2011 Bar Examination Questionnaire for Commercial

Law
Set A

(D) Yes, because an election to require something

to be done in lieu of payment of money does not
affect negotiability.

(1) P rode a Sentinel Liner bus going to Baguio from

Manila. At a stop-over in Tarlac, the bus driver, the
conductor, and the passengers disembarked for lunch. P
decided, however, to remain in the bus, the door of which
was not locked. At this point, V, a vendor, sneaked into the
bus and offered P some refreshments. When P rudely
declined, V attacked him, resulting in P suffering from
bruises and contusions. Does he have cause to sue Sentinel
Liner?

(4) ABC Corp. increased its capital stocks from Php10

Million to Php15 Million and, in the process, issued 1,000
new shares divided into Common Shares "B" and Common
Shares "C." T, a stockholder owning 500 shares, insists on
buying the newly issued shares through a right of preemption. The company claims, however, that its By-laws
deny T any right of pre-emption. Is the corporation correct?
(A) No, since the By-Laws cannot deny a
shareholder his right of pre-emption.

(A) Yes, since the carrier's crew did nothing to

protect a passenger who remained in the bus during
the stop-over.

(B) Yes, but the denial of his pre-emptive right

extends only to 500 shares.

(B) No, since the carrier's crew could not have

foreseen the attack.

(C) Yes, since the denial of the right under the Bylaws is binding on T.

(C) Yes, since the bus is liable for anything that

goes wrong in the course of a trip.

(D) No, since pre-emptive rights are governed by

the articles of incorporation.

(D) No, since the attack on P took place when the

bus was at a stop-over.

(5) M makes a promissory note that states: "I, M, promise to

pay Php5,000.00 to B or bearer. Signed, M." M negotiated
the note by delivery to B, B to N, and N to O. B had known
that M was bankrupt when M issued the note. Who would
be liable to O?

(2) A cargo ship of X Shipping, Co. ran aground off the

coast of Cebu during a storm and lost all its cargo
amounting to Php50 Million. The ship itself suffered
damages estimated at Php80 Million. The cargo owners filed
a suit against X Shipping but it invoked the doctrine of
limited liability since its vessel suffered an Php80 Million
damage, more than the collective value of all lost cargo. Is
X Shipping correct?
(A) Yes, since under that doctrine, the value of the
lost cargo and the damage to the ship can be setoff.

(A) M and N since they may be assumed to know

of M's bankruptcy
(B) N, being O's immediate negotiator of a bearer
note
(C) B, M, and N, being indorsers by delivery of a
bearer note
(D) B, having known of M's bankruptcy

(B) No, since each cargo owner has a separate and

individual claim for damages.
(C) Yes, since the extent of the ships damage was
greater than that of the value of the lost cargo.
(D) No, since X Shipping neither incurred a total
loss nor abandoned its ship.
(3) A writes a promissory note in favor of his creditor, B. It
says: "Subject to my option, I promise to pay B Php1
Million or his order or give Php1 Million worth of cement
or to authorize him to sell my house worth Php1 Million.
Signed, A." Is the note negotiable?
(A) No, because the exercise of the option to pay
lies with A, the maker and debtor.
(B) No, because it authorizes the sale of collateral
securities in case the note is not paid at maturity.
(C) Yes, because the note is really payable to B or
his order, the other provisions being merely
optional.

(6) S delivered 10 boxes of cellphones to Trek Bus Liner,

for transport from Manila to Ilocos Sur on the following
day, for which S paid the freightage. Meanwhile, the boxes
were stored in the bus liners bodega. That night, however, a
robber broke into the bodega and stole Ss boxes. S sues
Trek Bus Liner for contractual breach but the latter argues
that S has no cause of action based on such breach since the
loss occurred while the goods awaited transport. Who is
correct?
(A) The bus liner since the goods were not lost
while being transported.
(B) S since the goods were unconditionally placed
with T for transportation.
(C) S since the freightage for the goods had been
paid.
(D) The bus liner since the loss was due to a
fortuitous event.
(7) X Corp. operates a call center that received orders for
pizzas on behalf of Y Corp. which operates a chain of pizza

restaurants. The two companies have the same set of

corporate officers. After 2 years, X Corp. dismissed its call
agents for no apparent reason. The agents filed a collective
suit for illegal dismissal against both X Corp. and Y Corp.
based on the doctrine of piercing the veil of corporate
fiction. The latter set up the defense that the agents are in
the employ of X Corp. which is a separate juridical entity. Is
this defense appropriate?

(C) the lien in his favor.

(D) the amount indicated on the instrument's face.
(11) The liability of a common carrier for the goods it
transports begins from the time of
(A) conditional receipt.

(A) No, since the doctrine would apply, the two

companies having the same set of corporate
officers.

(B) constructive receipt.

(B) No, the real employer is Y Corp., the pizza

company, with X Corp. serving as an arm for
receiving its outside orders for pizzas.

(D) either actual or constructive receipt.

(C) Yes, it is not shown that one company

completely dominates the finances, policies, and
business practices of the other.
(D) Yes, since the two companies perform two
distinct businesses.
(8) A negotiable instrument can be indorsed by way of a
restrictive indorsement, which prohibits further negotiation
and constitutes the indorsee as agent of the indorser. As
agent, the indorsee has the right, among others, to
(A) demand payment of the instrument only.
(B) notify the drawer of the payment of the
instrument.
(C) receive payment of the instrument.
(D) instruct that payment be made to the drawee.
(9) Under the Negotiable Instruments Law, a signature by
procuration operates as a notice that the agent has but a
limited authority to sign. Thus, a person who takes a bill that
is drawn, accepted, or indorsed by procuration is dutybound to inquire into the extent of the agent's authority by:

(C) actual receipt.

(12) On Xs failure to pay his loan to ABC Bank, the latter

foreclosed the Real Estate Mortgage he executed in its favor.
The auction sale was set for Dec. 1, 2010 with the notices of
sale published as the law required. The sale was, however,
cancelled when Dec. 1, 2010 was declared a holiday and rescheduled to Jan. 10, 2011 without republication of notice.
The auction sale then proceeded on the new date. Under the
circumstances, the auction sale is
(A) rescissible.
(B) unenforceable.
(C) void.
(D) voidable.
(13) X executed a promissory note with a face value of
Php50,000.00, payable to the order of Y. Y indorsed the note
to Z, to whom Y owed Php30,000.00. If X has no defense at
all against Y, for how much may Z collect from X?
(A) Php20,000.00, as he is a holder for value to the
extent of the difference between Y's debt and the
value of the note.
(B) Php30,000.00, as he is a holder for value to the
extent of his lien.

(A) examining the agents special power of

attorney.

(C) Php50,000.00, but with the obligation to hold

Php20,000.00 for Y's benefit.

(B) examining the bill to determine the extent of

such authority.

(D) None, as Z's remedy is to run after his debtor,

Y.

(C) asking the agent about the extent of such

authority.

(14) Under the Anti-Money Laundering Law, a covered

institution is required to maintain a system of verifying the
true identity of their clients as well as persons purporting to
act on behalf of

(D) asking the principal about the extent of such

authority.
(10) Under the Negotiable Instruments Law, if the holder
has a lien on the instrument which arises either from a
contract or by implication of law, he would be a holder for
value to the extent of
(A) his successor's interest.
(B) his predecessor's interest.

(A) those doing business with such clients.

(B) unknown principals.
(C) the covered institution.
(D) such clients.
(15) It is settled that neither par value nor book value is an
accurate indicator of the fair value of a share of stock of a

corporation. As to unpaid subscriptions to its shares of

stock, as they are regarded as corporate assets, they should
be included in the
(A) capital value.
(B) book value.

(A) unless set aside by the members in plenary

session.
(B) in every case even if the Board of Trustees
resolves otherwise.
(C) unless otherwise provided in the Articles of
Incorporation or in the By-laws.

(C) par value.

(D) market value.

(D) in every case even if the majority of the

members decide otherwise during the elections.

(16) P sold to M 10 grams of shabu worth Php5,000.00. As

he had no money at the time of the sale, M wrote a
promissory note promising to pay P or his order Php5,000. P
then indorsed the note to X (who did not know about the
shabu), and X to Y. Unable to collect from P, Y then sued X
on the note. X set up the defense of illegality of
consideration. Is he correct?

(20) The rule is that the valuation of the shares of a

stockholder who exercises his appraisal rights is determined
as of the day prior to the date on which the vote was taken.
This is true -

(A) No, since X, being a subsequent indorser,

warrants that the note is valid and subsisting.

(B) regardless of any appreciation in the share's fair

value.

(B) No, since X, a general indorser, warrants that

the note is valid and subsisting.

(C) regardless of any depreciation in the share's fair

value.

(C) Yes, since a void contract does not give rise to

any right.

(D) only if there is no appreciation or depreciation

in the share's fair value.

(D) Yes, since the note was born of an illegal

consideration which is a real defense.

(21) T Shipping, Co. insured all of its vessels with R

Insurance, Co. The insurance policies stated that the insurer
shall answer for all damages due to perils of the sea. One of
the insured's ship, the MV Dona Priscilla, ran aground in the
Panama Canal when its engine pipes leaked and the oil
seeped into the cargo compartment. The leakage was caused
by the extensive mileage that the ship had accumulated.
May the insurer be made to answer for the damage to the
cargo and the ship?

(17) In a contract of carriage, the common carrier is liable

for the injury or death of a passenger resulting from its
employees fault although the latter acted beyond the scope
of his authority. This is based on the
(A) rule that the carrier has an implied duty to
transport the passenger safely.
(B) rule that the carrier has an express duty to
transport the passenger safely
(C) Doctrine of Respondeat Superior.
(D) rule in culpa aquiliana.
(18) A holder in due course holds the instrument free from
any defect of title of prior parties and free from defenses
available to prior parties among themselves. An example of
such a defense is -

(A) regardless of any depreciation or appreciation

in the share's fair value.

(A) Yes, because the insurance policy covered any

or all damage arising from perils of the sea.
(B) Yes, since there appears to have been no fault
on the part of the shipowner and shipcaptain.
(C) No, since the proximate cause of the damage
was the breach of warranty of seaworthiness of the
ship.
(D) No, since the proximate cause of the damage
was due to ordinary usage of the ship, and thus not
due to a peril of the sea.

(A) fraud in inducement.

(B) duress amounting to forgery.
(C) fraud in esse contractus.
(D) alteration.
(19) In elections for the Board of Trustees of non-stock
corporations, members may cast as many votes as there are
trustees to be elected but may not cast more than one vote
for one candidate. This is true -

(22) X has been a long-time household helper of Z. X's

husband, Y, has also been Z's long-time driver. May Z insure
the lives of both X and Y with Z as beneficiary?
(A) Yes, since X and Y render services to Z.
(B) No, since X and Y have no pecuniary interest
on the life of Z arising from their employment with
him.

