
SUGGESTED ANSWER: Property Code (Rep. Act No. 8293, as
No. Philippine courts have jurisdiction amended). But no protection can be
over it, if it is doing business in the legally extended to him for the method
Philippines. Moreover, under Section of diagnosis and method of treatment
133 of the Corporation Code, while a which are expressly non-patentable (Sec.
foreign corporation doing business in the 22, Intellectual Property Code).
Page 60 of 173
Intellectual Property Code (Section 122

of the Intellectual Property Code).
Trademark; Unfair Competition (2010)
No.XVIII. For years, Y has been engaged in (B) Suppose the shoes are covered by a
the parallel importation of famous brands, Philippine patent issued to the owner, what
including shoes carrying the foreign brand would your answer be? Explain. (2%)
MAGIC. Exclusive distributor X demands SUGGESTED ANSWER:
that Y cease importation because of his A patent for a product confers upon its
appointment as exclusive distributor of owner the exclusive right of importing
MAGIC shoes in the Philippines. the product (Subsection 71.1 of the

Intellectual Property Code). The
Y counters that the trademark MAGIC is importation of a patented product
not registered with the Intellectual Property without the authorization of the owner
Office as a trademark and therefore no one of the patent constitutes infringement of
has the right to prevent its parallel the patent (Subsection 76.1 of the
importation. Intellectual Property Code). X can

prevent the parallel importation of such
(A) Who is correct? Why? (2%) shoes by Y without its authorization.
SUGGESTED ANSWER:
X is correct. His rights under his
exclusive distributorship agreement are
property rights entitled to protection. Letters of Credit
The importation and sale by Y of MAGIC
shoes constitute unfair competition (Yu Independence Principle (2010)
v. Court of Appeals, 217 SCRA 328
No.XVII. The Supreme Court has held that
(1993)). Registration of the trademark is
fraud is an exception to the ―independence
not necessary in case of an action for
principle‖ governing letters of credit.
unfair competition (Del Monte
Explain this principle and give an example
Corporation v. Court of Appeals, 181
of how fraud can be an exception. (3%)
SCRA 410 (1990)).
SUGGESTED ANSWER:
The “independence principle” posits that
ALTERNATIVE ANSWER:
the obligations of the parties to a letter
Y is correct. The rights in a trademark
of credit are independent of the
are acquired through registration made
obligations of the parties to the
validly in accordance with the
Page 61 of 173
underlying transaction. Thus, the liabilities, outstanding as of the date of the

beneficiary of the letter of credit, which filing of the Petition. XYC Company is a
is able to comply with the documentary holder of an irrevocable Standby Letter of
requirements under the letter of credit, Credit which was previously procured by
must be paid by the issuing or ABC Company in favor of XYC Company to
confirming bank, notwithstanding the secure performance of certain obligations.
existence of a dispute between the In the light of the Order issued by the
parties to the underlying transaction, Court.
say a contract of sale of goods where the
buyer is not satisfied with the quality of (b) Explain the nature of Letters of Credit as
the goods delivered by the seller. The a financial devise. (5%)
Supreme Court in Transfield Philippines,

SUGGESTED ANSWER:
Inc. v. Luzon Hydro Corporation, 443
SCRA 307 (2004) for the first time A letter of credit is a financial device
declared that fraud is an exception to developed by merchants as a convenient
the independence principle. For and relatively safe mode of dealing with
instance, if the beneficiary fraudulently sales of goods to satisfy the seemingly

presents to the issuing or confirming irreconcilable interests of a seller, who
bank documents that contain material refuses to part with his goods before he
facts that, to his knowledge, are untrue, is paid, and a buyer, who wants to have
then payment under the letter of credit control of the goods before paying. To
may be prevented through a court break the impasse, the buyer may be
injunction. required to contract a bank to issue a

letter of credit in favor of the seller so
that, by virtue of the letter of credit, the
Letter of Credit (2012) issuing bank can authorize the seller to

draw drafts and engage to pay them
No.I. ABC Company filed a Petition for upon their presentment simultaneously
Rehabilitation with the Court. An Order with the tender of documents required
was issued by the Court, (1) staying by the letter of credit. The buyer and the
enforcement of all claims, whether money seller agree on what documents are to be
or otherwise against ABC Company, its presented for payment, but ordinarily
guarantors and sureties not solidarily liable they are documents of title evidencing
with the company; and (2) prohibiting ABC or attesting to the shipment of the goods
Company from making payments of its to the buyer. Once the credit is
Page 62 of 173
established, the seller ships the goods to Letter of Credit; Liabilities of a

the buyer and in the process secures the Confirming and Notifying Bank (2008)
required shipping documents or
No.I. X Corporation entered into a contract
documents of title. To get paid, the
with PT Construction Corp. for the latter to
seller executes a draft and present it
construct and build a sugar mill with six (6)
together with the required documents to
months. They agreed that in case of delay,
the issuing bank. The issuing bank
PT Construction Corp. will pay X
redeems draft and pays cast to the seller
Corporation P100,000 for every day of
if it finds that the documents submitted
delay. To ensure payment of the agreed
by the seller conform with what the
amount of damages, PT Construction Corp.
letter of credit requires. The bank then
secured from Atlantic Bank a confirmed
obtains possession of the documents
and irrevocable letter of credit which was
upon paying the seller. The transaction
accepted by X Corporation in due time. One
is completed when the buyer reimburses
week before the expiration of the six (6)
the issuing bank and acquires the
month period, PT Construction Corp.
documents entitling him to the goods.
requested for an extension of time to deliver
Under this arrangement, the seller gets
claiming that the delay was due to the fault
paid only if he delivers the documents of
of X Corporation. A controversy as to the
title over the goods, while the buyer
cause of the delay which involved the
acquires the said documents and control
workmanship of the building ensued. The
over the goods only after reimbursing
controversy remained unresolved. Despite
the bank. (Bank of America NT & SA v.
the controversy, X Corporation presented a
CA, et al., G.R. No. 105395, December
claim against Atlantic Bank by executing a
10,1993) However, letters of credit are
draft against the letter of credit.
also used in non-sale settings where they
serve to reduce the risk of non- (A) Can Atlantic Bank refuse payment due
performance. Generally, letters of credit to the unresolved controversy? Explain.
in non-sale settings have come to be (3%)
known as standby letters of credit. SUGGESTED ANSWER:
(Transfield Philippines, Inc. v. Luzon No, Atlantic Bank cannot refuse payment
Hydro Corporation, et al., G.R. No. to the unresolved controversy between
146717, November 22,2004) the two companies. The Bank is
solidarily liable to pay based on the
terms and conditions of the Letter of
Credit. In FEATI Bank v. Court of
Page 63 of 173
Appeals, G.R. No.94209, 30 April 1991, The types of average are particular and
the Court held that an irrevocable letter general (Article 808 of the Code of
of credit is independent of the contract Commerce). Particular averages include
between the buyer-applicant and the all expenses and damages caused to the
seller-beneficiary. vessel or to the cargo which did not
inure to the common benefit and profit
(B) Can X Corporation claim directly from of all the persons interested in the
PT Construction Corp.? Explain. (3%) vessel and the cargo (Article 809 of the
SUGGESTED ANSWER: Code of Commerce). General averages
include all damages and expenses which
Yes, X Corporation can claim directly
are deliberately caused to save the
from PT Construction Corp. The
vessel, its cargo, or both at the same
irrevocable letter of credit was merely a
time, from a real and known risk (Article
security arrangement that did not
811 of the Code of Commerce).
replace the main contract between the
two companies. In FEATI Bank c. CA,
G.R. No. 94209, 30 April 1991, opening a
letter of credit does not involve a
specific appropriation of money in favor Barratry (2010)
of the beneficiary. It only signifies that
No.XIII. (B) What is ―barratry‖ in marine
the beneficiary may draw funds up to the
insurance? (2%)
designated amount. It does not mean
SUGGESTED ANSWER:
that a particular sum of money has been
Barratry is any willfull misconduct in the
specifically reserved of held in trust.
part of the master or crew in pursuance
of some unlawful or fraudulent purpose
without the consent of the owner and to
the prejudice of the interest of the
owner (Roque v. Intermediate Appellate
Court, supra).
Maritime Commerce
Averages: Types (2010)
No.XVI. (B) What are the types of averages

in marine commerce (3%)
SUGGESTED ANSWER:
Page 64 of 173
Carriage of Goods; Deviation; Liability entitles him to compensation or

(2009) indemnification from the shipowner and
the owners of the cargoes saved by the
No.VII. Global Transport Services, Inc.
jettison.
(GTSI) operates a fleet of cargo vessels
plying interisland routes. One of its vessels,
ALTERNATIVE ANSWER:
MV Dona Juana, left the port of Manila for
The jettison resulted to a particular
Cebu laden with,among other goods,
average loss because the damage was due
10,000 television sets consigned to
to the fault of the captain.
Romualdo, a TV retailer in Cebu.
(B) Against whom does Romualdo have a

When the vessel was about ten nautical
cause of action for indemnity of his lost TV
miles away from Manila, the ship captain
sets? Explain. (3%)
heard on the radio that a typhoon which, as
announced by PAG-ASA, was on its way out
SUGGESTED ANSWER;
of the country, had suddenly veered back
Romualdo has a cause of action for his
into Philippine territory, the captain
lost TV sets against the shipowner and
realized that MV Dona Juana would
the owners of the cargoes saved by the
traverse the storm’s path, but decided to
jettison. The jettison of the TV sets
proceed with the voyage. True enough, the
resulted in a general average loss,
vessel sailed into the storm. The captain
entitling Romualdo to indemnity for the
ordered the jettison of the 10, 000 television
lost TV sets.
sets, along with some other cargo, in order
to lighten the vessel and make it easier to
steer the vessel out of the path of the
typhoon. Eventually, the vessel, with its
crew intact, arrived safely in Cebu. Carriage of Goods; Implied Warranty;
Liability (2010)
(A) Will you characterize the jettison of
No.XIII. Paulo, the owner of an ocean-going
Romualdo’s TV sets as an average? If so,
vessel, offered to transport the logs of
what kind of an average, and why? If not,
Constantino from Manila to Nagoya.
why not? (3%)
Constantino accepted the offer, not
SUGGESTED ANSWER:
knowing that the vessel was manned by an
The jettison of Romualdo’s TV sets
irresponsible crew with deep-seated
resulted in a general average loss, which
resentments against Paolo, their employer.
Page 65 of 173
(Roque v. Intermediate Appellate Court,