(C) No, since Z has no pecuniary interest in the

lives of X and Y arising from their employment
with him.
(D) Yes, since X and Y are Zs employees.
(23) X, Co., a partnership, is composed of A (capitalist
partner), B (capitalist partner) and C (industrial partner). If
you were partner A, who between B and C would you have
an insurable interest on, such that you may then insure him?
(A) No one, as there is merely a partnership
contract among A, B and C.
(B) Both B and C, as they are your partners.

(D) at any time before the policy becomes

effective.
(27) T, the captain of MV Don Alan, while asleep in his
cabin, dreamt of an Intensity 8 earthquake along the path of
his ship. On waking up, he immediately ordered the ship to
return to port. True enough, the earthquake and tsunami
struck three days later and his ship was saved. Was the
deviation proper?
(A) Yes, because the deviation was made in good
faith and on a reasonable ground for believing that
it was necessary to avoid a peril.
(B) No, because no reasonable ground for avoiding
a peril existed at the time of the deviation.

(C) Only C, as he is an industrial partner.

(D) Only B, as he is a capitalist partner.
(24) X is the holder of an instrument payable to him (X) or
his order, with Y as maker. X then indorsed it as follows:
"Subject to no recourse, pay to Z. Signed, X." When Z went
to collect from Y, it turned out that Y's signature was forged.
Z now sues X for collection. Will it prosper?
(A) Yes, because X, as a conditional indorser,
warrants that the note is genuine.
(B) Yes, because X, as a qualified indorser,
warrants that the note is genuine.

(C) No, because T relied merely on his supposed

gift of prophecy.
(D) Yes, because the deviation took place based on
a reasonable belief of the captain.
(28) X, drawee of a bill of exchange, wrote the words:
"Accepted, with promise to make payment within two days.
Signed, X." The drawer questioned the acceptance as
invalid. Is the acceptance valid?
(A) Yes, because the acceptance is in reality a clear
assent to the order of the drawer to pay.

(C) No, because X made a qualified indorsement.

(B) Yes, because the form of the acceptance is

really immaterial.

(D) No, because a qualified indorsement does not

include the warranty of genuineness.

(C) No, because the acceptance must be a clear

assent to the order of the drawer to pay.

(25) A bill of exchange has T for its drawee, U as drawer,

and F as holder. When F went to T for presentment, F
learned that T is only 15 years old. F wants to recover from
U but the latter insists that a notice of dishonor must first be
made, the instrument being a bill of exchange. Is he correct?

(D) No, because the document must not express

that the drawee will perform his promise within
two days.

(A) Yes, since a notice of dishonor is essential to

charging the drawer.
(B) No, since T can waive the requirement of
notice of dishonor.

(29) X came up with a new way of presenting a telephone

directory in a mobile phone, which he dubbed as the "iTel"
and which uses lesser time for locating names and telephone
numbers. May X have his "iTel" copyrighted in his name?
(A) No, because it is a mere system or method.
(B) Yes, because it is an original creation.

(C) No, since F can treat U as maker due to the

minority of T, the drawee.
(D) Yes, since in a bill of exchange, notice of
dishonor is at all times required.
(26) An insured, who gains knowledge of a material fact
already after the effectivity of the insurance policy, is not
obliged to divulge it. The reason for this is that the test of
concealment of material fact is determined
(A) at the time of the issuance of the policy.
(B) at any time before the payment of premium.
(C) at the time of the payment of the premium.

(C) Yes, because it entailed the application of X's

intellect.
(D) No, because it did not entail any application of
X's intellect.
(30) D, debtor of C, wrote a promissory note payable to the
order of C. C's brother, M, misrepresenting himself as Cs
agent, obtained the note from D, then negotiated it to N after
forging C's signature. N indorsed it to E, who indorsed it to
F, a holder in due course. May F recover from E?
(A) No, since the forgery of C's signature results in
the discharge of E.

(B) Yes, since only the forged signature is

inoperative and E is bound as indorser.
(C) No, since the signature of C, the payee, was
forged.
(D) Yes, since the signature of C is immaterial, he
being the payee.

(35) EFG Foundation, Inc., a non-profit organization,

scheduled an election for its six-member Board of Trustees.
X, Y and Z, who are minority members of the foundation,
wish to exercise cumulative voting in order to protect their
interest, although the Foundation's Articles and By-laws are
silent on the matter. As to each of the three, what is the
maximum number of votes that he/she can cast?
(A) 6

(31) A material alteration of an instrument without the

assent of all parties liable thereon results in its avoidance,
EXCEPT against a

(B) 9
(C) 12

(A) prior indorsee.

(D) 3
(B) subsequent acceptor.
(C) subsequent indorser.
(D) prior acceptor.
(32) X constituted a chattel mortgage on a car (valued at
Php1 Million pesos) to secure a P500,000.00 loan. For the
mortgage to be valid, X should have
(A) the right to mortgage the car to the extent of
half its value.

(36) If the drawer and the drawee are the same person, the
holder may present the instrument for payment without need
of a previous presentment for acceptance. In such a case, the
holder treats it as a
(A) non-negotiable instrument.
(B) promissory note.
(C) letter of credit.
(D) check.

(B) ownership of the car.

(C) unqualified free disposal of his car.
(D) registered the car in his name.
(33) B borrowed Php1 million from L and offered to him his
BMW car worth Php1 Million as collateral. B then executed
a promissory note that reads: "I, B, promise to pay L or
bearer the amount of Php1 Million and to keep my BMW
car (loan collateral) free from any other encumbrance.
Signed, B." Is this note negotiable?

(37) D draws a bill of exchange that states: "One month

from date, pay to B or his order Php100,000.00. Signed, D."
The drawee named in the bill is E. B negotiated the bill to
M, M to N, N to O, and O to P. Due to non-acceptance and
after proceedings for dishonor were made, P asked O to pay,
which O did. From whom may O recover?
(A) B, being the payee
(B) N, as indorser to O
(C) E, being the drawee

(A) Yes, since it is payable to bearer.

(D) D, being the drawer
(B) Yes, since it contains an unconditional promise
to pay a sum certain in money.
(C) No, since the promise to just pay a sum of
money is unclear.
(D) No, since it contains a promise to do an act in
addition to the payment of money.
(34) A bank can be placed under receivership when, if
allowed to continue in business, its depositors or creditors
would incur

(38) T, an associate attorney in XYZ Law Office, wrote a

newspaper publisher a letter disputing a columnists claim
about an incident in the attorneys family. T used the law
firms letterhead and its computer in preparing the letter. T
also requested the firms messenger to deliver the letter to
the publisher. Who owns the copyright to the letter?
(A) T, since he is the original creator of the
contents of the letter.
(B) Both T and the publisher, one wrote the letter to
the other who has possession of it.

(A) probable losses

(B) inevitable losses

(C) The law office since T was an employee and he

wrote it on the firms letterhead.

(C) possible losses

(D) The publisher to whom the letter was sent.

(D) a slight chance of losses

(39) E received goods from T for display and sale in E's

store. E was to turn over to T the proceeds of any sale and
return the ones unsold. To document their agreement, E

executed a trust receipt in Ts favor covering the goods.

When E failed to turn over the proceeds from his sale of the
goods or return the ones unsold despite demand, he was
charged in court for estafa. E moved to dismiss on the
ground that his liability is only civil. Is he correct?

written notice to satisfy his lien, the sale of the 100 sacks of
corn is
(A) voidable.
(B) rescissible.

(A) No, since he committed fraud when he

promised to pay for the goods and did not.
(B) No, since his breach of the trust receipt
agreement subjects him to both civil and criminal
liability for estafa.
(C) Yes, since E cannot be charged with estafa over
goods covered a trust receipt.
(D) Yes, since it was merely a consignment sale
and the buyer could not pay.
(40) The authorized alteration of a warehouse receipt which
does not change its tenor renders the warehouseman liable
according to the terms of the receipt

(C) unenforceable.
(D) void.
(44) On June 1, 2011, X mailed to Y Insurance, Co. his
application for life insurance, with payment for 5 years of
premium enclosed in it. On July 21, 2011, the insurance
company accepted the application and mailed, on the same
day, its acceptance plus the cover note. It reached X's
residence on August 11, 2011. But, as it happened, on
August 4, 2011, X figured in a car accident. He died a day
later. May X's heirs recover on the insurance policy?
(A) Yes, since under the Cognition Theory, the
insurance contract was perfected upon acceptance
by the insurer of X's application.

(A) in its original tenor if the alteration is material.

(B) in its original tenor.
(C) as altered if there is fraud.

(B) No, since there is no privity of contract

between the insurer and Xs heirs.
(C) No, since X had no knowledge of the insurer's
acceptance of his application before he died.

(D) as altered.
(41) Any agreement binding upon the holder to extend the
time of payment or to postpone the holder's right to enforce
the instrument results in the discharge of the party
secondarily liable unless made with the latter's consent. This
agreement refers to one which the holder made with the
(A) principal debtor.

(D) Yes, since under the Manifestation Theory, the

insurance contract was perfected upon acceptance
of the insurer of X's application.
(45) A bill of exchange has D as drawer, E as drawee and F
as payee. The bill was then indorsed to G, G to H, and H to
I. I, the current holder presented the bill to E for acceptance.
E accepted but, as it later turned out, D is a fictitious person.
Is E freed from liability?

(B) principal creditor.

(C) secondary creditor.
(D) secondary debtor.
(42) Upon execution of a trust receipt over goods, the party
who is obliged to release such goods and who retains
security interest on those goods, is called the
(A) holder.

(A) No, since by accepting, E admits the existence

of the drawer.
(B) No, since by accepting, E warrants that he is
solvent.
(C) Yes, if E was not aware of that fact at the time
of acceptance.
(D) Yes, since a bill of exchange with a fictitious
drawer is void and inexistent.

(B) shipper.
(C) entrustee.
(D) entrustor.
(43) X, warehouseman, sent a text message to Y, to whom X
had issued a warehouse receipt for Y's 500 sacks of corn,
notifying him of the due date and time to settle the storage
fees. The message stated also that if Y does not settle the
warehouse charges within 10 days, he will advertise the
goods for sale at a public auction. When Y ignored the
demand, X sold 100 sacks of corn at a public auction. For
Xs failure to comply with the statutory requirement of

(46) Due to his debt to C, D wrote a promissory note which

is payable to the order of C. C's brother, M, misrepresenting
himself as agent of C, obtained the note from D. M then
negotiated the note to N after forging the signature of C.
May N enforce the note against D?
(A) Yes, since D is the principal debtor.
(B) No, since the signature of C was forged.
(C) No, since it is C who can enforce it, the note
being payable to the order of C.

(D) Yes, since D, as maker, is primarily liable on

the note.

(B) Feb. 1, 2011.

(C) May 17, 2011.