Constantino insured the cargo of logs 139 SCRA 596 [1985]).
against both perils of the sea and barratry.
The logs were improperly loaded on one
side, thereby causing the vessel to tilt on
one side. On the way to Nagoya, the crew Carriage of Goods; Indemnity; Jettisoned
unbolted the sea valves of the vessel Goods (2010)
causing water to flood the ship hold. The
No.XVI. An importer of Christmas toys
vessel sank.
loaded 100 boxes of Santa Claus talking
dolls aboard a ship in Korea bound for
Constantino tried to collect from the
Manila. With the intention of smuggling
insurance company which denied liability,
one-half of his cargo, he took a bill of lading
given the unworthiness of both the vessel
for only 50 boxes. On the voyage to Manila,
and its crew.
50 boxes were jettisoned to save the more
precious cargo.
Constantino countered that he was not the
owner of the vessel and he could therefore
(A) Is the importer entitled to receive any
not be responsible for conditions about
indemnity for average? Explain. (2%)
which he was innocent.
SUGGESTED ANSWER:
The importer is not entitled to receive
(A) Is the insurance company liable? Why or
any indemnity for average. In order that
why not? (3%)
the goods jettisoned may be included in
SUGGESTED ANSWER:
the general average and the owner be
The insurance company is not liable,
entitled to indemnity, it is necessary
because there is an implied warranty in
that their existence on board be proven
every marine insurance that the ship is
by means of the bill of lading (Article
seaworthy whoever is insuring the cargo,
816 of the Code of Commerce).
whether it be the ship-owner or not.
There was a breach of warranty, because
the logs were improperly loaded and the
crew was irresponsible. It is the
obligation of the owner of the cargo to
look for a reliable common carrier which
keeps its vessel in seaworthy condition
Page 66 of 173
COGSA; Prescription of Claims/Action Liability; Loss; Fortuitous Event (2008)

(2010)
No.IX. On October 30, 2007, M/V Pacific, a
No.XII. AA entered into a contract with BB Philippine registered vessel owned by Cebu
for the latter to transport ladies wear from Shipping Company (CSC), sank on her
Manila to France with transshipment via voyage from Hong Kong to Manila. Empire
Taiwan. Somehow the goods were not Assurance Company (Emprie) is the insurer
loaded in Taiwan on time, hence, these of the lost cargoes loaded on board the
arrived in France ―off-season.‖ AA was only vessel which were consigned to Debenhams
paid for one half the value by the buyer. Company. After it indemnified Debenhams,
Empire as subrogee filed an action for
AA claimed damages from BB. BB invoked damages against CSC.
prescription as a defense under the
Carriage of Goods by Sea Act Considering (A) Assume that the vessel was seaworthy.
the ―loss of value‖ of the ladies wear as Before departing, the vessel was advised by
claimed by AA, is BB’s defense tenable? theJapanese Meteorological Center that it
Explain. (3%) was safe to travel to its destination. But
SUGGESTED ANSWER: while at sea, the vessel received a report of
The defense of BB is not tenable. The a typhoon moving within its general path.
one-year prescriptive period in the To avoid the typhoon, the vessel changed
Carriage of Goods Sea Act applies only in its course. However, it was still at the fringe
case the goods were not delivered or of the typhoon when it was repeatedly hit
were delivered in a damaged or by huge waves, were saved three (3) who
deteriorated condition. It does not apply perished. Is CSC liable to empire? What
to damages as a result of delay in the principle of maritime law is applicable?
delivery of the goods. The prescription of Explain. (3%)
the action is governed by Article 1144 of SUGGESTED ANSWER:
the Civil Code, which provides for a
The common carrier incurs no liability
prescriptive period of ten years in case
for the loss of the cargo during a
of actions based on a written contract
fortuitous event, because the following
(Mitsui O.S.K. Lines Ltd. v. Court of
circumstances were present: (1) the
Appeals, 287 SCRA 366 (1998)).
typhoon was the cause of the cargo loss;
(2) the carrier did not contribute to the
loss; and (3) the carrier exercised
extraordinary diligence in order to
Page 67 of 173
minimize the attendant damage before, the full extent of the claims of the cargo
during and after the typhoon (See owners (Aboitiz Shipping v. New India
Fortune Express v. CA, Caorong. G.R. No. Assurance Company, G.R. No. 156978,
119756, 18 March 1999; Yobido v. CA, 02 May 2006).
G.R. No. 113003, 17 October 1997;
Gathalian v. Delim, G.R. No. L-56487, 21 (C) Assume the facts in question (b). Can
October 1991). the heirs of the three (3) crew members who
perished recover from CSC? Explain fully.
Under Art. 587 of Code of Commerce, in (3%)
case of maritime transactions, the SUGGESTED ANSWER:
liability of the owner of the vessel is
Yes, because the crew members died
limited to the vessel itself. Since the
while performing their assigned duties,
vessel of CSC was seaworthy at the time
aggravated by the failure of the ship
it sank, the CSC is not liable to Empire
owner to ensure that the vessel is
under the maritime principle that the
seaworthy. Workmen’s compensation has
obligations of the owner of a vessel are
been classified by jurisprudence as an
hypothecary in nature.
exception to the hypothecary nature of
maritime commerce, Abueg v. San Diego,
(B) Assume the vessel was not seaworthy as
77 Phil. 730 (1948), especially in this
in fact its hull had leaked, causing flooding
case where the vessel was not seaworthy
in the vessel. Will you answer be the same?
at the time it sank.
Explain. (2%)
SUGGESTED ANSWER:
When the vessel is not seaworthy, it is

an exception to the hypothecary
principle in maritime commerce. To Negotiable Instruments Law
limit its liability to the amount of the
Checks: Forged Checks; Liability of
insurance proceeds, the carrier has the
Drawee Bank (2008)
burden of proving that the
No.V. Pancho drew a check to Bong and
unseaworthiness of its vessel was not
Gerard jointly, Bong indorsed the check
due to its fault or negligence. The failure
and also forged Gerard’s indorsement . The
to discharge such a heavy burden
payor bank paid the check and charged
precludes application of the limited
Pancho’s account for the amount of the
liability rule and the carrier is liable to
Page 68 of 173
check. Gerard received nothing from the Checks; Liability; Drawer and Drawee
payment. Bank (2010)
No.VIII. Marlon deposited with LYRIC Bank
(A) Pancho asked the payor bank to recredit
a money market placement of P1 million for
his account. Should the bank comply?
tern of 31 days. On Maturity date, one
Explain fully. (3%)
claiming to be Marlon called up the LYRIC
SUGGESTED ANSWER:
Bank account officer and instructed him to
Yes, Sec. 41 of the NIL provides that all give the manager’s check representing the
payees or indorsees who are not partners proceeds of the money market placement to
must indorse jointly, unless the one Marlon’s girlfriend Ingrid.
indorsing has authority to endorse for

the others. Since the signature of Gerard The check, which bore the forged signature
was forged, then the endorsement by of Marlon, was deposited in Ingrid’s

Bong was wholly inoperative. The Bank account with YAMAHA Bank. YAMAHA
is under strict liability to pay to the Bank stamped a guaranty on the check
order of payee. Payment under a forged reading: ―All prior endorsements and/or
endorsement is not to the drawer’s lack of endorsement guaranteed.‖
order, and consequently, the drawee

bank must bear the loss as against the Upon presentment of the check, LYRIC
drawer (Associated Bank v. CA, G.R. Nos. Bank funds the check. Days later, Marlon
107382 and 107612, 31 January 1996). goes to LYRIC Bank to collect his money
market placement and discovers the
(B) Based on the facts, was Pancho as
foregoing transactions.
drawer discharged on the instrument?
Why? (2%)
Marlon thereupon sues LYRIC Bank which
SUGGESTED ANSWER:
in turn files a third-party complaint against
No. The payee Gerard can recover as he YAMAHA Bank. Discuss the respective
still retains his claim on the debt of rights and liabilities of the banks. (5%)
Pancho.
SUGGESTED ANSWER:
Since the money market placement of
Marlon is in the nature of a loan to Lyric
Bank, and since he did not authorize the
release of the money market placement
to Ingrid, the obligation of Lyric Bank to
Page 69 of 173
him has not been paid. Lyric Bank still the ASSIGNOR unconditionally and
has the obligation to pay him. irrevocably agrees to pay the same,
assuming the liability to pay by way of
Since Yamaha Bank indorsed the check penalty, three percent of the total amount
bearing the forged indorsement of unpaid, for the period of delay until the
Marlon and guaranteed all indorsements, same is fully paid.”
including the forged indorsement, when
it presented the check to Lyric Bank, it When the checks became due, BFC
should be held liable to it. deposited them for collection, but the
drawee banks dishonored all the checks for
However, since the issuance of the check one of the ff. reasons: ―account closed,‖
was attended with the negligence of ―payment stopped,‖ ―account under
Lyric Bank, it should share the loss with garnishment, ―or ―insufficiency of funds.‖
Yamaha Bank on a fifty percent basis BFC wrote Gaudencio notifying him of the
(Allied Banking Corporation v. Lim Sio dishonored checks, and demanding
Wan, 549 SCRA 504 (2008)). payment of the loan. Because Gaudencio
did not pay, BFC filed a collection suit.
In his defense, Gaudencio contended that

Checks; Notice of Dishonor (2009) (a) BFC did not give timely notice of
No.XII. Gaudencio, a store owner, obtained dishonor (of the checks); and (b)
a P1-million loan from Bathala Financing considering that the checks were duly
Corporation (BFC). As security, Gaudencio indorsed, BfC should proceed against the
executed a ―Deed of Assignment of drawers and the indorsers of the checks.
Receivables.‖ Assigning fifteen checks
received from various customers who Are Gaudencio’s defenses tenable? Explain.
bought merchandise from his store. The (5%)
checks were duly indorsed by Gaudencio’s
customers. SUGGESTED ANSWER:
No. Gaudencio’s defenses are untenable.
The Deed of Assignment contains the ff. The cause of action of BFC was really on
stipulation: the contract of loan, with the checks
merely serving as collateral to secure the
―If, for any reason, the receivables or any payment of the loan. By virtue of the
part thereof cannot be paid by the obligors, Deed of Assignment which he signed,
Page 70 of 173
Gaudencio undertook to pay for the the east the following morning to welcome
receivables if for any reason they cannot the day.
be paid by the obligors (Velasquez v. (Sgd.) Antonio Reyes
Solidbank Corporation, 550 SCRA 119
(2008)). Explain each requirement of negotiability
present or absent in the instrument. (8%)
SUGGESTED ANSWER:
The instrument contains a promise to
Forgery; Liabilities; Drawee Bank (2009) pay and was signed by the maker,
No.XI. (E) ―A bank is bound to know its Antonio Reyes (Section 1(a) of Negotiable
depositor’s signature‖ is an inflexible rule in Instruments Law).
determining the liability of a bank in forgery
cases. The promise to pay is unconditional
SUGGESTED ANSWER: insofar as the reference to the setting of
False. In cases of forgery, the forger the sun in the west in the evening and
may not necessarily be a depositor of the its rising in the east in the morning are
bank, especially in the case of a drawee concerned. These are certain to happen
bank. Yet in many cases of forgery, it is (Section 4(c) of Negotiable Instruments
the drawee that is held liable for the Law). The promise to pay is conditional,
loss. because the money will be taken from a
particular fund, BPI Account No. 1234
(Section 3 of Negotiable Instruments
Law).
Negotiability (2013)
No.I. Antonio issued the following The Instrument contains a promise to
instrument: pay a sum certain in money,
August 10, 2013 P100,000.00 (Section (b) of Negotiable
Makati City Instruments Law).
P1OO,OOO,OO
Sixty days after date, I promise to pay The money is payable at a determinable
Bobby or his designated representative the future time, sixty days after August 10,
sum of ONE HUNDRED THOUSAND PESOS 2013 (Section 4(a) of Negotiable
(P100,000.00) from my BPI Acct. No. 1234 Instruments Law).
if, by this due date, the sun still sets in the
west to usher in the evening and rises in
Page 71 of 173
The instrument is not payable to order there are no 90-day treasury bills
or to bearer (Section 1(d) of Negotiable (although there are 91-day, 182-day, and
Instruments Law). 364-days bills); second the promise does
not specify whether the so-called
“interest rate” is that established at the
Negotiability (2012) primary market (where new T-bills are

sold for the first time by the Bureau of
No.IV. Indicate and explain whether the Treasury) or at the secondary market
promissory note is negotiable or non- (where T-bills can be bought and sold
negotiable. after they have been issued in the
primary market).; and third, T-bills are
(A) I promise to pay A or bearer conventionally quoted in terms of their
Php100,000.00 from my inheritance which discount rate, rather than their interest
I will get after the death of my father. (2%) rate. They do not pay any interest
directly; instead, they are sold at a
SUGGESTED ANSWER:
discount of their face value and this
“earn” by selling at face value upon
Not negotiable. There is no
maturity. (See, among other,
unconditional promise to pay a sum
www.treasury.gov.ph/govsec/aboutsec.h
certain in money (Sec. 1 [b], NIL) as the
tml)
promise is to pay the amount out of a
particular fund, i.e., the inheritance
(C) I promise to pay A or bearer the sum of
from the father of the promisor(Sec. 3,
Php100,000 if A passes the 2012 bar
NIL).
exams. (2%)
(B) I promise to pay A or bearer Php100,000