(47) T Corp. has a corporate term of 20 years under its

Articles of Incorporation or from June 1, 1980 to June 1,
2000. On June 1, 1991 it amended its Articles of
Incorporation to extend its life by 15 years from June 1,
1980 to June 1, 2015. The SEC approved this amendment.
On June 1, 2011, however, T Corp decided to shorten its
term by 1 year or until June 1, 2014. Both the 1991 and
2011 amendments were approved by majority vote of its
Board of Directors and ratified in a special meeting by its
stockholders representing at least 2/3 of its outstanding
capital stock. The SEC, however, disapproved the 2011
amendment on the ground that it cannot be made earlier
than 5 years prior to the expiration date of the corporate
term, which is June 1, 2014. Is this SEC disapproval
correct?
(A) No, since the 5-year rule on amendment of
corporate term applies only to extension, not to
shortening, of term.
(B) Yes, any amendment affecting corporate term
cannot be made earlier than 5 years prior to the
corporations expiration date.
(C) No, since a corporation can in fact have a
corporate life of 50 years.
(D) Yes, the amendment to shorten corporate term
cannot be made earlier than 5 years prior to the
corporations expiration date.
(48) B, while drunk, accepted a passenger in his taxicab. B
then drove the taxi recklessly, and inevitably, it crashed into
an electric post, resulting in serious physical injuries to the
passengers. The latter then filed a suit for tort against B's
operator, A, but A raised the defense of having exercised
extraordinary diligence in the safety of the passenger. Is his
defense tenable?

(D) Nov. 21, 2011.

(50) M, the maker, issued a promissory note to P, the payee
which states: "I, M, promise to pay P or order the amount of
Php1 Million. Signed, M." P negotiated the note by
indorsement to N, then N to O also by indorsement, and O
to Q, again by indorsement. But before O indorsed the note
to Q, O's wife wrote the figure "2" on the note after "Php1"
without O's knowledge, making it appear that the note is for
Php12 Million. For how much is O liable to Q?
(A) Php1 Million since it is the original tenor of the
note.
(B) Php1 Million since he warrants that the note is
genuine and in all respects what it purports to be.
(C) Php12 Million since he warrants his solvency
and that he has a good title to the note.
(D) Php12 Million since he warrants that the note
is genuine and in all respects what it purports to be.
(51) X Corp., whose business purpose is to manufacture and
sell vehicles, invested its funds in Y Corp., an investment
firm, through a resolution of its Board of Directors. The
investment grew tremendously on account of Y Corp.'s
excellent business judgment. But a minority stockholder in
X Corp. assails the investment as ultra vires. Is he right and,
if so, what is the status of the investment?
(A) Yes, it is an ultra vires act of the corporation
itself but voidable only, subject to stockholders
ratification.
(B) Yes, it is an ultra vires act of its Board of
Directors and thus void.

(A) Yes, as a common carrier can rebut the

presumption of negligence by raising such a
defense.

(C) Yes, it is an ultra vires act of its Board of

Directors but voidable only, subject to
stockholders ratification.

(B) No, as in tort actions, the proper defense is due

diligence in the selection and supervision of the
employee by the employer.

(D) Yes, it is an ultra vires act of the corporation

itself and, consequently, void.

(C) No, as B, the common carrier's employee, was

obviously negligent due to his intoxication.
(D) Yes, as a common carrier can invoke
extraordinary diligence in the safety of passengers
in tort cases.
(49)X is a director in T Corp. who was elected to a 1-year
term on Feb. 1, 2010. On April 11, 2010, X resigned and
was replaced by R, who assumed as director on May 17,
2010. On Nov. 21, 2010, R died. S was then elected in his
place. Until which time should S serve as director?
(A) April 11, 2011.

(52) Notice of dishonor is not required to be made in all

cases. One instance where such notice is not necessary is
when the indorser is the one to whom the instrument is
suppose to be presented for payment. The rationale here is
that the indorser
(A) already knows of the dishonor and it makes no
sense to notify him of it.
(B) is bound to make the acceptance in all cases.
(C) has no reason to expect the dishonor of the
instrument.
(D) must be made to account for all his actions.

(53) "Eagleson Refillers, Co.," a firm that sells water to the

public, opposes the trade name application of "Eagleson
Laundry, Co.," on the ground that such trade name tends to
deceive trade circles or confuse the public with respect to
the water firms registered trade name. Will the opposition
prosper?

(C) No, since no protection extends to any

discovery, even if expressed, explained, illustrated,
or embodied in a work.

(A) Yes, since such use is likely to deceive or

confuse the public.

(57) In case of disagreement between the corporation and a

withdrawing stockholder who exercises his appraisal right
regarding the fair value of his shares, a three-member group
shall by majority vote resolve the issue with finality. May
the wife of the withdrawing stockholder be named to the
threemember group?

(B) Yes, since both companies use water in

conducting their business.
(C) No, since the companies are not engaged in the
same line of business.
(D) No, since the root word "Eagle" is a generic
name not subject to registration.
(54) For a constructive total loss to exist in marine
insurance, it is required that the person insured relinquish
his interest in the thing insured. This relinquishment must be
(A) actual.

(D) Yes, since Ys article failed to make any

attribution to X.

(A) No, the wife of the withdrawing shareholder is

not a disinterested person.
(B) Yes, since she could best protect her husband's
shareholdings.
(C) Yes, since the rules do not discriminate against
wives.
(D) No, since the stockholder himself should sit in
the three-member group.

(B) constructive first and if it fails, then actual.

(C) either actual or constructive.

(58) Apart from economic rights, the author of a copyright

also has moral rights which he may transfer by way of
assignment. The term of these moral rights shall last

(D) constructive.
(55) The Corporation Code sanctions a contract between
two or more corporations which have interlocking directors,
provided there is no fraud that attends it and it is fair and
reasonable under the circumstances. The interest of an
interlocking director in one corporation may be either
substantial or nominal. It is nominal if his interest:
(A) does not exceed 25% of the outstanding capital
stock.
(B) exceeds 25% of the outstanding capital stock.
(C) exceeds 20% of the outstanding capital stock.
(D) does not exceed 20% of the outstanding capital
stock.
(56) X, an amateur astronomer, stumbled upon what
appeared to be a massive volcanic eruption in Jupiter while
peering at the planet through his telescope. The following
week, X, without notes, presented a lecture on his findings
before the Association of Astronomers of the Philippines. To
his dismay, he later read an article in a science journal
written by Y, a professional astronomer, repeating exactly
what X discovered without any attribution to him. Has Y
infringed on X's copyright, if any?
(A) No, since X did not reduce his lecture in
writing or other material form.
(B) Yes, since the lecture is considered Xs original
work.

(A) during the author's lifetime and for 50 years

after his death.
(B) forever.
(C) 50 years from the time the author created his
work.
(D) during the author's lifetime.
(59) Which of the following indorsers expressly warrants in
negotiating an instrument that 1) it is genuine and true; 2) he
has a good title to it; 3) all prior parties have capacity to
negotiate; and 4) it is valid and subsisting at the time of his
indorsement?
(A) The irregular indorser.
(B) The regular indorser.
(C) The general indorser.
(D) The qualified indorser.
(60) Where the insurer was made to pay the insured for a
loss covered by the insurance contract, such insurer can run
after the third person who caused the loss through
subrogation. What is the basis for conferring the right of
subrogation to the insurer?
(A) Their express stipulation in the contract of
insurance.
(B) The equitable assignment that results from the
insurers payment of the insured.

(C) The insureds formal assignment of his right to

indemnification to the insurer.

(D) with acceptance but the bill is paid by the

drawer.

(D) The insureds endorsement of its claim to the

insurer.

(64) If an insurance policy prohibits additional insurance on

the property insured without the insurer's consent, such
provision being valid and reasonable, a violation by the
insured

(61) X invented a device which, through the use of noise,

can recharge a cellphone battery. He applied for and was
granted a patent on his device, effective within the
Philippines. As it turns out, a year before the grant of X's
patent, Y, also an inventor, invented a similar device which
he used in his cellphone business in Manila. But X files an
injunctive suit against Y to stop him from using the device
on the ground of patent infringement. Will the suit prosper?
(A) No, since the correct remedy for X is a civil
action for damages.
(B) No, since Y is a prior user in good faith.
(C) Yes, since X is the first to register his device
for patent registration.
(D) Yes, since Y unwittingly used Xs patented
invention.
(62) P, a sales girl in a flower shop at the Ayala Station of
the Metro Rail Transit (MRT) bought two tokens or tickets,
one for her ride to work and another for her ride home. She
got to her flower shop where she usually worked from 8
a.m. to 5 p.m. At about 3 p.m., while P was attending to her
duties at the flower shop, two crews of the MRT got into a
fight near the flower shop, causing injuries to P in the
process. Can P sue the MRT for contractual breach as she
was within the MRT premises where she would shortly take
her ride home?
(A) No, since the incident took place, not in an
MRT train coach, but at the MRT station.
(B) No, since P had no intention to board an MRT
train coach when the incident occured.
(C) Yes, since she already had a ticket for her ride
home and was in the MRTs premises at the time of
the incident.
(D) Yes, since she bought a round trip ticket and
MRT had a duty while she was at its station to keep
her safe for her return trip.
(63) Forgery of bills of exchange may be subdivided into, a)
forgery of an indorsement on the bill and b) forgery of the
drawer's signature, which may either be with acceptance by
the drawee, or
(A) with acceptance but the bill is paid by the
drawee.
(B) without acceptance but the bill is paid by the
drawer.
(C) without acceptance but the bill is paid by the
drawee.

(A) reduces the value of the policy.

(B) avoids the policy.
(C) offsets the value of the policy with the
additional insurancess value.
(D) forfeits premiums already paid.
(65) X found a check on the street, drawn by Y against ABC
Bank, with Z as payee. X forged Z's signature as an
indorser, then indorsed it personally and delivered it to DEF
Bank. The latter, in turn, indorsed it to ABC Bank which
charged it to the Ys account. Y later sued ABC Bank but it
set up the forgery as its defense. Will it prosper?
(A) No, since the payee's signature has been
forged.
(B) No, since Ys remedy is to run after the forger,
X.
(C) Yes, since forgery is only a personal defense.
(D) Yes, since ABC Bank is bound to know the
signature of Y, its client.
(66) The rule is that no stock dividend shall be issued
without the approval of stockholders representing at least
2/3 of the outstanding capital stock at a regular or special
meeting called for the purpose. As to other forms of
dividends:
(A) a mere majority of the entire Board of
Directors applies.
(B) a mere majority of the quorum of the Board of
Directors applies.
(C) a mere majority of the votes of stockholders
representing the outstanding capital stock applies.
(D) the same rule of 2/3 votes applies.
(67) X, at Ys request, executed a Real Estate Mortgage
(REM) on his (Xs) land to secure Y's loan from Z. Z
successfully foreclosed the REM when Y defaulted on the
loan but half of Y's obligation remained unpaid. May Z sue
X to enforce his right to the deficiency?
(A) Yes, but solidarily with Y.
(B) Yes, since Xs is deemed to warrant that his
land would cover the whole obligation.
(C) No, since it is the buyer at the auction sale who
should answer for the deficiency.

(D) No, because X is not Zs debtor.

(68) May a publicly listed universal bank own 100% of the
voting stocks in another universal bank and in a commercial
bank?
(A) Yes, if with the permission of the Bangko
Sentral ng Pilipinas.
(B) No, since it has no power to invest in equities.

(D) limited to the case where the indorsement is

necessary to his title.
(73) X, in the hospital for kidney dysfunction, was about to
be discharged when he met his friend Y. X told Y the reason
for his hospitalization. A month later, X applied for an
insurance covering serious illnesses from ABC Insurance,
Co., where Y was working as Corporate Secretary. Since X
had already told Y about his hospitalization, he no longer
answered a question regarding it in the application form.
Would this constitute concealment?

(C) Yes, as there is no prohibition on it.

(D) No, since under the law, the 100% ownership
on voting stocks must be in either bank only.
(69) Perils of the ship, under marine insurance law, refer to
loss which in the ordinary course of events results from
(A) natural and inevitable actions of the sea.
(B) natural and ordinary actions of the sea.
(C) unnatural and inevitable actions of the sea.
(D) unnatural and ordinary actions of the sea.
(70) Under the Intellectual Property Code, lectures,
sermons, addresses or dissertations prepared for oral
delivery, whether or not reduced in writing or other material
forms, are regarded as

(A) Yes, since the previous hospitalization would

influence the insurer in deciding whether to grant
X's application.
(B) No, since Y may be regarded as ABCs agent
and he already knew of Xs previous
hospitalization.
(C) Yes, it would constitute concealment that
amounts to misrepresentation on X's part.
(D) No, since the previous illness is not a material
fact to the insurance coverage.
(74) Several American doctors wanted to set up a group
clinic in the Philippines so they could render modern
medical services. If the clinic is to be incorporated under our
laws, what is the required foreign equity participation in
such a corporation?

(A) non-original works.

(A) 40%

(B) original works.

(B) 0%

(C) derivative works.

(C) 60%

(D) not subject to protection.

(D) 70%

(71) Can a drawee who accepts a materially altered check

recover from the holder and the drawer?
(A) No, he cannot recover from either of them.
(B) Yes from both of them.
(C) Yes but only from the drawer.
(D) Yes but only from the holder.
(72) The rule is that the intentional cancellation of a person
secondarily liable results in the discharge of the latter. With
respect to an indorser, the holder's right to cancel his
signature is:
(A) without limitation.
(B) not limited to the case where the indorsement is
necessary to his title.
(C) limited to the case where the indorsement is not
necessary to his title.

(75) X executed a promissory note in favor of Y by way of

accommodation. It says: "Pay to Y or order the amount of
Php50,000.00. Signed, X." Y then indorsed the note to Z,
and Z to T. When T sought collection from Y, the latter
countered as indorser that there should have been a
presentment first to the maker who dishonors it. Is Y
correct?
(A) No, since Y is the real debtor and thus, there is
no need for presentment for payment and dishonor
by the maker.
(B) Yes, since as an indorser who is secondarily
liable, there must first be presentment for payment
and dishonor by the maker.
(C) No, since the absolute rule is that there is no
need for presentment for payment and dishonor to
hold an indorser liable.
(D) Yes, since the secondary liability of Y and Z
would only arise after presentment for payment and
dishonor by the maker.

(76) The Board of Directors of XYZ Corp. unanimously

passed a Resolution approving the taking of steps that in
reality amounted to willful tax evasion. On discovering this,
the government filed tax evasion charges against all the
companys members of the board of directors. The directors
invoked the defense that they have no personal liability,
being mere directors of a fictional being. Are they correct?
(A) No, since as a rule only natural persons like the
members of the board of directors can commit
corporate crimes.
(B) Yes, since it is the corporation that did not pay
the tax and it has a personality distinct from its
directors.
(C) Yes, since the directors officially and
collectively performed acts that are imputable only
to the corporation.

for safekeeping only. B negotiated it, however, to F who

bought it in good faith and for value. Who is entitled to the
delivery of the refrigerators?
(A) T, since he is the real owner of the
refrigerators.
(B) F, since he is a purchaser in good faith and for
value.
(C) B, since T entrusted the receipt to him.
(D) W, since he has as a warehouseman a lien on
the goods.
(80) The Articles of Incorporation must be accompanied by
a Treasurer's Affidavit certifying under oath, among others,
that the total subscription paid is:
(A) not less than P25,000.00.

(D) No, since the law makes directors of the

corporation solidarily liable for gross negligence
and bad faith in the discharge of their duties.
(77) T is the registered trademark owner of "CROCOS"
which he uses on his ready-to-wear clothes. Banking on the
popularity of T's trade mark, B came up with his own
"CROCOS" mark, which he then used for his "CROCOS"
burgers. T now sues B for trademark infringement but B
argues that his product is a burger, hence, there is no
infringement. Is B correct?
(A) No, since the owner of a well-known mark
registered in the Philippines has rights that extends
even to dissimilar kinds of goods.
(B) Yes, since the right of the owner of a wellknown mark registered in the Philippines does not
extend to goods which are not of the same kind.
(C) Yes, as B was in bad faith in coming up with
his own "CROCOS" mark.
(D) No, since unlike T, he did not register his own
"CROCOS" mark for his product.
(78) A, the proprietor of a fleet of ten taxicabs, decides to
adopt, as his business name, "A Transport Co., Inc." May
this be allowed?
(A) No, it would be deceptive since he is a
proprietor, not a corporation.
(B) No, since "A" is a generic name, not suitable
for registration.
(C) Yes, since his line of business is public
transportation.

(B) not more than P5,000.00.

(C) RIGHT ANSWER not less than P5,000.00.
(D) not more than P25,000.00.
(81) In a special meeting called for the purpose, 2/3 of the
stockholders representing the outstanding capital stock in X.
Co. authorized the company's Board of Directors to amend
its By-laws. By majority vote, the Board then approved the
amendment. Is this amendment valid?
(A) No since the stockholders cannot delegate their
right to amend the By-laws to the Board.
(B) Yes since the majority votes in the Board was
sufficient to amend the By-laws.
(C) No, because the voting in the Board should
have been by majority of a quorum.
(D) Yes since the votes of 2/3 of the stockholders
and majority of the Board were secured.
(82) A group of Malaysians wanted to invest in the
Philippines insurance business. After negotiations, they
agreed to organize "FIMA Insurance Corp." with a group of
Filipino businessmen. FIMA would have a PhP50 Million
paid up capital, PhP40 Million of which would come from
the Filipino group. All corporate officers would be Filipinos
and 8 out of its 10-member Board of Directors would be
Filipinos. Can FIMA operate an insurance business in the
Philippines?
(A) No, since an insurance company must have at
least PhP75 Million paid-up capital.

(D) Yes, since such name would give his business a

corporate identity.

(B) Yes, since there is substantial compliance with

our nationalization laws respecting paid-up capital
and Filipino dominated Board of Directors.

(79) T delivers two refrigerators to the warehouse of W who

then issues a negotiable receipt undertaking the delivery of
the refrigerators to "T or bearer." T entrusted the receipt to B

(C) Yes, since FIMAs paid up capital more than

meets the countrys nationalization laws.

(D) No, since an insurance company should be

100% owned by Filipinos.
(83) Under the Public Service Act, an administrative agency
has the power to approve provisionally the rates of public
utilities without a hearing in case of urgent public needs.
The exercise of this power is
(A) supervisory.
(B) absolute.

(D) Yes, since he is a holder in due course and P

and M were not aware of the law that prohibited
the sale of gecko.
(87) P authorized A to sign a bill of exchange in his (Ps)
name. The bill reads: "Pay to B or order the sum of Php1
million. Signed, A (for and in behalf of P)." The bill was
drawn on P. B indorsed the bill to C, C to D, and D to E.
May E treat the bill as a promissory note?
(A) No, because the instrument is payable to order
and has been indorsed several times.

(C) discretionary.
(D) mandatory.
(84) X, creditor of Y, obtained a judgment in his favor in
connection with Y's unpaid loan to him. The court's sheriff
then levied on the goods that Y stored in T's warehouse, for
which the latter issued a warehouse receipt. A month before
the levy, however, Z bought the warehouse receipt for value.
Who has a better right over the goods?
(A) T, being the warehouseman with a lien on the
goods
(B) Z, being a purchaser for value of the warehouse
receipt

(B) Yes, because the drawer and drawee are one

and the same person.
(C) No, because the instrument is a bill of
exchange.
(D) Yes, because A was only an agent of P.
(88) Z wrote out an instrument that states: "Pay to X the
amount of Php1 Million for collection only. Signed, Z." X
indorsed it to his creditor, Y, to whom he owed Php1
million. Y now wants to collect and satisfy X's debt through
the Php1 million on the check. May he validly do so?
(A) Yes, since the indorsement to Y is for Php1
Million.

(C) X, being Ys judgment creditor

(D) Y, being the owner of the goods

(B) No, since Z is not a party to the loan between X

and Y.

(85) A promissory note states, on its face: "I, X, promise to

pay Y the amount of Php 5,000.00 five days after
completion of the on-going construction of my house.
Signed, X." Is the note negotiable?

(C) No, since X is merely an agent of Z, his only

right being to collect.

(A) Yes, since it is payable at a fixed period after

the occurrence of a specified event.

(89) X Shipping, Co., insured its vessel MV Don Teodoro

for Php100 Million with ABC Insurance, Co. through T, an
agent of X Shipping. During a voyage, the vessel
accidentally caught fire and suffered damages estimated at
Php80 Million. T personally informed ABC Insurance that X
Shipping was abandoning the ship. Later, ABC insurance
denied X Shippings claim for loss on the ground that a
notice of abandonment through its agent was improper. Is
ABC Insurance right?

(B) No, since it is payable at a fixed period after

the occurrence of an event which may not happen.
(C) Yes, since it is payable at a fixed period or
determinable future time.
(D) No, since it should be payable at a fixed period
before the occurrence of a specified event.
(86) P sold to M a pair of gecko (tuko) for Php50,000.00. M
then issued a promissory note to P promising to pay the
money within 90 days. Unknown to P and M, a law was
passed a month before the sale that prohibits and declares
void any agreement to sell gecko in the country. If X
acquired the note in good faith and for value, may he
enforce payment on it?
(A) No, since the law declared void the contract on
which the promissory note was founded.
(B) No, since it was not X who bought the gecko.
(C) Yes, since he is a holder in due course of a note
which is distinct from the sale of gecko.

(D) Yes, since X owed Y Php1 Million.