SUGGESTED ANSWER:
plus the interest rate of ninety (90) – day
treasury bills. (2%) Not negotiable. The promise to pay is
subject to a condition, i.e., that A will
SUGGESTED ANSWER:
pass the 2012 bar exams (Sec.1[b],NIL).
Not negotiable. There is no

(D) I promise to pay A or bearer the sum of
unconditional promise to pay a sum
Php100.000 on or before December 30,
certain in money. The promise to pay
2012. (2%)
“the interest rate of ninety (90)-day
treasury bills” is vague because, first, SUGGESTED ANSWER:
Page 72 of 173
Negotiable. It conforms fully with the constitute a defect of title (Section 55,
requirements of negotiability under Negotiable Instruments Law).
Section 1, NIL.
(B) Does S have a cause of action against R
(E) I promise to pay A or bearer the sum of in case of dishonor by the drawee bank?
Php100,000. (2%)
SUGGESTED ANSWER:
SUGGESTED ANSWER:
No, s does not have a cause of action
against R in case of dishonor of the
Negotiable. It conforms fully with the
check by the drawee bank. S is not a
requirements of negotiability under
holder in due course, thus, R can raise
Section 1,NIL. It is payable on demand
the defense that the check was issued
because the note does not express a time
for an illegal consideration (Section 58,
for its payment(Sec.7[b], NIL).
Negotiable Instruments Law).
(C) It S negotiated the check to T, who

accepted it in good faith and for value, may
Negotiable Instruments; Illicit/Illegal R be held secondarily liable by T?
Consideration (2007)
Reason Briefly in (a), (b) and (c).
No.I. R issued a check for P1m which he
used to pay S for killing his political enemy.
SUGGESTED ANSWER:
(10%)
Yes, R may be held secondarily liable by
T who took the check in good faith and
(A) Can be the check be considered a
for value. T is a holder in due course. R
negotiable instrument?
cannot raise the defense of illegality of
the considerarion, because T took the
SUGGESTED ANSWER:
check fre from the defect of title of S
Yes, the check can be considered a
(Section 57, Negotiable Instrumets Law).
negotiable instrument even if it was
issued to pay S to kill his political
enemy. The validity of the consideration
is not one of the requisites of a
negotiable instruments (Section 1,
Negotiable Instruments Law.) it merely
Page 73 of 173
Negotiable Instruments; Illicit/Illegal No. the illicit cause or consideration

Consideration; Lawful Dishonor (2009) does not adversely affect the
negotiability of the bill, especially in the
No.VI. Lorenzo drew a bill of exchange in
hands of a holder in due course. Under
the amount of P100, 000.00 payable to
Sec. 1 of the Negotiable Instruments law,
Barbara or order, with his wife, Diana, as
the bill of exchange is a negotiable
drawee. At the time the bill was drawn.
instrument. Every negotiable instrument
Diana was unaware that Barbara is
is deemed prima facie to have been
Lorenzo’s paramour.
issued for valuable consideration, and
every person whose signature appears
Barbara then negotiated the bill to her
thereon is deemed to have become a
sister, Elena, who paid for it for value, and
party thereto for value (Sec. 24,
who did not know who Lorenzo was. On
due date, Elena presented the bill to Diana
for payment, but the latter promptly
dishonored the instrument because, by
then, Diana had already learned of her
husband’s dalliance. Negotiable Instruments: Incomplete,
Delivered; Doctrine: Comparative
(A) Was the bill lawfully dishonored by Negligence (2008)
Diana? Explain. (3%)
No.IV. AB Corporation drew a check for
payment to XY Bank. The check was given
SUGGESTED ANSWER:
to an officer of AB Corporation who was
instructed deliver it to XY Bank. Instead ,
No, the bill was not lawfully dishonored
the officer intending to defraud the
by Diana. Elena, to whom the instrument
Corporation, filled up the check by making
was negotiated, was a holder in due
himself as the payee and delivered it to XY
course inasmuch as she paid value
Bank for deposit to his personal account.
therefore in good faith.
XY Bank debited AB Corporation’s account.
AB Corporation came to know of the
(B) Does the illicit cause or consideration
officer’s fraudulent act after he absconded.
adversely affect the negotiability of the bill?
AB Corporation asked XY Bank to recredit
Explain. (3%)
its amount. XY Bank refused.
SUGGESTED ANSWER:
Page 74 of 173
(A) If you were the judge, what issues would 5,000.00 five days after his pet dog, Sparky,
you consider relevant to resolve the case? dies. Signed Y.‖ is a negotiable instrument.
Explain. (3%) SUGGESTED ANSWER:
SUGGESTED ANSWER: True. The document is subject to a term
and not a condition. The dying of the
The filling up by the officer of his name
dog is a day which is certain to come.
as payee does not constitute forgery, and
Therefore, the order to pay is
contemplates a mechanically incomplete
unconditional, in compliance with
but delivered instrument. Under Sec. 14
Section 1 of the Negotiable Instruments
of the NIL, in order to enforce an
Law (NIL).
incomplete but delivered instrument
against a prior party, it must be filled-up
(Note: This answers presumes that there
strictly in accordance with the authority
is a drawee)
given. The doctrine of comparative
negligence provides that AB Corp. is
deemed negligent for having issued the
check with a blank payee section that
facilitated the fraud; it should be AB
Parties; Holder in Due Course (2012)
Corp. that must bear the loss, and not
XY Bank.
No.III. X borrowed money from Y in the
(B) How would you decide the case? amount of Php1Million and as payment,
Explain. (2%) issued a check. Y then indorsed the check
SUGGESTED ANSWER: to his sister Z for no consideration. When Z

deposited the check to her account, the
I would fin AB Corp. liable for its check was dishonored for insufficiency of
negligence in delivering an incomplete funds.
instrument to XY Bank (Sec. 14, NIL).
(A) Is Z a holder in due course? Explain
your answer. (5%)
SUGGESTED ANSWER:
Negotiable Instruments: Subject to a
Term (2009) Z is not a holder in due course. She did
not give any valuable consideration for
No.XI. (D) A document, dated July 15, 2009
the check. To be a holder in due course,
that reads: ―Pay to X or order the sum of
the holder must have taken the check in
Page 75 of 173
good faith and for value (Sec. 52[c], Give two (2) instances where a prior party
Negotiable Instruments Law). may hold a subsequent party liable. (2%)
SUGGESTED ANSWER:
(B) Who is liable on the check. The drawer
or the indorser? Explain your answer. (5%) In the following cases, a prior party may
hold a subsequent party liable: (1) where
SUGGESTED ANSWER: an instrument is negotiated back to a
prior party, and he reissues and further
X, the drawer, will be liable. As the
negotiates the same, he is entitled to en
drawer, X engaged that on due
force payment against a subsequent
presentment the check would be paid
party who qualifies as an intervening
according to its tenor and that if it is
party to whom the prior party is not
dishonored and he is given notice of
personally liable; and (2) in the case of
dishonor, he will pay the amount to the
an accommodation party arrangement,
holder (Sec. 61, NIL). No notice of
where the accommodation party may
dishonor need be given to X if he is
recover from the party accommodated,
aware that he has insufficient funds in
even when the latter is a subsequent
his account. Under Section 114(d) of the
party (Sec. 29, NIL).
Negotiable Instruments Law, notice of
dishonor is not required to be given to (B) How does the ―shelter principle‖
the drawer where he has no right to embodied in the Negotiable Instruments
expect that the drawee will honor the Law operate to give the rights of a holder-
instrument. Z cannot hold Y, the in-dine course to a holder who does not
endorser, liable as the latter can raise have the status of a holder-in-due course?
the defense that there was no valuable Briefly explain. (2%)
consideration for the endorsement of the SUGGESTED ANSWER:
check(Sec. 58, NIL).
The “shelter principle” provides that a
holder who is not himself a holder in due
course but is not a party to any fraud or
illegality affecting the instrument, and
Parties; Instances a Subsequent Party is who derives his title from a holder in due
Liable (2008) course, acquires the rights of a holder in
due course (Sec. 58, NIL).
No.III. (A) As a rule under the Negotiable
Instruments Law, a subsequent party may
hold a prior party liable but not vice versa.
Page 76 of 173
Securities Regulation While working with Atty. Buenexito on

another file, he accidentally gave you the
Howey Test (2009) Coco Products file containing the
company’s planned corporate financial
No.XI. (C) The Howey Test states that there
rehabilitation. While you knew you had the
is an investment contract when a person
wrong file, your curiosity prevailed and you
invests money in a common enterprise and
browsed through the file before returning it.
is led to expect profits primarily from the
Thus, you learned that a petition for
efforts of others.
financial rehabilitation is imminent, as the
SUGGESTED ANSWER:
company could no longer meet its
The Howey Test requires a transaction,
obligations as they fell due.
contract, or scheme whereby a person
makes an investment of money in a
Soon After, you mother is rushed to the
common enterprise with the expectation
hospital for an emergency operation, and
of profits to be derived solely, not
you have to raise money for her hospital
primarily from the efforts of others
bills. An immediate option for you is to sell
(Power Homes Unlimited Corp. v. SEC,
your Coco Products shares. The sale would
546 SCRA 567 (2008)).
be very timely because the price of the
company’s stocks are still high.
Would you sell the shares to raise the
Insider Trading (2013) needed funds for your mother’s