(A) Yes, since X Shipping should have ratified its

agents action.
(B) No, since T, as agent of X Shipping who
procured the insurance, can also give notice of
abandonment for his principal.
(C) Yes, since only the agent of X Shipping relayed
the fact of abandonment.
(D) No, since in the first place, the damage was
more than of the ship's value.
(90) A law was passed disqualifying former members of
Congress from sitting in the Board of Directors of
government-owned or controlled corporations. Because of
this, the Board of Directors of ABC Corp., a government-

owned and controlled corporation, disqualified C, a former

Congressman, from continuing to sit as one of its members.
C objected, however, insisting that under the Corporation
Code members of the board of directors of corporations may
only be removed by vote of stockholders holding 2/3 of its
outstanding capital stock in a regular or special meeting
called for that purpose. Is C correct?
(A) Yes, since the new law cannot be applied to
members of the board of directors already elected
prior to its passage.
(B) No, since the disqualification takes effect by
operation of law, it is sufficient that he was
declared no longer a member of the board.
(C) Yes, since the provisions of the Corporation
Code applies as well to government-owned and
controlled corporations.
(D) No, since the board has the power to oust him
even without the new law.
(91) 002-38-0001 G, a grocery goods supplier, sold 100
sacks of rice to H who promised to pay once he has sold all
the rice. H meantime delivered the goods to W, a
warehouseman, who issued a warehouse receipt. Without
the knowledge of G and W, H negotiated the receipt to P
who acquired it in good faith and for value. P then claimed
the goods from W, who released them. After the rice was
loaded on a ship bound for Manila, G invokes his right to
stop the goods in transit due to his unpaid lien. Who has a
better right to the rice?
(A) RIGHT ANSWER P, since he has superior
rights as a purchaser for value and in good faith.
(B) P, regardless of whether or not he is a purchaser
for value and in good faith.
(C) G, since as an unpaid seller, he has the right of
stoppage in transitu.
(D) W, since it appears that the warehouse charges
have not been paid.
(92) In a signature by procuration, the principal is bound
only in case the agent acted within the actual limits of his
authority. The signature of the agent in such a case operates
as notice that he has
(A) a qualified authority to sign.

(A) Yes, since all the elements of an insurance

contract are present.
(B) Yes, since X services may be regarded as the
consideration.
(C) No, since Y actually made a conditional
donation in Xs favor.
(D) No, since it is in fact an innominate contract
between X and Y.
(94) A bill of exchange states on its face: "One (1) month
after sight, pay to the order of Mr. R the amount of
Php50,000.00, chargeable to the account of Mr. S. Signed,
Mr. T." Mr. S, the drawee, accepted the bill upon
presentment by writing on it the words "I shall pay
Php30,000.00 three (3) months after sight." May he accept
under such terms, which varies the command in the bill of
exchange?
(A) Yes, since a drawee accepts according to the
tenor of his acceptance.
(B) No, since, once he accepts, a drawee is liable
according to the tenor of the bill.
(C) Yes, provided the drawer and payee agree to
the acceptance.
(D) No, since he is bound as drawee to accept the
bill according to its tenor.
(95) May the indorsee of a promissory note indorsed to him
"for deposit" file a suit against the indorser?
(A) Yes, as long as the indorser received value for
the restrictive indorsement.
(B) Yes, as long as the indorser received value for
the conditional indorsement.
(C) Yes, whether or not the indorser received value
for the conditional indorsement.
(D) Yes, whether or not the indorser received value
for the restrictive indorsement.
(96) X issued a check in favor of his creditor, Y. It reads: "
Pay to Y the amount of Seven Thousand Hundred Pesos
(Php700,000.00). Signed, X". What amount should be
construed as true in such a case?

(B) a limited authority to sign.

(A) Php700,000.00.

(C) a special authority to sign.

(B) Php700.00.

(D) full authority to sign.

(C) Php7,000.00.

(93) In return for the 20 years of faithful service of X as a

househelper to Y, the latter promised to pay Php100,000.00
to Xs heirs if he (X) dies in an accident by fire. X agreed. Is
this an insurance contract?

(D) Php700,100.00.
(97) Shipowner X, in applying for a marine insurance policy
from ABC, Co., stated that his vessel usually sails middle of
August and with normally 100 tons of cargo. It turned out
later that the vessel departed on the first week of September

and with only 10 tons of cargo. Will this avoid the policy
that was issued?
(A) Yes, because there was breach of implied
warranty.
(B) No, because there was no intent to breach an
implied warranty.
(C) Yes, because it relates to a material
representation.
(D) No, because there was only representation of
intention.
(98) The Articles of Incorporation of ABC Transport Co., a
public utility, provides for ten (10) members in its Board of
Directors. What is the prescribed minimum number of
Filipino citizens in its Board?
(A) 10
(B) 6
(C) 7
(D) 5
(99) P authorized A to sign a negotiable instrument in his
(Ps) name. It reads: "Pay to B or order the sum of Php1
million. Signed, A (for and in behalf of P)." The instrument
shows that it was drawn on P. B then indorsed to C, C to D,
and D to E. E then treated it as a bill of exchange. Is
presentment for acceptance necessary in this case?
(A) No, since the drawer and drawee are the same
person.
(B) No, since the bill is non-negotiable, the drawer
and drawee being the same person.
(C) Yes, since the bill is payable to order,
presentment is required for acceptance.
(D) Yes, in order to hold all persons liable on the
bill.
(100) The corporate term of a stock corporation is that
which is stated in its Articles of Incorporation. It may be
extended or shortened by an amendment of the Articles
when approved by majority of its Board of Directors and:
(A) approved and ratified by at least 2/3 of all
stockholders.
(B) approved by at least 2/3 of the stockholders
representing the outstanding capital stock.
(C) ratified by at least 2/3 of all stockholders.
(D) ratified by at least 2/3 of the stockholders
representing the outstanding capital stock.

Letter of Credit was opened to pay for the

importation of ten (1 0) units of Mercedes Benz S
class. Upon arrival of the cars, AAA Carmakers
found out that the cars were all not in running
condition and some parts were missing. As a
consequence, AAA Carmakers instructed BBB
Banking Corporation not to allow drawdown on the
Letter of Credit. Is this legally possible?

MERCANTILE LAW
1.

2.

3.

Letters of Credit are financial devices in

commercial transactions which will ensure that the
seller of the goods is sure to be paid when he parts
with the goods and the buyer of the goods gets
control of the goods upon payment. Which
statement is most accurate?
a.

The use of the Letter of Credit serves to

reduce the risk of nonpayment of the
purchase price in a sale transaction.

b.

The Letters of Credit can only be used

exclusively in a sales transaction.

c.

The Letters of Credit are issued for the

benefit of the seller only.

d.

(a), (b) and (c) are all correct.

No, because under the "Independence

Principle", conditions for the drawdown
on the Letters of Credit are based only on
documents, like shipping documents, and
not with the condition of the goods subject
of the importation.

b.

Yes, because the acceptance by the

importer of the goods subject of
importation is material for the drawdown
of the Letter of Credit.

c.

Yes, because under the "Independence

Principle", the seller or the beneficiary is
always assured of prompt payment if there
is no breach in the contract between the
seller and the buyer.

d.

No, because what was opened was an

irrevocable letter of credit and not a
confirmed letter of credit.

Letter of Credit which is used in non-sale

transaction, where it serves to reduce the risk of
non-performance is called a.

irrevocable letter of credit;

b.

standby letter of credit;

c.

confirmed letter of credit;

d.

None of the above.

5.

At the instance of CCC Corporation, AAA Bank

issued an irrevocable Letter of Credit in favor of
BBB Corporation. The terms of the irrevocable
Letter of Credit state that the beneficiary must
presfmt certain documents including a copy of the
Bill of Lading of the importation for the bank to
release the funds. BBB Corporation could not find
the original copy of the Bill of Lading so it instead
presented to the bank a xerox copy of the Bill of
Lading. Would you advise the bank to allow the
drawdown on theLetter of Credit?
a.

No, because the rule of strict compliance

in commercial transactions involving
letters of credit, requiring documents set
as conditions for the release of the fund
,has to be strictly corn plied with or else
funds will not be released.

b.

Yes, because an irrevocable letter of credit

means that the issuing bank undertakes to
release the fund anytime when claimed by
the beneficiary, regardless of the kind of
document presented.

c.

Yes, because the issuing bank can always

justify to CCC Corporation that xerox
copies are considered as faithful
reproduction of the original copies.

d.

4.

a.

6.

Yes, because the issuing bank really has

no discretion to determine whether the
documents presented by the beneficiary
are sufficient or not.

AAA Carmakers opened an irrevocable Letter of

Credit with BBB Banking Corporation with CCC
Cars Corporation as beneficiary. The, irrevocable

7.

For a fee, X deposited 1,000 sacks of corn in the

warehouse owned by Y. Y is in the business of
warehousing. Y issued a warehouse receipt as proof
of the possession of the 1,000 sacks of corn. The
warehouse receipt states as follows: "Deliver to X
or bearer 1,000 sacks of corn." X wanted to use the
warehouse receipt as payment of his debt in favor
of Z. How can the ownership of the goods covered
by the warehouse receipt be transferred?
a.

Negotiate the warehouse receipt by just

delivering the warehouse receipt to Z.

b.

Assign the warehouse receipt to Z to

transfer ownership of the goods.

c.

Negotiate the warehouse receipt

specifically indorsing it to Z.

d.

The warehouse receipt in this case is nonnegotiable.

by

The warehouseman, by issuing the warehouse

receipt, acknowledges that the goods are in his
possession, but he can refuse to deliver the goods
to the holder of the warehouse receipt covering the
goods if a.

the warehouse receipt covering the goods

is not presented.

b.

the lien of the warehouseman is not

satisfied.

c.

the said holder presents a materially

altered warehouse receipt.

d.

All of the above.

The legal remedy of the warehouseman in case of

conflicting claims is to ---

8.

a.

file an action for interpleader.

b.

give the goods to the first one who first

presented the warehouse receipt.

c.

use his discretion as to who he believes

has the prior right.

d.

keep the goods and appropriate them to

himself.

BBB Banking Corporation issued a Letter of Credit

in the amount of P5Million, for the purchase of five
(5) tons of corn by X. Upon arrival of the goods,
the goods were delivered to the warehouse of X.
Thereafter he was asked to sign a Trust Receipt
covering the goods. When the goods were sold, X
did not deliver the proceeds to BBB Banking
Corporation, arguing that he will need the fund for
the subsequent importation. Is there sufficient basis
to sue for criminal action?
a.

b.

c.

d.

9.

Yes, because X's failure to turn over the

proceeds to the bank is a violation of the
Trust Receipt Law.
No, because the trust receipt was signed
only after the delivery of the goods. When
the trust receipt was signed, the ownership
of the goods was already with X.
Yes, because violation of Trust Receipt
Law is mala prohibita, intention is
irrelevant.
No, because X has a valid reason not to
deliver the proceeds to BBB Banking
Corporation.

X secured a loan from BBB Bank to pay for the

importation of some dried fruits. Upon arrival of
the goods consisting of dried fruits imported by X
but before delivery to him, a trust receipt was
executed by X to cover the transfer of the dried
fruits to his possession. The dried fruits were so
saleable but instead of turning over the proceeds of
the sale, X used the funds to pay for the medical
expenses of his mother who was sick of cancer of
the bone. Which statement is most accurate?
a.

X cannot be held criminally liable because

although he did not pay the bank he used
the proceeds for a good reason.

b.

Fraud or deceit is a necessary element to

hold X criminally liable for non -payment
under the Trust Receipts Law.

c.

X can be held criminally liable under the

Trust Receipts Law regardless of the
purpose or intention for the use of the
proceeds.

d.

X cannot be held criminally liable because

the underlying obligation is one of simple
loan.

10. X is the President of AAA Products Corporation. X

signs all the Trust Receipts documents for certain
importations of the company. In the event of failure
to deliver the proceeds of the sale of the goods to
the bank, which statement is most accurate?

a.

The criminal liability will not attach to X

as President because of separate juridical
personality.

b.

For violation of Trust Receipts Law, the

law specifically provides for the
imposition of penalty upon directors I
officers of the corporation.

c.

The officer will not be held criminally

accountable because he is just signing the
trust receipt for and in behalf of the
corporation.

d.

The officer of the corporation will be held

liable provided it is clear that the officer
concerned participated in the decision not
to pay.

11. Who is the Entrustee in a Trust Receipt

arrangement?
a.

the owner of the goods;

b.

the one who holds the goods and receives

the proceeds from the sale of the goods;

c.

the person to whom goods are delivered

for sale and who bears the risk of the loss;

d.

the party who acquires security interest in

the goods.

12. Which phrase best completes the statement - In

accordance with the Trust Receipt Law, purchasers
of the goods from the Entrustee will:
a.

get the goods only as a collateral;

b.

not get good title to the goods;

c.

only get security interest over the goods;

d.

get good title to the goods.

13. X acted as an accommodation party in signing as a

maker of a promissory note. Which phrase best
completes the sentence - This means that X is liable
on the instrument to any holder for value:
a.

for as long as the holder does not know

that X is only an accommodation party.

b.

even though the holder knew all along that

X is only an accommodation party.

c.

for as long as X did not receive any

consideration
for
acting
as
accommodation party.

d.

provided X received consideration for

acting as accommodation party.

14. X issued a promissory note which states, "I

promise to pay Y or order Php100,000.00 or one
(1) unit Volvo Sedan." Which statement is most
accurate?
a.

The promissory note is negotiable because

the forms of payment are clearly stated.

b.

The promissory note is non-negotiable

because the option as to which form of
payment is with the maker.

b.

is a check issued by a manager of a bank

in the name of the bank against the bank
itself for the account of the bank.

c.

The promissory note is an invalid

instrument because there is more than one
form of payment.

c.

is like any ordinary check that needs to be

presented for payment also.

d.
d.

The promissory note can be negotiated by

way of delivery.

is better than a cashier's check in terms of

use and effect.

15. X issued a promissory note which states "I promise

to pay Y or bearer the amount of HK$50,000 on or
before December 30, 2013." Is the promissory note
negotiable?

19. Which phrase best completes the statement -- A

check which is payable to bearer is a bearer
instrument and:
a.

negotiation can be made by delivery only;

a.

No, the promissory note becomes invalid

because the amount is in foreign currency.

b.

negotiation must
indorsement;

be

by

written

b.

Yes, the promissory note is negotiable

even though the amount is stated in
foreign currency.

c.

negotiation must
indorsement;

be

by

specific

c.

No, the promissory note is not negotiable

because the amount is in foreign currency.

d.

negotiation must be by indorsement and

delivery.

d.

Yes, the promissory note is negotiable

because the Hong Kong dollar is a known
foreign currency in the Philippines.

16. X delivered a check issued by him and payable to

the order of CASH to Y in payment for certain
obligations incurred by X in favor of Y. Y then
delivered the check to Z in payment for certain
obligations. Which statement is most accurate?

20. As payment for a debt, X issued a promissory note

in favor of Y but the promissory note on its face
was marked non-negotiable. Then Y instead of
indorsing the promissory note, assigned the same in
favor of Z to whom he owed some debt also.
Which statement is most accurate?
a.

Z cannot claim payment from X on the

basis of the promissory note because it is
marked non-negotiable.

a.

Z can encash the check even though Y did

not indorse the check.

b.

Z can claim payment from X even though

it is marked non-negotiable.

b.

Z cannot encash the check for lacking in

proper endorsement.

c.

c.

Y is the only one liable because he was

the one who delivered the check to Z.

Z can claim payment from Y because

under the Negotiable Instrument Law,
negotiation and assignment is one and the
same.

d.
d.

The negotiation is not valid because the

check is an instrument payable to order.

Z can claim payment from Y only because

he was the endorser of the promissory
note.

17. A stale check is a check a.

that cannot anymore be paid although the

underlying obligation still exists.

b.

that cannot anymore be paid and the

underlying obligation under the check is
also extinguished.

c.

that can still be negotiated or indorsed so

that whoever is the holder can

d.

which has not been presented for payment

within a period of thirty (30) days.

18. In payment for his debt in favor of X, Y gave X a

Manager's Check in the amount of Php100,000
dated May 30, 2012. Which phrase best completes
the statement - A Manager's Check:
a.

is a check issued by a manager of a bank

for his own account.

21. Negotiable instruments are used as substitutes for

money, which means a.

that they can be considered legal tender.

b.

that when negotiated, they can be used to

pay indebtedness.

c.

that at all times the delivery of the

instrument is equivalent to delivery of the
cash.

d.

that at all times negotiation of the

instruments requires proper indorsement.

22. The signature of X was forged as drawer of a

check. The check was deposited in the account of Y
and when deposited was accepted by AAA Bank,
the drawee bank. Subsequently, AAA Bank found
out that the signature of X was actually forged.
Which statement is most accurate?

a.

The drawee bank can recover from Y,

because the check was deposited in his
account.

b.

The drawee bank can recover from X,

because he is the drawer even though his
signature was forged.

c.

The drawee bank is estopped from

denying the genuineness of the signature
of the X, the drawer of the check.

d.

The drawee bank can recover from Y

because as endorser he warrants the
genuineness of the signature.

23. A issued a check in the amount of Php20,000

payable to B. B endorsed the check but only to the
extent of Php1 0,000. Which statement is most
accurate?
a.

The partial indorsement is not a valid

indorsement, although will result in the
assignment of that part.

b.

The partial indorsement will invalidate the

whole instrument.

c.

The endorsee will be considered as a

holder in due course.

d.

The partial indorsement is valid

indorsement up to the extent of the
Php10,000.

24. A promissory note which does not have the words

"or order" or "or bearer" will render the promissory
note non-negotiable, and therefore -

d.

the check has become non-negotiable.

27. Y, as President of and in behalf of AAA

Corporation, as a way to accommodate X, one of
its stockholders, endorsed the check issued by X.
Which statement is most acurate?
a.

It is an ultra vires act.

b.

It is a valid indorsement.

c.

The corporation will be held liable to any

holder in due course.

d.

It is an invalid indorsement.

28. In a negotiable instrument, when the sum is

expressed both in numbers and in words and there
is discrepancy between the words and the numbers
a.

the sum expressed in words will prevail

over the one expressed in numbers.

b.

the sum expressed in numbers will prevail

over the one expressed in words.

c.

the instrument becomes void because of

the discrepancy.

d.

this will render the instrument invalid.

29. A promissory note which is undated is presumed to

be a.

dated as of the date of issue;

b.

dated as of the date of the first

indorsement;

a.

it will render the maker not liable;

b.

the note can still be assigned and the

maker made liable;

c.

promissory note is invalid because there is

no date;

c.

the holder can become holder in due

course;

d.

dated on due date.

d.

the promissory note can just be delivered

and the maker will still be liable.

30. An insurance contract is an aleatory contract,

which means that a.

the insurer will pay the insured equivalent

to the amount of the premium paid.

b.

the obligation of the insurer is to pay

depending upon the happening of an
uncertain future event.

c.

the insured pays a fixed premium for the

duration of the policy period and the
amount of the premiums paid to the
insurer is not necessarily the same amount
as what the insured will get upon the
happening of an uncertain future event.

d.

the obligation of the insurer is to pay

depending upon the happening of an event
that is certain to happen.

25. A check is a.

a bill of exchange;

b.

the same as a promissory note;

c.

is drawn by a maker;

d.

a non-negotiable instrument.

26. A check was issued to Tiger Woods. But what was

written as payee is the word "Tiger Woods". To
validly endorse the check a.

Tiger Woods must sign his real name.

b.

Tiger Woods must sign both his real name

and assumed name.

c.

Tiger Woods can sign his assumed name.

31. An Insurance Contract is a contract of adhesion,

which means that in resolving ambiguities in the
provision of the insurance contract, -

a.

b.

c.

d.

the general rule is that, the insurance

contract is to be interpreted strictly in
accordance with what is written in the
contract.

b.

35. The "incontestability clause" in a Life Insurance

Policy means ---

are to be construed liberally in favor of the

insured and strictly against the insurer
who drafted the insurance policy.

a.

that life insurance proceeds cannot be

claimed two (2) years after the death of
the insured.

are to be construed strictly against the

insured and liberally in favor of the
insurer.

b.

that two (2) years after date of issuance or

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

c.

that the insured can still claim from the

insurance policy after two (2) years even
though premium is not paid.

d.

that the insured can only claim proceeds

in a life insurance policy two (2) years
after death.

if there is an ambiguity in the insurance

contract, this will invalidate the contract.

32. X is the common law wife of Y. Y loves X so much

that he took out a life insurance on his own life and
made her the sole beneficiary. Y did this to ensure
that X will be financially comfortable when he is
gone. Upon the death of Y, a.

to the approval of the legal guardian of the

minor.

X as sole beneficiary under the life

insurance policy on the life of Y will be
entitled to the proceeds of the life
insurance.

36. For both the Life Insurance and Property Insurance,

the insurable interest is required to be -

despite the designation of X as the sole

beneficiary, the proceeds of the life
insurance will go to the estate of Y.

a.

existing at the time of perfection of the

contract and at the time of loss.

c.

the proceeds of the life insurance will go

to the compulsory heirs of Y.

b.

d.

the proceeds of the life insurance will be

divided equally amongst X and the
compulsory heirs of Y.

existing at the time of perfection and at

the time of loss for property insurance but
only at the time of perfection for life
insurance.

c.

existing at the time of perfection for

property insurance but for life insurance
both at the time of perfection and at the
time of loss.

d.

existing at the time of perfection only.

33. X, in January 30, 2009, or two (2) years before

reaching the age of 65, insured his life for
Php20Million. For reason unknown to his family,
he took his own life two (2) days after his 65th
birthday. The policy contains no excepted risk.
Which statement is most accurate?
a.

The insurer will be liable.

b.

The insurer will not be liable.

c.

The state of sanity of the insured is

relevant in cases of suicide in order to
hold the insurer liable.

d.

The state of sanity of the insured is

irrelevant in cases of suicide in order to
hold the insurer liable.