hospitalization? Take into account legal
No.V. You are a member of the legal staff of (5%) and ethical (3%) considerations. (8%)
a law firm doing corporate and securities SUGGESTED ANSWER
work for Coco Products Inc., a company The sale of the shares does not
with unique products derived from constitute insider trading. Although
coconuts and whose shares are traded in Atty. Buenexito, as corporate secretary
the Philippine Stock Exchange. A partner in of Coco Products, Inc., was an insider, it
the law firm, Atty. Buenexito, to whom you did not obtain the information regarding
report, is the Corporate Secretary of Coco the planned corporate rehabilitation by a
Products. You have long been investing in communication from him. He just
Coco Products stocks even before you accidentally gave the wrong file (Section
become a lawyer. 3.8 of Securities Regulation Code).
Page 77 of 173
It would be unethical to sell the shares. (A) What provision of the Securities
Rule 1.01 of the Code of Professional Regulation Code (SRC) did they violate, if
Responsibility provide, “A lawyer shall any ? Explain. (4%)
not engage in unlawful, dishonest, SUGGESTED ANSWER:
immoral or deceitful conduct.”
The directors and key officers of the
company violated the prohibition against
A lawyer should not only refrain from
insider trading under Sec. 27 of the
performing unlawful acts. He should also
Securities Regulation Code, which
desist from engaging in unfair deceitful
declares it unlawful for an “insider”
conduct to conceal from the buyer of the
(which includes directors and officers of
shares the planned corporate
a publicly listed company) to sell or buy
rehabilitation.
its securities, if they know of a fact of
special significance with respect to the
company or the security, that is not
Insider Trading (2008)
generally available to the public, before
No.XIII. Grand Gas Corporation, a publicly such material information made public
listed company, discovered after extensive through disclosure proceedings. The
drilling a rich deposit of natural gas along directors and key officers are liable to
the coast of Antique. For five (5%) months, disgorge the profits earned and to pay
the company did not disclose the discovery damages.
so that it could quietly and cheaply acquire

neighboring land and secure mining rights (B) Assuming that the employees of the
to the land. Between the discovery and its establishment handling the printing work of
disclosure of the information to the Grand Gas Corporation saw the exploration
Securities and Exchange Commission, all reports which were mistakenly sent to their
the directors and key officers of the establishment together with other materials
company bought shares in the company at to be printed. They too bought shares in the
very low prices. After the disclosure, the company at low prices and later sold them
price of the shares went up. The directors at huge profits. Will they be liable for
and officers sold their shares at huge violation of the SRC? Why? (3%)
profits, SUGGESTED ANSWER:
The employees are liable for violation of

the prohibition against insider trading.
They fall within the definition of
Page 78 of 173
“insider”. Subsection 3.8 of the under the Securities Regulation Code.

Securities Regulation Code defines an An “investment contract” is a contract,
insider as “a person whose relationship transaction or scheme (1) involving an
or former relationship to Issuer gives or investment of money, (2) in a common
gave him access to a fact of special enterprise, (3) with expectation of
significance about Issuer or the security profits, (4) primarily from the efforts of
that is not generally available.” others (Power Homes Unlimited
Corporation v. Securities and Exchange
Commission, 546 SCRA 567 (2008)).
(B) What procedure must be followed under

Investment Contract; Procedure (2010)
the Securities Regulation Code to authorize
No.IV. Andante Really, a marketing the sale or offer for sale or distribution of
company that promotes and facilitates sales an investment contract? (2%)
of real property through leverage marketing,

solicits investors who are required to be a SUGGESTED ANSWER:
Business Center Owner (BCO) by paying an Before the investment contract is sold or
enrollment fee of S250. The BCO is then offered for sale or distribution to the
entitled to recruit two other investors who public in the Philippines, it should be
pay S250 each. The BCO receives S90 from registered with the Securities and
the S250 paid by each of his recruits and is Exchange Commission in accordance
credited a certain amount for payments with Section 8 of the Securities
made by investors through the initial efforts Regulation Code (Power Homes
of his Business Center. Once the Unlimited Corporation v. Securities and
accumulated amount reaches S5, 000, the Exchange Commission, 546 SCRA 567
same is used as down payment for the real (2008)).
property chosen by the BCO.

(C) What are the legal consequences of
(A) Does this multi-level marketing scheme failure to follow this procedure? (2%)
constitute an ―investment contract‖ under SUGGESTED ANSWER:
the Securities Regulation Code? Define an The failure to follow the procedure has
―investment contract.‖ (2%) criminal consequences (i.e., upon
SUGGESTED ANSWER: conviction, a fine 50,000 to 5 million
Yes. The multi-level marketing pesos and / or imprisonment of 7 to 21
constitutes an “investment contract” years). It carries also civil liabilities in
Page 79 of 173
that the purchaser can recover from the market price (Section 48, Securities
seller (i) the consideration paid with Regulation Code).
interest thereon, less the amount of any
income received on the purchased The purpose of the Margin Trading Rule
securities, upon the tender of such is to prevent excessive use of credit for
securities, or (ii) damages if the the purchase of securities. It is a counter
purchaser no longer owns such securities to a broker’s desire to generate more
(Sections 57 and 73, Securities sales by encouraging clients to but
Regulation Code). Furthermore, the securities on credit (Carolina Industries,
Securities and Exchange Commission Inc. vs. CMS STock Brokerage, Inc. 97
(SEC) may issue a cease and desist order SCRA 734 [1980]).
(Subsection 64.1, Securities Regulation
Code).
Securities; Exempt Securities (2009)
No.X. What are the so-called exempt

Margin Trading Rule (2009)
securities under the Securities Regulation
No.XX. Under the Securities Regulation Code? (2%)
Code, what is the margin Trading Rule?
(2%) SUGGESTED ANSWER:
SUGGESTED ANSWER: Under Section 9 of the Securities
Under the Margin Trading Rule, no Regulation Code, the so-called exempt
registered broker or dealer, or member of securities are:
an exchange shall extend credit on any
security an amount greater than (A) Those issued or guaranteed by the
whichever is higher of: government of the Philippines or any of
its political subdivisions or agencies;
(a) 65 percent of the current market
price of the security, or (B) Those issued or guaranteed by the
government of any foreign country with
(b) 100 percent of the lowest market which the Philippines has diplomatic
price of the security during the relation, or any other state on the basis
preceding 36 calendar months, but not of reciprocity, although the SEC may
more than 75 percent of the current
Page 80 of 173
require compliance with the form and authorized to sell securities, including
content of disclosures; timeshares.
(C) Those issued by the receiver or by On March 30, 1998, Leon and Carina wrote
the trustee in a bankruptcy duly PPR rescinding their purchase agreement
approved by the proper adjudicatory and demanding the refund of the amount
board; they paid because the Palacio Del Boracay
timeshare was sold to them by PPR without
(D) Those involving the sale or transfer the requisite license or authority from the
which is bylaw, under the regulation of SEC. PPR contended that the grant of the
the OIC, HLURB, BIR; and SEC authority had the effect of ratifying the
purchase agreement (with Leon and Carina)
(E) Those issued by banks, except its of Oct.6, 1996.
own shares.
Is the contention of PPR correct? Explain
(Note: It is suggested that any two of the (3%)
above exempt securities should be SUGGESTED ANSWER:
considered as enough answer to the The contention of PPR is not correct. It
question.) is settled that no securities shall be sold
or offered for sale or distribution in the
Philippines without a registration duly
filed and approved by the Commission.
Corporate registration is one of the
Securities; Selling of Securities (2009)
requirements under Sec. 8of batas
No.XVII. Philippine Palaces Realty (PPR) pambansa Blg. 178 (timeshare Realty
had been representing itself as a registered Corporation v. Lao, 544 SCRA 254
broker of securities, duly authorized by the (2008)).
Securities and Exchange Commission

(SEC). On October6, 1996, PPR sold to ALTERNATIVE ANSWER:
spouses Leon and Carina one timeshare of No. Such contention is not correct. Sale
Palacio del Boracay for US S7, 500.00. or offer to sell securities which are not
However, its Registration Statement became exempt securities or which do not arise
effective only on Feb.11, 1998 after the SEC out of exempt transactions, and,
issued a resolution declaring that PPR was therefore, requiring registration, is

unlawful as such act is violative of the
Page 81 of 173
Securities Regulation Cod. Subsequent any scheme that dilutes the share value
grant of authority by the SEC does not of their investments. It gives them the
retroact to past sales or offers to sell. chance to exit the company under the
same terms offered to the majority
stockholders.
Tender Offer (2010) Under the Securities Regulations Code

and its implementing rules, a mandatory
No.VII. Union Mines, Inc. has total assets of
tender offer is required (i) when at least
P60 Million with 210 stockholders holding
35% of the outstanding shares of a
at least 100 shared each.
public company is to be acquired in one
The company has two principal
transaction or a series of transaction
stockholders, ABC which owns 60% of the
during 12-month period, or (ii) even if
shares of stock, and XYZ; which owns 17%.
any acquisition is less than 35%
ABC in turns is owned to the extent of
threshold but the result thereof is the
21.13% by Acme, Inc.; 29.69% by Golden
ownership of more than 51% of the total
Boy Inc.; 9% by XYZ; and the rest by
outstanding shares of a public company.
individual stockholders.
The mandatory offer rule also applies to
None of the parties is a publicly-listed
share acquisition meeting the threshold,
company.
which is done at the level of the holding
XYZ now proposes to buy Acme’s and
or Parent Corporation controlling a
Golden Boy’s shares in ABC, which would
public company (Cemco Holding, Inc. v.
give it, direct control of ABC and indirect
National Life Insurance Company of the
control of Union Mines.
Philippines, Inc. 529 SCRA 355 [2007]).
Is the proposal acquisition by XYZ subject
to the mandatory tender offer rule? Why or
In this case, Union Mines is clearly a
why not? What is tender offer and when is
public company, since it has total assets
it mandatory? (5%)
of P60 million pesos with 210
SUGGESTED ANSWER
stockholders holding at least 100 shares
Yes, the proposed acquisition is subject
each. A public company is defined as a
to mandatory tender offer rule. A tender
corporation listed on the stock
offer is publicly announced intention by
exchange, or a corporation with assets
a person (acting alone or in concert with
exceeding 50 million pesos and with 200
other persons) to acquire shares of a
or more stockholders at least 200 of
public company. A tender offer is meant
them holding not less than 100 shares of
to protect minority stockholders against
such corporation.
Page 82 of 173
train and that it was not guilty of