34. X, a minor, contracted an insurance on his own life.

Which statement is most accurate?

37. A house and lot is covered by a real estate

mortgage (REM) in favor of ZZZ Bank. The bank
required that the house be insured. The owner of
the policy failed to endorse nor assign the policy to
the bank. However, the Deed of Real Estate
Mortgage has an express provision which says that
the insurance policy is also endorsed with the
signing of the REM. Will this be sufficient?
a.

. No, insurance policy must be expressly

endorsed to the bank so that the bank will
have a right in the proceeds of such
insurance in the event of loss.

b.

The express provision contained in the

Deed of Real Estate Mortgage to the effect
that the policy is also endorsed is
sufficient.

a.

The life insurance policy is void ab initio.

b.

The life insurance is valid provided it is

with the consent of the beneficiary.

c.

Endorsement of Insurance Policy in any

form is not legally allowed.

c.

The life insurance policy is valid provided

the beneficiary is his estate or his parents,
or spouse or child.

d.

Endorsement of the Insurance Policy must

be in a formal document to be valid.

d.

The life insurance is valid provided the

disposition of the proceeds will be subject

38. X is a passenger of a jeepney for hire being driven

by Y. The jeepney collided with another passenger
jeepney being driven by Z who was driving
recklessly. As a result of the collision, X suffered

injuries. Both passenger jeepneys are covered by

Comprehensive Motor Vehicular Insurance
Coverage. If X wants to claim under the "no fault
indemnity clause", his claim will lie a.

against the insurer of the jeepney being

driven by Z who was the one at fault.

b.

the claim shall lie against the insurer of

the passenger jeepney driven by Y
because X was his passenger.

c.

X has a choice against whom he wants to

make his claim.

d.

None of the above.

d.

42. X, while driving his Toyota Altis, tried to cross the

railway tract of Philippine (xxx line 2 unread text
xxx) approached Blumentritt Avenida Ext., applied
its horn as a warning to all the vehicles that might
be crossing the railway tract, but there was really
nobody manning the crossing. X was listening to
his lpod touch, hence, he did not hear the sound of
the horn of the train and so his car was hit by the
train. As a result of the accident, X suffered some
injuries and his car was totally destroyed as a result
of the impact. Is PNR liable?
a.

PNR is not liable because X should have

known that he was crossing a place
designated as crossing for train, and
therefore should have been more careful.

b.

PNR is liable because Railroad companies

owe to the public a duty of exercising a
reasonable degree of care to avoid injury
to person and property at railroad
crossings which means a flagman or a
watchman should have been posted to
warn the public at all times.

c.

PNR is not liable because it blew its horn

when it was about to cross the railway
along Blumentritt Avenida Ext.

d.

PNR is not liable because X was

negligent, for listening to his lpod touch
while driving.

39. X insured the building she owns with two (2)

insurance companies for the same amount. In case
of damage, a.

X can not claim from any of the two (2)

insurers because with the double
insurance, the insurance coverage
becomes automatically void.

b.

the two (2) insurers will be solidarily

liable to the extent of the loss.

c.

the
two
(2)
insurers
proportionately liable.

d.

X can choose who he wants to claim

against.

will

be

40. When X insured his building, X indicated in the

application that it is a residential building, but
actually the building was being used as a
warehouse for some hazardous materials. What is
the effect on the insurance policy, i f any?
a.

The insurance policy can be cancelled

because of the change in the use.

b.

The insurance policy will automatically be

changed.

c.

The insurance policy need not be changed.

d.

The insurance policy is fixed regardless of

the change in the use.

43. The AAA Bus Company picks up passengers along

EDSA. X, the conductor, while on board the bus,
drew his gun and randomly shot the passengers
inside. As a result, Y, a passenger, was shot and
died instantly. Is AAA Bus Company liable?
a.

The bus company is not liable for as long

as the bus company can show that when
they hired X, they did the right selection
process.

b.

The bus company cannot be held liable

because what X did is not part of his
responsrbility.

c.

The bus company is liable because

common carriers are liable for the
negligence or willful act of its employees
even though they acted beyond the scope
of their responsibility.

d.

The bus company is not liable because

there is no way that the bus company can
anticipate the act of X.

41. X owned a house and lot. X insured the house. The

house got burned. Then he sold the partially burnt
house and the lot to Y. Which statement is most
accurate?
a.

X is not anymore entitled to the proceeds

of the insurance policy because he already
sold the partially burnt house and lot.

b.

X is still entitled to the proceeds of the

insurance policy because what is material
is that at the time of the loss, X is the
owner of the house and lot.

c.

No one is entitled to the proceeds because

ownership over the house and lot was
already transferred.

Y will be the one entitled to the proceeds

because he now owns the partially burnt
house and lot.

44. X is a trader of school supplies in Calapan, Oriental

Mindoro. To bring the school supplies to Calapan,
it has to be transported by a vessel. Because there
were so many passengers, the two (2) boxes of
school supplies were loaded but the shipping
company was not able to issue the Bill of Lading.
So, on board, the Ship Captain issued instead a
"shipping receipt" to X indicating the two (2) boxes
of school supplies being part of the cargo of the
vessel. Which phrase therefore, is the most
accurate?

a.

b.

the owner of the vessel is not liable

because no bill of lading was issued to X
hence, no contract of carriage was
perfected.
it is possible to have a contract of carriage
of cargo even without a bill of lading, and
the "shipping receipt" would be sufficient.

c.

the only acceptable document of title is a

Bill of Lading.

d.

None of the above.

45. X took Philippine Airlines Flight PR 102 to Los

Angeles, USA. She had two (2) luggage checked-in
and was issued two (2) baggage checks. When X
reached Los Angeles one (1) of the two (2) checked
in luggage could not be found. Which statement is
most accurate?

a.

X as the owner is exempt from liability

because he was not the one driving.

b.

X as the owner is exempt from liability

because precisely the arrangement is one
under the "boundary system".

c.

X will not be exempt from liability

because he remains to be the registered
owner and the boundary system will not
allow the circumvention of the law to
avoid liability.

d.

Y is the only one liable because he drove

recklessly.

48. The Articles of Incorporation of AAA Corporation

was approved by the Securities and Exchange
Commission (SEC). After the receipt of the
Certificate of Approval from the SEC, AAA
Corporation decided to immediately start the
operation of its business despite the fact that it has
no approved By-Laws. What is the legal status of
the AAA Corporation?

a.

PAL is liable for the loss of the checkedin luggage under the provisions of the
Warsaw Convention on Air Transport.

b.

PAL is liable for the loss only if the

baggage check expressly states that the
airline shall be liable in case of loss.

a.

A de jure corporation;

b.

A de facto corporation;

PAL cannot be held liable because that is

the risk that a passenger takes when she
checks- in her baggage.

c.

A corporation by estoppel;

d.

An unregistered corporation.

c.

d.

PAL can only be held liable if it can be

proven that PAL was negligent.

46. X owns a passenger jeepney covered by Certificate

of Public Convenience. He allowed Y to use its
Certificate of Convenience for a consideration. Y
therefore was operating the passenger jeepney
under the same Certificate of Public Convenience
(Kabit System) under the name of X. The
passenger jeepney met an accident. Who will be
liable?
a.

b.

Y, the one actually operating the jeepney,

will be liable to the injured party.
X will be the one liable to the injured
party despite the fact that it is Y who is
actually operating the jeepney, because
while the Kabit System is tolerated, the
public should not be inconvenienced by
the arrangement.

c.

X will not be held liable if he can prove

that he is not the owner anymore.

d.

Public Policy dictates that the real owner,

even not the registered one, will be held
liable.

47. X owns a fleet of taxicabs. He operates it through

what is known as boundary system. Y drives one of
such taxicabs and pays X a fixed amount of Php1 ,
000 daily under the boundary system. This means
that anything above Php1 ,000 would be the
earnings of Y. Y, driving recklessly, hit an old lady
crossing the street. Which statement is most
accurate?

49. X, the President of ZZZ Corporation, was

authorized by the Board of Directors of ZZZ
Corporation to obtain a loan from YYY Bank and
to sign documents in behalf of the corporation. X
personally negotiated for the loan and got tile loan
at very low interest rates. Upon maturity of the
loan, ZZZ Corporation was unable to pay. Which
statement is most accurate?
a.

Because X was personally acting in behalf

of the Corporation, he can be held
personally liable.

b.

X, as President, cannot be personally held

liable for the obligation of the corporation
even though he signed all the loan
documents, because the loan was
authorized by the Board.

c.

YYY Bank can choose as to who it wants

to hold liable for the loan.

d.

If ZZZ Corporation cannot pay, X can be

held subsidiarity liable.

50. X owns 99% of the capital stock of SSS

Corporation. X also owns 99% of TTT
Corporation. SSS Corporation obtained a loan from
VW Bank. On due date, SSS Corporation
defaulted. TTT Corporation is financiallyhealthy.
Which statement is most accurate?
a.

X being a controlling owner of SSS

Corporation can automatically be held
personally liable for the loan of SSS
Corporation.

b.

TTT Corporation, owned 99% by X, can

automatically be held liable.

c.

d.

SSS Corporation and TTT Corporation,

although both are owned by X, are two (2)
distinct corporations with separate
juridical personalities hence, the TTT
Corporation cannot automatically be held
liable for the loan of SSS Corporation.
The principle of piercing the veil of
corporate fiction can be applied in this
case.

51. A corporation generally can issue both par value

stock and no par value stock. These are all fixed in
the Articles of Incorporation of the corporation.
Which of the following corporations may not be
allowed to issue no par value shares?
a.

Insurance companies;

b.

Banks;

c.

Trust companies;

d.

All of the above.

52. Father X, an American priest who came from New

York, registered the Diocese of Bacolod of the
Roman Catholic Church which was incorporated as
a corporation sole. There were years when the head
of the Diocese was a Filipino, but there were more
years when the heads were foreigners. Today, the
head is an American again. Y donated a piece of
land located in Bacolod City for use as a school.
Which statement is most accurate?
a.

b.

c.

d.

Corporate Secretary of the corporation refused.

Was the Corporate Secretary correct?
a.

The Corporate Secretary is correct

because the Corporation Code provides
that no certificate of stock shall be issued
to a subscriber until the shares as
subscribed have been fully paid.

b.

The Corporate Secretary cannot refuse

because a Stock Certificate can be issued
corresponding to the percentage of shares
which were paid.

c.

The Corporate Secretary cannot refuse

because a Certificate of Stock can be
issued provided it is indicated in the
Certificate the actual percentage of what
has been paid.

d.

The Corporate Secretary cannot refuse

because it is his legal duty to issue a stock
certificate corresponding to the number of
shares actually subscribed regardless of
the actual payment.

55. XXX Corporation and YYY Corporation have

agreed to be merged into one corporation. To
facilitate the merger, both corporations agreed that
the merger be made effective on May 31,2012. The
Securities and Exchange Commission (SEC)
approved the Articles of Merger on June 30, 2012.
Which statement is most accurate?
a.