XYZ’s acquisition of shares of Acme, Inc. negligence. Decide. (5%)
and Golden Boy, Inc., taken separately, SUGGESTED ANSWER:
does not reach 35% threshold. If taken
CRI is liable for death of Ricardo Santos
collectively, the two acquisitions total
because it failed to exercise
only 50%. However, when the
extraordinary diligence (LRTA v. Navidad
acquisitions are added to XYZ’s existing
G.R. No. 145804, 06 February 2003). The
shares in Union Mines, they meet the
contract of carriage began when the
more- than -51% thresholds for
passenger purchased his ticket and
mandatory tender offer.
proceeded to the designated loading
facilities to board the train (Dangwa
Transp. Co., Inc. v. Court of Appeals,
G.R. No. 95582, 07 October 1991), CRI is
also liable for all persons in its employ
Transportation Law
(Caltex Philippines, Inc. v. Sulpicio
Carriage; Breach of Contract Lines, Inc., G.R. No. 131166, 30
September 1999).
No.VIII. City Railways, Inc. (CRI) provides
train service, for a fee, to commuters from
Manila to Calamba, Laguna. Commuter are
required to purchase tickets and then
proceed to designated loading and Carriage; Breach of Contract; Cause of
unloading facilities to board the train. Action; Defenses (2009)
Ricardo Santos purchased a ticket for
No.XIX. One of the passenger buses owned
Calamba and entered the station. While
by Continental Transit Corporation (CTC),
waiting, he had an altercation with the
plying its usual route figured in a collision
security guard of CRI leading to a fistfight.
with another bus owned by Universal
Ricardo Santos fell on the railway just as a
Transport, Inc. (UTI). Among those injured
train was entering the station. Ricardo
inside the CTC bus were: Romeo, a stow
Santos was run over by the train. He died.
away: Samuel, a pickpocket then in the act
of robbing his seatmate when the collision
In the action for damages filed by the heirs
occurred; Teresita, the bus driver’s mistress
of Ricardo Santos, CRI interposed lack of
who usually accompanied the driver on his
cause of action, contending that the mishap
occurred before Ricardo Santos boarded the
Page 83 of 173
trips for free; and Uriel, holder of a free (B) Do Romeo, Samuel, Teresita, and Uriel
riding pass he won in a raffle held by CTC. have a cause of action for damages against
(A) Will a suit for breach of contract of UTI? Explain. (3%)
carriage filed by Romeo, Samuel, Teresita, SUGGESTED ANSWER:
and Uriel against CTC prosper? Explain. Romeo, Samuel, Teresita and Uriel may
(3%) sue UtI on the basis of quasi-delict since
they have no pre-existing contractual
SUGGESTED ANSWER: relationship with UTI. They may allege
Romeo cannot sue for breach of contract that the collision was due to the
of carriage. A stowaway like Romeo, Who negligence of driver of UTI and UTI was
secures passage by fraud, is not a negligent in the selection and
passenger (Vda. De nueca v. Manial supervision of its driver (Articles 2176
Railroad Company, 13 C.A. R. 49(1968)). and 2180, New Civil Code).
Samuel and Teresita cannot sue for (C) What, if any, are the valid defenses that
breach of contract of carriage. The CTC and UTI can raise in the respective
Elements in the definition of a passenger actions against them? Explain. (3%)
are: an undertaking of a person to travel SUGGESTED ANSWER:
in the conveyance provided by the With respect to Romeo, Samuel and
carrier and an acceptance by the carrier Teresita, since there was no pre-existing
of the person as a passenger. (14 Am Jur contractual relationship between them
2d, Carriers, So. 714,p. 164). Samuel did and CTC, CTC can raise the defense that
not board the bus to be transported but it exercised the due diligence of a good
to commit robbery. Teresita did not father of a family in the selection and
board the bus to be transported but to supervision of its driver (Article 2180,
accompany the driver while he was New Civil Code).
performing his work.
Uriel can sue for breach of contract. He It can raise the same defense against
was a passenger although he was being Uriel if there is a stipulation that
transported gratuitously, because he won exempts it from liability for simple
a free riding pass in a raffle held by CTC negligence, but not for willful acts or
(Article 1753, New Civil Code). gross negligence (Article 1758, New Civil
Code).
Page 84 of 173
CTC can also raise against all the de Oro airport; the pilot miscalculated the
plaintiffs the defense that the collision plane’s approach and undershot the
was due exclusively to the negligence of runway. Of the 150 people on board, ten
the driver of UTI, and this constitutes a (10) passengers died at the crash scene.
fortuitous event, because there was no
concurrent negligence on the part of its Of the ten who died, one was a passenger
own driver (Ampang v.Guinoo who managed to leave the plane but was
Transportation Company, G.R. No. L- run over by an ambulance coming to the
5044, April 30, 1953). rescue. Another was an airline employee
who hitched a free ride to Cagayan de Oro
CTC can also raise against Samuel the and who was not in the passenger manifest.
defense that he was engaged in a
seriously illegal act at the time of the It appears from the Civil Aeronautics
collision, which can render him liable for Authority investigation that the co-pilot
damages on the basis of quasi-delict who had control of the plane’s landing had
(Dobbs, the Law of Torts, pp.524-525). less than the required flying and landing
time experience, and should not have been
Since UTI had no pre-existing in control of the plane at the time. He was
contractual relationship with any of the allowed to fly as a co-pilot because of the
plaintiffs, it can raise the defense that it scarcity of pilots – Philippine pilots have
exercised due diligence in the selection been recruited by foreign airlines under
and supervision of its driver that the vastly improved flying terms and wages so
collision was due exclusively to the that newer and less trained pilots are being
negligence of the driver of CTC, and that locally deployed. The main pilot, on the
Samuel was committing a serious illegal other hand, had a very high level of blood
act at the time of the collision. alcohol at the time of the crash.
You are part of the team that the victims

hired to handle the case for them as a
group. In your case conference, the
Carriage; Breach of Contract;
following questions came up:
Presumption of Negligence (2013)
No.IX. Fil-Asia Flight 916 was on a (A) Explain the causes of action legally
scheduled passenger flight from Manila possible under the given facts against the
when it crashed as it landed at the Cagayan airline and the Pilots; whom will you
Page 85 of 173
specifically implead in these causes of over. This is in accordance with Articles

action? (5%) 2176 and 2180 of the Civil Code. There
could also be a criminal prosecution for
SUGGESTED ANSWER: reckless imprudence resulting in
A complaint for breach of contract of homicide against the ambulance driver
carriage can be filed against Fil-Asia for and the consequent civil liability.
failure to exercise extraordinary
diligence in transporting the passengers Since the airline employee was being
safety from their point of embarkation transported gratuitously, Fil-Asia Air was
to their destination (Article 1755, Civil not required to exercise extraordinary
Code). diligence for his safety and only ordinary
care. (Lara v. Valencia, 104 Phil. 65,
A complaint based on a quasi-delict can 1958).
be filed against the pilots because of
their fault and negligence (Article 2176,
Civil Code). Fil-Asia Air can be included
for negligence in the selection and
Maritime Protest (2007)
supervision of the pilots (Article 2180,
Civil Code). No.XI. Two vessels figured in a collision
along the Straits of Guimaras resulting in
A third cause of action may be a criminal considerable loss of cargo. The damaged
prosecution for reckless imprudence vessels were safely conducted to the Port of
resulting in homicide against two pilots. Iloilo Passenger A failed to file a maritime
The airline will be subsidiarily liable for protest. B, a non-passenger but a shipper
the civil liability only after the pilots are who suffered damage to his cargo, likewise
convicted and found to be insolvent. did not file a maritime protest at all. (10%)
(B) How will you handle the cases of the (A) What is a maritime protest?
passenger run over the ambulance and the

SUGGESTED ANSWER:
airline employee allowed to hitch a free ride
to Cagayan de Oro? (3%) A maritime protest is a sworn statement
SUGGESTED ANSWER: made with 24 hours after a collision in
It is the driver of the ambulance and his which the circumstances thereof are
employer who should be held liable for declared or made known before a
damages, because a passenger was run competent authority at the point of
Page 86 of 173
accident or the first port of arrival if in Trust Receipts Law

the Philippines or the Philippine consul
in a foreign country (Article 835, Code of Trust Receipt (2007)
Commerce; Goro v. William Lines, Inc., 3
No.V. C contracted D to renovate his
CAR 1(1963)).
commercial building. D ordered
construction materials from E and received
(B) Can A and B successfully maintain an
delivery thereof. The following day, C went
action to recover losses and damages
to F Bank to apply for loan to pay for the
arising from the collision? Reason briefly
construction materials. As security for the
SUGGESTED ANSWER: loan, C was made to execute a trust receipt.
One year later, after C failed to pay the
B, the shipper, can successfully maintain
balance of the loan, F Bank charged him
an action to recover losses and damages
with violation of the Trust Receipts Law.
arising from the collision
(5%)
notwithstanding his failure to file a
maritime protest since the filing thereof
(A) What is a Trust Receipt?
is required only on the part of A, who
SUGGESTED ANSWER:
being a passenger of the vessel at the
A Trust Receipt is a written or printed
time of the collision, was expected to
document signed by the entrustee in
know the circumstances of the collision.
favor of the entruster containing terms
A’s failure to file a maritime protest will
and conditions substantially complying
therefore prevent him from successfully
with the provision of the Trust Receipts
maintaining an action to recover his
Law, whereby the bank as entruster
losses and damages (Art. 836, Code of
releases the goods to the possession of
Commerce)
the entrustee but retains ownership
ALTERNATIVE ANSWER: thereof while the entrustee may sell the

goods and apply the proceeds for the full
A can maintain an action to recover payment of his liability to the bank
damages if he was not in a condition to (Section 3(j), Trust Receipts Law).
make known his wishes. B can maintain
an action to recover damages since he (B) Will the case against C prosper? Reason
was not on board the vessel (Article 836, briefly.
Code of Commerce). SUGGESTED ANSWER:
Page 87 of 173
No, the case against C will not prosper, No, Tom Cruz’s obligation to pay the
Since C received the Construction loan covered by the trust receipts to XYZ
material from E Before the trust receipt Bank remains, A “Trust receipt” is
transaction was a simple loan, with the merely a collateral agreement which
trust receipt merely as a collateral or serves as security for a loan, with the
security for the loan. This is Bank appearing as the owner of the
inconsistent with a trust receipt goods. The Bank cannot dispose of the
transaction where the title to the goods goods in any manner it chooses, because
remains with the bank and the goods are it is not the true owner thereof (Rosario
released to the entrustee before the loan Textile Miss v. Home Bankers, G.R. No.
is granted (Consolidated Bank and Trust 137232, 29 June 2005, citing Sia v.
Corporation v. Court of Appeals, 356 People, G.R. No. 30896, 28 April 1983,
SCRA 671 [2001]. Abad v. CA, G.R. No. 42735, 22 January
1990, and PNB v. Pineda, G.R. No.
46658, 13 May 1991). The loss of the
goods covered by the trust receipts
cannot extinguish the principal
Trust Receipt; Security for a Loan (2008)
obligation of the borrower to pay the
No.II. Tom Cruz obtained a loan of P1 bank (Landl & Company [Phil.] v.
Million from XYZ Bank to finance his Metropolitan Bank, G.R. 159622, 30 July
purchase of 5,000 bags of fertilizer. He 2004).
executed a trust receipt in favor of XYZ

Bank over the 5,000 bags of fertilizer. Tom
Cruz withdrew the 5,000 bags from the
warehouse to be transported to Lucena City
Trust Receipts Law; Liability for Estafa
where his store was located. On the way,
(2013)
armed robbers took from Tom Cruz the
5,000 bags of fertilizer. Tom Cruz now No.VI. Delano Cruz is in default in the
claims that his obligation to pay the loan to payment of his existing loan from BDP
XYZ Bank is extinguished because the loss Bank. To extend and restructure this loan,
was not due to his fault. Is Tom Cruz Delano agreed to execute a trust receipt in
correct? Explain. (4%) the bank’s favor covering the iron pellets
SUGGESTED ANSWER: Delano agreed to execute a trust receipt in
the bank’s favor covering the iron pellets
Delano imported from China one year
Page 88 of 173
earlier. Delano subsequently succeeded in consequence acquired ownership to the

selling the iron pellets to a smelting plant, goods, the transaction does not involve a
but the proceeds went to the payment of trust receipt but a simple loan even
the separation benefits of his employees though the parties denominated the
who were laid off as he reduced his transaction as one of trust receipt
operations. (Colinares vs. Court of Appels, 339 SCRA
609, 2000; Consolidated Bank and Trust
When the extend loan period expired Corporation v. CA, SCRA 671, 2001).
without any significant payment from
Delano (not even to the extent of the
proceeds of the sale of the iron pellets), BDP
Bank consulted you on how to proceed
Trust Receipts Law; Violation
against Delano. The bank is contemplating
Committed by a Corporation (2012)
the filing of estafa pursuant to the
provisions of Pres. Decree No. 115 (Trust
No.II. CCC Car, Inc. obtained a loan from
Receipts Law) to force Delano to tum in at
BBB Bank, which fund was used to import
least the proceeds of the sale of the iron
ten (10) units of Mercedes Benz S class
pellets.
vehicles. Upon arrival of the vehicles and
before release of said vehicles to CCC Car,
Would you, as bank counsel and as an
Inc., X and Y, the President and Treasurer,
officer of the court, advise the bank to
respectively, of CCC Car, Inc. signed the
proceed with its contemplated action? (8%)
Trust Receipt to cover the value of the ten
(10) units of Mercedes Benz S class vehicles
SUGGESTED ANSWER:
after which, the vehicles were all delivered
to the Car display room of CCC Car, Inc.
I will not advise BDP Bank to file a
Sale of the vehicles were slow, and it took a
criminal case for estafa against Delano.
month to dispose of the ten (10) units. CCC
Delano received the iron pellets he
Car, Inc. wanted to be in business and to
imported one year before the trust
save on various documentations required
receipt was executed. As held by the
by the bank, decided that instead of turning
Supreme Court, where the execution of a
over the proceeds of the sales, CCC Car,
trust of a trust receipt agreement was
Inc. used the proceeds to buy another ten
made after the goods covered by it had
(10) units of BMW 3 series.
been purchased by and delivered to the
entrustee and the latter as a
Page 89 of 173
(A) Is the action of CCC Car, Inc. legally [Note:The problem does not state that BBB
justified? Explain your answer. (5%) bank issued a letter of credit upon
application of CCC Car, Inc, to enable the
SUGGESTED ANSWER:
latter to pay for its importation. In the
No. It is the obligation of CCC Car, Inc., suggested answers above, we assume this
as entrustee, to receive the proceeds of to be the case because the trust receipt,
the sale of the Mercedes Benz S class being an accessory contract, cannot validly
vehicles intrust for BBB Bank, as exist without a principal contract, i.e., the
entruster, and turn over the same to application for the letter of credit.]
BBB Bank to the extent of the amount
owing to the latter or as appears in the
trust receipt (Sec. 9(2), Trust Receipt
Warehouse Receipts Law
Law).
Warehouse Receipt: Surrendering of

(B) Will the corporate officers of CCC Car,
Possession; Lien (2009)
Inc. be held liable under the
circumstances? Explain your answer. (5%) No.XI. (B) Under the Warehouse loses his
lien upon the goods when he surrenders
SUGGESTED ANSWER: possession thereof.
SUGGESTED ANSWER:
Yes, particularly the President and the
True. A lien is dependent on possession.
Treasurer of CCC Car, Inc. who both
When a warehouseman surrenders
signed the trust receipts in the problem.
possession, he thereby loses his lien on
Section 13 of the Trust Receipt Law(PD
the goods over which hi no longer has
115) provides that if the violation or
possession (Sec.29 (a), Warehouse
offense is committed by a corporation,
Receipts Law).
partnership, association, or other
juridical entity, the penalty provided for
in the law shall be imposed upon the
Negotiable Instrument; Delivery of Goods
directors, officers, employees or other
(2007)
officials or persons therein responsible
for the offense, without prejudice to the No.II. Alex deposited goods for which Billy,
civil liabilities arising from the criminal a warehousemen, issued a negotiable
offense. warehouse receipt wherein the good were
deliverable to Alex or order. Alex negotiated
the receipt TC Caloy. Thereafter, Dario a
Page 90 of 173
creditor, secured judgment against Alex

and served notice of levy over the goods on
the warehouseman.
(A) To whom should the warehousemen

deliver the goods upon demand?(5%)
SUGGESTED ANSWER:
The warehouseman should deliver the

goods upon demand to Caloy who is a
holder of the receipt in good faith and
for value. The goods cannot be levied
upon by the creditor of Alex after it was
negotiated to Caloy (Section 25,
(B) Would your answer be the same if the

warehouseman issued a non-negotiable
warehouse receipt? Reason briefly. (5%)
SUGGESTED ANSWER:
No, my answer would not be the same if

the warehousemen issued a non-
negotiable warehouse receipt. In such
case. The warehouseman should deliver
the goods to Datio, if the notice of levy
was served on the warehouseman prior
to the notification of the warehouseman
by Alex or Caloy of the transfer of the
non-negotiable receipt. In such case, the
title of Caloy would be defeated by the
notice of levy by Dario (Section 42,
Warehouse Receipts Law).
Page 91 of 173
MULTIPLE CHOICE equivalent to a lawful pledge of the shares

of stock.
QUESTIONS (MCQ)
SUGGESTED ANSWER:
2013 Mercantile Law Exam
(D) Yes, because the execution of the
MCQ (October 20, 2013) Deed of Assignment of Shares of Stock is
equivalent to a lawful pledge of the
I. Claude, the registered stock holder of shares of stock (Lopez v. Court of
1,000 shares in ABC Corp., pledged the Appeals, 114 SCRA 617).
shares to Conrad by endorsement in blank
of the covering stock certificates and, I.(2) After Claude defaulted on the loan,
execution of a Deed of Assignment of Conrad sought to have the shares
Shares of Stock, intended as collateral for a registered in his name In the books of the
loan of P 1.0 Million that was also corporation. If you are the Corporate
supported by a separate promissory note. Secretary of ABC Corporation, would you
register the shares in the name of
I.(A) Under these facts, is there a valid Conrad without any written instruction
pledge of the shares of stock to Conrad? from Claude? (1%)
(1%)
(A) Yes, since the endorsement and delivery

(A) No, because shares of stock are of the certificates of stock executed by
intangible personal properties whose Claude constitute the legal authority to
possession cannot be delivered and, hence, cancel the shares in his name and to place
cannot be the subject of a pledge. them in Conrad’s name.
(B) No, because the pledge of shares of (B) Yes, since the execution of the Deed of
stock requires double registration with the Assignment by Claude would constitute the
Register of the principal place of business of legal authority to cancel the shares in his
the corporation and of the residence of the name and place them in Conrad’s name.
pledgor. (C) No, because corporate officers can only
(C) Yes, because endorsement and delivery take direct instructions from the registered
of the certificates of stock is equivalent to owners on the proper disposition of shares
the transfer of possession of the covered registered in their names.
shares to the pledgee. (D) No, because the corporation has a
(D) Yes, because the execution of the Deed primary lien on the shares covering the
of Assignment of Shares of Stock is unpaid subscription.
Page 92 of 173
SUGGESTED ANSWER: (A) The ―Filipino First Policy‖

None of the answer is correct. The (B) The ―Foreign Investment Positive Lists‖
pledge must be foreclosed. (Article 2112, concept
Civil Code) Conrad cannot just (C) The ―Foreign Investment Negative Lists‖
appropriate the shares of stock (Article concept
2088, Civil Code). (D) The ―Control Test‖ concept
(E) All of the above.
NOTE: (D) could have been the correct
answer if the facts stated that there are SUGGESTED ANSWER:
unpaid subscriptions because under (C) The “Foreign Investment Negative
Section 63 of the Corporation Code, the Lists” concept
corporation may refuse the transfer if it (Section 7 of Foreign Investments Act)
holds unpaid claim on the subscribed
shares (See China Banking Corp. v. CA II.(2) The delegation asked: aside from
and Valle Verde Country Club, G.R. No. Filipino citizens, what entities would fall
117604, March 26, 1997). under the definition of ―Philippine National‖
under FIA ’91?
II. A foreign delegation of businessmen and
investment bankers called on your law firm You replied that the definition of
to discuss the possibilities of investing in “Philippine national” under FIA ’91
various projects in the Philippines, and covers .(1%)
wanted your thoughts on certain issues
regarding foreign investment in the (A) domestic partnerships wholly composed
Philippines. of Filipino citizens
(B) domestic corporations 60% of whose
II.(1) The delegation has been told about capital stock, outstanding and entitled to
the Foreign Investment Act of 1991, as vote, are owned and held by Filipino
amended (FIA ’91), and they asked what citizens
exactly is the law’s essential thrust (C) foreign corporations considered as doing
regarding foreign investment in Philippine business in the Philippines under the
business and industries. Corporation Code, 100% of whose capital
stock, outstanding and entitled to vote, are
You replied that FIA ’91 essentially wholly-owned by Filipino citizens
reflects . (1%)
Page 93 of 173
(C) All of the above, because the law (D) Exports consistently at least 60% of its
considers the juridical personality, whether goods or services produced, and can sell
domestic or foreign, as a mere medium; the goods or services to the domestic market
test of nationally is on the individual who (E) None of the above.
control the medium
(D) None of the above, because the term SUGGESTED ANSWER:
Philippine national can only cover (E) None of the above.
individuals and not juridical entities. (Section 3(e) of Foreign Investments Act)
SUGGESTED ANSWER: II.(4) As a last question and by way of a

(D) All of the above, because the law concrete example, a delegation member
considers the juridical personality, finally inquired – which of the following
whether domestic or foreign, as a mere corporations or businesses in the
medium: the test of nationality is on the Philippines may it invest and up to what
individuals who control the medium extent? (1%)
(Section 3(a) of Foreign Investments Act)
(A) A lifestyle magazine publication
II.(3) The delegation heard that foreigners corporation, up to 40% equity
can invest up to 100% of the equity in (B) An advertising corporation, up to 100%
―export oriented enterprises‖ and you were equity
asked exactly what the term covers. (C) A commercial bank, up to 60% equity
(D) A jeepney manufacturing corporation,
You replies that an ―export oriented up to 100% equity
enterprise ”under FIA ’91 is an enterprise (E) A real estate development corporation,
that .(1%) up to 60% equity
(A) only engages in the export of goods and SUGGESTED ANSWER:

services, and does not sell goods or services (D) A Jeepney manufacturing
to the domestic market corporation, up to 100% equity
(B) exports consistently at least 40% of its (Section 7 of Foreign Investment Act)
goods or services, and sells at least 60% of
the rest to the domestic market
(C) exports consistently at least 60% of the III. Dennis subscribed to 10,000 shares of
goods or services produced, and sell at least XYZ Corporation with a par value of P100
40% of the rest to the domestic market. per share. However, he paid only 25% of the
Page 94 of 173
subscription or P250,000.00 No call has (D) ABC Corp. may redeem the shares at
been made on the unpaid subscription. the end of 10 years without need for
unrestricted earnings provided that, after
How many shares in Dennis entitled to the redemption, there are sufficient assets
vote at the annual meeting of the to cover its debts.
stockholders of XYZ? (1%) (E) All of the above are incorrect.
(A) 10,000 shares SUGGESTED ANSWER:

(B) 2,500 shares (D) ABC Corp. may redeem the shares at
(C) 100 shares the end of 10 years without need for
(D) 0 shares unrestricted earnings provided that,
(E) None of the above. after the redemption, there are sufficient
assets to cover its debts.
SUGGESTED ANSWER: (Section 8 of Corporation Code; Republic
(A) 10,000 Shares Planters Bank v. Agana, 269 SCRA 1,
(Section 24 and 71 of Corporation Code) 1997)
IV. ABC Corp, issued redeemable shares, V. Arnold, representing himself as an agent
Under the terms of the issuance, the shares of Brian for the sale of Brian’s car,
shall be redeemed at the end of 10 years approached Dennis who appeared
from date of issuance, at par value plus a interested in buying the car. At Arnold’s
premium of 10% prodding, Dennis issued a crossed check
would only be shown to Brian as evidence
Choose the correct statement relating to of Dennis’ good faith and interest in buying
these redeemable shares. (1%) the car. Instead, Arnold used the check to
pay for the medical expenses of his wife in
(A) ABC Corp. would need unrestricted Brian’s clinic after Brian, a doctor, treated
retained earnings to be able to redeem the her.
shares.
(B) Corporations are not allowed to issue Is Brian a holder in due course (HIDC)?
redeemable shares; thus, the issuance by (1%)
ABC Corp. is ultra vires.
(C) Holders of redeemable shares enjoy a (A) Yes, Brian is a HIDC because he was the
preference over creditors. payee of the check and he received it for
services rendered.
Page 95 of 173
(B) Yes, Brian is a HIDC because he did not (A) Gawsengsit Corp. is doing business in
need to go behind the check that was the Philippines and requires a license from
payable to him. the Securities and Exchange Commission
(C) No, Brian is not a HIDC because Dennis (SEC).
issued the check only as evidence of good (B) Gawsengsit Corp. is not doing business
faith and interest in buying the car. in the Philippines by its mere investment in
(D) No, Brian is not a HIDC because Brian a Philippine corporation and does not need
should have been placed on notice: the a license from the SEC
check was crossed in his favor and Arnold (C) Gawsengsit Corp. has to appoint a
was not the drawer. resident agent in the Philippines.
(E) No, Brian is not a HIDC because the (D) Gawsengsit Corp. cannot elect directors
requisite consideration to Dennis was not in Bumblebee Corp.
present. (E) All the above choices are incorrect.
SUGGESTED ANSWER: SUGGESTED ANSWER:

(D) No, Brian is not a HIDC because Brian (B) Gawsengsit Corp. is not doing
should have been placed on notice: the business in the Philippines by its mere
check was crossed in his favor and investment in a Philippines corporation
Arnold was not the drawer. and does not need a license from the
(Vicente R. de Ocampo & Company v. SEC.
Gatchalian, 3 SCRA 566, 1961) (Section 3(d) of Foreign Investment Act)
VI. Gawsengsit Corp. is a corporation VII. The BIR assessed ABC Corp. for
incorporated in Singapore. It invested in deficiency income tax for taxable year 2010
Bumblebee Corp., a Philippine corporation, in the amount of P26,731,208.00, inclusive
by acquiring 30% of its shares. As a result, of surcharge and penalties.
Gawsengsit Corp. nominated 30% of the The BIR Can . (1%)
directors of Bumblebee Corp., all of whom
are Singaporeans and officers of (A) Run after the directors and officers of
Gawsengsit Corp. ABC Corp. to collect the deficiency tax and
their liability will be solidary.
Choose the correct statement relating to (B) Run after the stockholders of ABC Corp.
Gawsengsit Corp. (1%) and their liability will be joint
(C) Run after the stockholders of ABC Corp.
and their liability will be solidary
Page 96 of 173
(D) Run after the unpaid subscriptions still (Rosario Textile Mills Corporation v.
due to ABC Corp., if any Home Bankers Savings and Trust
(E) None of the above choices is correct. Company, 462 SCRA 88, 2005)
SUGGESTED ANSWER: IX. A Bank may acquire real property

(D) Run after the unpaid subscriptions . (1%)
still due to ABC Corp., if any (A) By purchase at a public sale of
(Halley v. Printwell, 648 SCRA 116, properties levied to satisfy tax
2011). delinquencies
(B) By purchase from a real estate
VIII. Anton imported perfumes from corporation in the ordinary course of the
Taiwan and these were released to him bank’s business
by the bank under a trust receipt. While (C) Through dacion en pago in satisfaction
the perfumes were in Anton’s warehouse, of a debt in favor of the bank
thieves broke in and stole all of them. (D) In exchange for the purchase of shares
of stocks of the bank
Who will shoulder the lossof the stolen (E) All of the above.
perfumes? (1%) (F) None of the above.
(A) The loss of the perfumes will be borne SUGGESTED ANSWER:

by the bank in whose behalf the perfumes (B) By purchase from a real estate
were held in trust. corporation in the ordinary course of the
(B) Anton will bear the loss. bank’s business; or
(C) The exporter can hold both the bank (C) Through dacion en pago in
and Anton liable for the loss. satisfaction of a debt in favor of the
(D) The exporter form whom Anton bought bank; or
the perfumes will bear the loss. (D) in exchange for the purchase of
(E) No one bears the loss for an unforeseen shares of stocks of the bank.
event. (Section 36 (7) and 62 (2) of the
Corporation Code)
SUGGESTED ANSWER: (Section 52 of the General Banking Law)
(B) Anton will bear the loss.
(Section 10 of the Trust Receipts Law) X. Under the Anti-Money Laundering Act, a
depositor’s bank account may be frozen.
(1%)
Page 97 of 173
(A) By the bank when the account is the Auto Mo, Ayos Ko is a . (1%)
subject of a suspicious or covered
transaction report (A) De jure corporation
(B) By the Anti-Money Laundering Council (B) De facto corporation
(AMLC) when the account belongs to a (C) Corporation by estoppels
person already convicted of money (D) General partnership
laundering (E) None of the above.
(C) By the Regional Trial Court, upon ex
parte motion by the AMLC, in a criminal SUGGESTED ANSWER:
prosecution for money laundering pending NOTE: The last sentence of the given
before it. problem is unclear as to whether the
(D) By the Court of Appeals motu proprio in term “latter” refers to Enrico or to the
an appeal from a judgment of conviction of incorporators. As such, it is necessary to
a criminal charge for money laundering. qualify the answer depending on the
(E) In none of the above. meaning given to the term “latter”
(C) Corporation by estoppels
SUGGESTED ANSWER:
(E) In none of the above. If the term “latter” refers to the
(Section 10 of the Anti-Money incorporators, the correct answer is C
Laundering Act) (Section 20 and 21 of the Corporation
Code).
XI. Unknown to the other four proponents,
Enrico (who had been given the task of (E) None of the above.
attending to the Articles of Incorporation of If the term “latter” refers to Enrico, the
the proposed corporation, Auto Mo, Ayos correct answer is E (Sections 20 and 21
Ko) misappropriated the filing fees and of the Corporation Code).
never filed the Articles of Incorporation with
the Securities and Exchange Commission XII. Preferred shares cannot vote on the
(SEC). Instead, he prepared and presented proposal . (1%)
to the proposed incorporators a falsified
SEC certificate approving the Articles. (A) To include other corporate officers in the
Relying on the falsifies SEC certificate, the corporation’s by-laws
latter began assuming and discharging (B) To issue corporate bonds
corporate powers. (C) To shorten the corporate term
Page 98 of 173
(D) All of the above Is the policy valid and binding? (1%)
(E) None of the above.
(A) Yes, the policy is valid and binding
SUGGESTED ANSWER: because Aurelia has an insurable interest
(E) None of the above. on the life of Kaddafy Benjelani.
(B) No, the policy is not valid and binding
Under letter (A), to include other because Kaddafy Benjelani has been
corporate officers in the corporation’s officially declared a public enemy.
by-laws. This will require the (C) Yes, the policy is valid and binding
amendment of the by-laws, and as such, because it has been in force for more than
preferred shares shall be allowed to two years.
vote. (D) No, the policy is not valid and binding
Under letter (B), to issue corporate bonds since the spouses’ estrangement removed
– Such corporate bonds are construed as Aurelia’s insurable interest in Benjelani’s
bonded indebtedness, then preferred life.
shares shall be allowed to vote. (E) None of the above.
Under letter (C), to shorten the corporate
term, - Under Section 6 of the SUGGESTED ANSWER”
Corporation Code, preferred shares shall (A) Yes the policy is valid and binding
be allowed to vote. because Aurelia has an insurable interest
on the life of Kaddafy Benjelani.
XIII. In 2010, the Philippine National Police
declared Kaddafy Benjelani ―Public Enemy The policy is valid. Aurelia had insurable
No. 1‖ because of his terrorist activities in interest in the life of Kaddafy Benjelani,
the country that have resulted in the death because he is her husband even if they
of thousands of Filipino. A ransom of P15 are estranged (Section 10 (a) of the
million was placed on Kaddafy Benjelani’s Insurance Code). Kaddafy Benjelani is
head. not a public enemy, because he is not a
national of an enemy country (Filipinas
Worried about the future of their family, Compañia de Sejunos v. Christern,
Kaddafy Benjelani’s estranged wife, Aurelia, Huefeld & Company, Inc., 89 Phil. 54,
secured in December 2010 a life insurance 1951).
policy on his life and designated herself as
the beneficiary.
Page 99 of 173
XIV. Muebles Classico, Inc. (MC), a Manila- (B) Deny STI’s claim. The Stay Order covers
based furniture shop, purchased hardwood all claims against the debtor and binds all
lumber from Surigao Timber, Inc. (STI), a its creditors. The letter of credit is a claim
Mindanao-based logging company. MC was against the debtor that is covered by the
pay STI the amount of P5.0 million for 50 Stay Order.
tons of lumber. To pay STI, MC opened a (C) Grant STI’s claim. The letter of credit is
letter of credit with Baco de Plata (BDP). not a claim against the debtor under
BDP duly informed STI of the opening of a rehabilitation, but against the bank which
letter of credit in its favor. has assumed a solidary obligation.
(D) Deny STI’s claim. If the bank disregards
In The meantime, MC- which had been the Stay Order, it may be subject to
undergoing financial reverses = filed a contempt by the rehabilitation court. STI
petition for corporate rehabilitation. The should file its claim with the rehabilitation
rehabilitation court issued a Stay Order to court.
stay the enforcement of all claims against (E) File an action for interpleader to resolve
MC. the parties’ competing claims
After shipping the lumber, STI went to BDP, SUGGESTED ANSWER:

presented the shipping documents, and (C) Grant SIT’s claim. The letter of credit
demanded payment of the letter of credit is not a claim against the debtor under
opened in its favor. MC, on the other hand, rehabilitation. But against the bank
informed the bank of the Stay Order and which has assumed a solidary obligation.
instructed it to deny payment to STI (Metropolitan Waterworks and Sewerage
because of the Stay Order. System v. Daway, 432 SCRA 559, 2004)
BDP comes to you for advice. Your best XV. Akiro of Tokyo, Japan sent various
advice is to . (1%) goods to his friend Juan in Cebu City,
Philippines , through one of the vessels of
(A) Grant STI’s claim, Under the Worthsell Shippers, Inc., an American
―Independence Principle,‖ the bank deals corporation. En route to Cebu City, the
only with the documents and not the vessel had two stops, first in Hong Kong,
underlying circumstances; hence, the and second, in Manila.
presentation of the letter of credit is
sufficient. XV.(1) While traveling from Tokyo to Hong
Kong, the goods were damaged.
Page 100 of 173
SUGGESTED ANSWER:
What law will govern? (1%) (D) Yes, provided he files the complaint
within 1 year from delivery.
(A) Japanese law (Section 3 (6) of Carriage of Goods by Sea
(B) Hong Kong law Act; Belgian Overseas Chartering
(C) Chinese law &Shipping N.V. v. Philippine First
(D) Philippine law Insurance Company, Inc., 383 SCRA 23,
(E) American law 2002)
SUGGESTED ANSWER:
(A) Philippine law
(Article 1753, Civil Code)
(Eastern Shipping Lines, Inc. v.
Intermediate Appellate Court, G.R. No. L-
69044, May 29, 1987).
XV.(2) Assuming Philippine law to be

applicable and Juan fails to file a claim
with the carrier, may he still commence
an action to recover damages with the
court? (1%)
(A) No, the failure to file a claim with the

carrier is a condition precedent for
recovery.
(B) Yes, provided he files the complaint with
10 years from delivery.
(C) Yes, provided he files the complaint with
10 years from discovery of the damage.
(D) Yes, provided he files the complaint
within 1 year from delivery.
(E) Yes, provided he files the complaint with
1 year from discovery of the damage.
Page 101 of 173
2012 Mercantile Law Exam serves to reduce the risk of non-

performance is called -
MCQ (October 21, 2012) a. irrevocable letter of credit;
b. standby letter of credit;
1. Letters of Credit are financial
c. confirmed letter of credit;
devices in commercial transactions
d. None of the above.
which will ensure that the seller of
the goods is sure to be paid when he SUGGESTED ANSWER:
parts with the goods and the buyer
of the goods gets control of the b. standby letter of credit;
goods upon payment. Which
statement is most accurate?
a. The use of the Letter of
3. At the instance of CCC Corporation,
Credit serves to reduce the
AAA Bank issued an irrevocable
risk of nonpayment of the
Letter of Credit in favor of BBB
purchase price in a sale
Corporation. The terms of the
transaction.
irrevocable Letter of Credit state
b. The Letters of Credit can
that the beneficiary must presfmt
only be used exclusively in a
certain documents including a copy
sales transaction.
of the Bill of Lading of the
c. The Letters of Credit are
importation for the bank to release
issued for the benefit of the
the funds. BBB Corporation could
seller only.
not find the original copy of the Bill
d. (a), (b) and (c) are all correct.
of Lading so it instead presented to
SUGGESTED ANSWER: the bank a xerox copy of the Bill of

Lading. Would you advise the bank
a. The use of the Letter of Credit to allow the drawdown on theLetter
serves to reduce the risk of of Credit?
nonpayment of the purchase price a. No, because the rule of
in a sale transaction. strict compliance in
commercial transactions
involving letters of credit,
requiring documents set as
2. Letter of Credit which is used in
conditions for the release
non-sale transaction, where it
of the fund ,has to be
Page 102 of 173
strictly corn plied with or 4. AAA Carmakers opened an

else funds will not be irrevocable Letter of Credit with BBB
released. Banking Corporation with CCC Cars
b. Yes, because an irrevocable Corporation as beneficiary. The,
letter of credit means that irrevocable Letter of Credit was
the issuing bank undertakes opened to pay for the importation of
to release the fund anytime ten (1 0) units of Mercedes Benz S
when claimed by the class. Upon arrival of the cars, AAA
beneficiary, regardless of the Carmakers found out that the cars
kind of document presented. were all not in running condition
c. Yes, because the issuing and some parts were missing. As a
bank can always justify to consequence, AAA Carmakers
CCC Corporation that xerox instructed BBB Banking
copies are considered as Corporation not to allow drawdown
faithful reproduction of the on the Letter of Credit. Is this legally
original copies. possible?
d. Yes, because the issuing a. No, because under the
bank really has no discretion "Independence Principle",
to determine whether the conditions for the
documents presented by the drawdown on the Letters of
beneficiary are sufficient or Credit are based only on
not. documents, like shipping
documents, and not with
SUGGESTED ANSWER: the condition of the goods
subject of the importation.
a. No, because the rule of strict
b. Yes, because the acceptance
compliance in commercial
by the importer of the goods
transactions involving letters of
subject of importation is
credit, requiring documents set as
material for the drawdown of
conditions for the release of
the Letter of Credit.
the FUND ,has to be strictly corn
c. Yes, because under the
plied with or else funds will not be
"Independence Principle", the
released.
seller or the beneficiary is
always assured of prompt
payment if there is no breach
Page 103 of 173
in the contract between the b. Assign the warehouse receipt

seller and the buyer. to Z to transfer ownership of
d. No, because what was the goods.
opened was an irrevocable c. Negotiate the warehouse
letter of credit and not a receipt by specifically
confirmed letter of credit. indorsing it to Z.
d. The warehouse receipt in
SUGGESTED ANSWER: this case is non-negotiable.
a. No, because under the SUGGESTED ANSWER:

"Independence Principle",
conditions for the drawdown on a. No, because under the
the Letters of Credit are based "Independence Principle",
only on documents, like shipping conditions for the drawdown on
documents, and not with the the Letters of Credit are based
condition of the goods subject of only on documents, like shipping
the importation. documents, and not with the
condition of the goods subject of
the importation.
5. For a fee, X deposited 1,000 sacks of

corn in the warehouse owned by Y.
Y is in the business of warehousing. 6. The warehouseman, by issuing the
Y issued a warehouse receipt as warehouse receipt, acknowledges
proof of the possession of the 1,000 that the goods are in his possession,
sacks of corn. The warehouse but he can refuse to deliver the
receipt states as follows: "Deliver to goods to the holder of the
X or bearer 1,000 sacks of corn." X warehouse receipt covering the
wanted to use the warehouse receipt goods if -
as payment of his debt in favor of Z. a. the warehouse receipt
How can the ownership of the goods covering the goods is not
covered by the warehouse receipt be presented.
transferred? b. the lien of the
a. Negotiate the warehouse warehouseman is not
receipt by just delivering satisfied.
the warehouse receipt to Z.
Page 104 of 173
c. the said holder presents a was asked to sign a Trust Receipt

materially altered warehouse covering the goods. When the goods
receipt. were sold, X did not deliver the
d. All of the above. proceeds to BBB Banking
Corporation, arguing that he will
need the fund for the subsequent
importation. Is there sufficient basis
SUGGESTED ANSWER:
to sue for criminal action?
a. Yes, because X's failure to
d. All of the above.
turn over the proceeds to
the bank is a violation of
the Trust Receipt Law.
7. The legal remedy of the b. No, because the trust receipt
warehouseman in case of conflicting was signed only after the
claims is to --- delivery of the goods. When
a. file an action for the trust receipt was signed,
interpleader. the ownership of the goods
b. give the goods to the first one was already with X.
who first presented the c. Yes, because violation of
warehouse receipt. Trust Receipt Law is mala
c. use his discretion as to who prohibita, intention is
he believes has the prior irrelevant.
right. d. No, because X has a valid
d. keep the goods and reason not to deliver the
appropriate them to himself. proceeds to BBB Banking
Corporation.
SUGGESTED ANSWER:
SUGGESTED ANSWER:
a. file an action for interpleader.
a. Yes, because X's failure to turn
8. BBB Banking Corporation issued a over the proceeds to the BANK is
Letter of Credit in the amount of a violation of the Trust Receipt
P5Million, for the purchase of five (5) Law.
tons of corn by X. Upon arrival of
the goods, the goods were delivered
to the warehouse of X. Thereafter he
Page 105 of 173

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Mercantile Law Q&As (2007-2013) hectorchristopher@yahoo.

to nullify the foreclosure and the

incurred on the foreclosure of a chattel Yes. X executed a real estate mortgage

executing a new security on each new Mortgage; Foreclosure (2012)

Alviar, id.) another bank, using the same collateral.

Court adopted the “reliance on the

separately collateralized and for any

even levy execution execution on the

If the value of the property is more that

(D) If X defaulted with its loan in favor of

mortgage executed in its favor? (2%)

secured by a continuing guaranty of its and SA v. American Realty Corporation,

laborers, or domestic servants Philippine Islands (Section 50,

Although in Ching v. LBP, G.R. No.

corporation under receivership” Suspension Order included in a

165675, 30 September 2005: Ruby to Section 16(q) of the FRIA, Section

20 January 1998). or Suspension Order shall not apply “to

Insurance Law Concealment; Material Concealment

Insurable Interest; Building Destroyed by Globe & Rutgers Fire Insurance

Insurance; Double Insurance, Validity SUGGESTED ANSWER:

house as they have different insurable Contracts (2009)

interest therein. X, the borrower

Quirico then requested ALAC for the

(A) Can ALAC validly deny the claim on the

No.XIII. Ciriaco leased a commercial

amount of P500, 000 with First United

No.XI. Enrique obtained from Seguro

personal check postdated April 6, 2010.

insurance premium. Upon delivery of the of the Philippines).

policy on May 15, 2006, Alfredo issued a

destroyed the building owned by Alfredo. still recover on the policy?

(A) May Alfredo recover on the insurance

SUGGESTED ANSWER: insured will not prevent recovery under

of premium. Payment by means of a in connivance with others (Section 87,

check which was accepted by the Insurance Code of The Philippines).

insurer, bearing a date prior to the loss,

Insurance; Property Insurance; Payment St. Peter Manufacturing Company is

insurance, no coverage existed at the time

companies is “double insurance,” insurance Corp. is liable to the extent of

Insured can recover from Eastern SUGGESTED ANSWER:

of the Arbitration Law of the Philippines

Copyright (2013) copyright upon him. The registration is

No.XV. Eloise, an accomplished writer, was include those in periodicals and

hired by Petong to write a bimonthly newspapers. Under Sec. 178, copyright

newly-established newspaper of which case of commissioned work, the person

Eloise submitted three columns which, written stipulation to the contrary.

after some slight editing, were printed in

Enterprises. newspaper. Name one irrefutable legal

publish an anthology of her works, and columns in its anthology. (2%)

wanted to include the three columns that SUGGESTED ANSWER:

appeared in the Diario de Manila in her

sale or other forms of transfer of protecting electronic documents. What

Copyright; Infringement (2007)

No.I. (A) The Denicola Test in intellectual

aspects of the work cannot be conceptually

(B) Valentino’s friend Francesco stole the

Infringement; Claims (2010) photographs and duplicated them and sold

Airport met by thousands of hero-