The Register of Deeds of Bacolod City

can refuse to register and transfer the title
because the present head of the
corporation sole is not a Filipino.

The effective date of the merger is May

31, 2012, the date stipulated by the parties
as the effective date.

b.

The nationality of a corporation sole

depends upon the nationality of the head
at any given time.

The effective date of the merger is always

the date of the approval of the Articles of
Merger by the SEC.

c.

A corporation sole, regardless of the

nationality of the head, can acquire real
property either by sale or donation.

The effective date of the merger would be

the date approved by the Board of
Directors and the stockholders.

d.

The stockholders and the Board of

Directors can set the effective date of the
merger anytime after the approval of the
SEC.

A corporation sole is not legally allowed

to own real property.

53. The number of the Board of Trustees of a nonstock, non-profit educational institution should be
---

56. AAA Corporation is a wholly owned subsidiary of

BBB Corporation. To support the business of AAA
Corporation, BBB Corporation agreed to give its
corporate guarantee to the loan of AAA
Corporation. What is required so that the corporate
guarantee will be valid?

a.

five (5) only

b.

any number for as long as it is not less

than five (5) and no more than eleven (11)

a.

It only requires the approval of the Board

of Directors of BBB Corporation.

c.

any number in multiples of five (5), for as

long as it is not less than five (5) and no
more than fifteen (15).

b.

The Articles of Incorporation must

provide such power and be approved by
the Board of Directors.

d.

not less than five (5) nor more than ten (1

0) in multiples of five (5).

c.

Providing corporate guarantee to another

corporation is a necessary exercise of
power of a corporation.

d.

It would require both the approval of the

Board of Directors and the stockholders
on record.

54. X subscribed 10,000 shares in the capital stocks of

AAA Corporation. He paid 50% of the 10,000
shares. X asked the Corporate Secretary to issue
him
the
corresponding
stock
certificate
representing the 50% of what he already paid. The

57. The capital stock of ABC Corporation is divided

into common shares and preferred shares. Preferred
shares are preferred as to dividends and common
shares are those shares which have the regular and
ordinary attributes of a share of a corporation.
Which statement is most accurate?
a.

b.

This kind of classification may not be

allowed or else it will violate the Doctrine
of Equality of shares.
Classifications of shares may be allowed
for as long as it is clearly stated as such in
the Articles of Incorporation of the
Corporation.

60. South China Airlines is a foreign airline company.

South China Airlines tickets are sold in the
Philippines though Philippine Airlines as their
general agent. South China Airlines is not
registered to do business as such with the
Philippine Securities and Exchange Commission.
Which statement is most accurate?
a.

Although unlicensed to do business in the

Philippines, South China Airlines can sue
before the Philippine Courts and can also
be sued.

b.

South China Airlines can sue but cannot

be sued.

c.

Classifications of shares is mainly for

business purpose to attract investors.

c.

South China Airlines cannot sue and

cannot be sued also.

d.

Classifications of shares may be allowed

with the approval of the stockholders and
the Board of Directors.

d.

South China Airlines can be sued in

Philippine Courts but cannot sue.

58. ABC Corporation declared stock dividends to its

stockholders. The stock dividends were approved
by the Board of Directors of ABC Corporation. In
the subsequent year however, the Board again
approved the redemption of all stock dividends and
to pay the shareholdings in cash. Which statement
is most accurate?

a.

The redemption of stock dividends may

only be allowed if there are sufficient
earnings and should not be violative of the
trust fund doctrine.

The existing shareholders can subscribe to

the new shares equivalent to their existing
shareholdings because the Corporation
Code provides that each of the existing
stockholders will have preemptive rights
to the extent of their existing
shareholdings.

b.

The redemption of the shares may be

taken from the existing property and other
assets of the corporation.

The existing shareholders' preemptive

rights is equivalent to the percentage that
they want.

c.

Each of the existing shareholder can

exercise their right of first refusal against
each other.

d.

Preemptive rights and right of first refusal

are one and the same.

a.

The redemption of the stock dividends can

be validly approved by the Board without
any conditions.

b.

c.

d.

None of the above.

59. X sold all his shares in AAA Hotel Corporation to

Y. X owns 99% of AAA Hotel Corporation. As the
new owner, Y wanted a reorganization of the hotel
which is to include primarily the separation of all
existing employees and the hiring of new
employees. Which statement is most accurate?
a.

61. So that ABC Corporation could venture into more

projects, it needed to raise funds by issuing new
shares to increase its capitalization. X, Y, Z, J and
G are the five existing shareholders of the
company. They hold 20% each. How will the
additional shares be divided among the existing
shareholders?

With the change in ownership, in effect

there is a new juridical entity and
therefore all employees are considered
separated.

62. If ABC Corporation will increase its authorized

capital stock, the Corporation Code requires a.

the approval of the majority of the Board

of Directors only.

b.

the approval of the majority of the

stockholders and the Board of Directors.

b.

Despite the change in shareholder, there is

actually no change in the juridical entity
and therefore existing employees can not
automatically be considered separated.

c.

the approval of 2/3 of the shareholders of

the outstanding capital stock as well as the
approval of the Securities and Exchange
Commission.

c.

Y, as the new shareholder, has the right to

retain only those employees who in his
judgment are qualified.

d.

the approval of the majority of the Board

of Directors and approval of the
shareholders holding 2/3 share of the
outstanding capital stock.

d.

For as long as the existing employees are

given their separation pay, they can be
terminated.

63. X is a minority stockholder of CCC Corporation. Y

is a member of the Board of Directors of CCC
Corporation and at the same time he is the
President. X believes that Y is mismanaging CCC

Corporation hence, as a stockholder and in behalf

of the other stockholders, he wanted to sue Y.
Which statement is most accurate?
a.

X can institute a derivative suit in behalf

of himself as a stockholder.

b.

A derivative suit must be instituted in

behalf of the corporation.

c.

Derivative suit is an exclusive remedy that

X can institute.

d.

Derivative suit is not the remedy in this

situation.

64. The term GGG Corporation in accordance with its

Articles of Incorporation ended last January 30,
2012. The term was not extended. What will
happen to the corporation?
a.

The corporation is dissolved ipso facto.

b.

There is a need to pass a board resolution

to formally dissolve the corporation.

c.

The Board of Directors must pass a

resolution for the corporation to formally
go into liquidation.

d.

The stockholders must pass a resolution to

dissolve the corporation.

65. The term of one (1) year of the Board of Directors

of AAA Corporation expired last February 15,
2012. No new election of the Board of Directors
was called, hence, the existing members of Board
continue as Directors in hold over capacity. Which
statement is most accurate?

c.

This can be a ground for suspension only.

d.

This will result in automatic revocation of

its license to do business in the
Philippines.

67. The By-laws of ABC Corporation is silent as to

when a stockholder can be qualified to attend the
meeting of the stockholders. The Corporate
Secretary sent out the notice of the stockholders
meeting two (2) days before the meeting and at that
time X was not yet a stockholder. On the day of the
meeting, however, X became a shareholder which
was duly recorded in the stock and transfer book.
Which statement is most accurate?
a.

X is a stockholder of ABC Corporation as

of the time of meeting of the stockholders
for the purpose of electing the members of
the board.

b.

X is not qualified to elect members of the

board because at the time the notice of the
meeting was sent, she was not yet a
stockholder.

c.

Qualifications as to who are considered as

stockholders on record for purposes of
being able to elect members of the board
are to be determined by the By-laws
alone.

d.

None of the above.

68. X, who is the Executive Vice President of ABC

Corporation, a listed company, can be held liable or
guilty of insider trading if, he a.

bought shares of ABC Corporation when

it was planning to acquire another
company to improve its asset base, the
news of which increased the price of the
shares in the Stock Exchange.

b.

bought shares of XYC Corporation, a

sister company of ABC Corporation when
he learned that XYC Corporation was
about to also list its share in the Philippine
Stock Exchange.

a.

This is allowed provided there is a valid

and justifiable reason for not calling for an
election of the new members of the Board.

b.

This is not allowed because the term of

the directors must only be for one (1) year.

c.

The positions of the members of the

Board of Directors will be automatically
declared vacant.

c.

Acting as members of the Board of

Directors in a hold over capacity must be
ratified by the stockholders.

bought shares of ZZZ Corporation when

he learned that ABC Corporation would
acquire ZZZ Corporation.

d.

All of the above.

d.

66. AAA Corporation is a foreign corporation that

wants to operate a representative office here in the
Philippines. As required by the Corporation Code,
there is a need to appoint a Resident Agent as a
condition precedent to the issuance of a license to
transact business in the Philippines. After two (2)
years, AAA Corporation removed its Resident
Agent and did not appoint anyone anymore. Which
statement is the most accurate?
a.

This can be a ground for revocation or

suspension of its license to do business.

b.

There is no more effect in the license

because anyway at the time of
registration, a resident agent was
appointed.

69. The purpose of the "Tender Offer" Rule is to a.

ensure an even playing field for all

shareholders of a company in terms of
opportunity to sell their shareholdings.

b.

ensure that minority shareholders in a

publicly listed company are protected in
the sense that they will equally have the
same opportunity as the majority
shareholders in terms of selling their
shares.

c.

ensure that the shareholders who would

also want to sell their shareholdings will
have the opportunity for a better price.

d.

All of the above.

70. Section 38 of The Securities Regulation Code

defines an independent director as a person who
must not have a relation with the corporation which
would interfere with his exercise of independent
judgment in carrying out the responsibilities of a
director. To ensure independence therefore, he must
be -

74. XYZ Corporation is engaged in lending funds to

small vendors in various public markets. To fund
the lending, XYZ Corporation raised funds through
borrowings from friends and investors. Which
statement is most accurate?
a.

XYZ Corporation is a bank.

b.

XYZ Corporation is a quasi-bank.

a.

nominated and elected by the entire

shareholders;

c.

XYZ Corporation
Company.

b.

nominated and elected by the minority

shareholders;

d.

XYZ is none of the above.

c.

nominated and elected by the majority

shareholders;

d.

appointed by the Board.

71. "Securities" issued to the public are required by

law to be registered with the Bangko Sentral ng Pilipinas;

a.

15;

b.

the Philippine Stock Exchange;

b.

22;

c.

the Securities and Exchange Commission;

c.

21;

d.

the Securities and Exchange Commission

and the Philippine Stock Exchange.

d.

11.

a.

The Philippine
Corporation;

Deposit

b.

The Bangko Sentral ng Pilipinas;

c.

The Anti-Money Laundering Council;

d.

The
Securities
Commission.

and

a.

The housing loan of X requires a

guarantor from somebody who is not
connected with the bank.

b.

The housing loan of X requires the

approval of the Board of Directors of the
bank.

c.

The housing loan of X, being a benefit for

employees, does not require (a) but will
require (b).

d.

The housing loan of X, being a benefit for

employees, will not require (a) and (b).

Exchange

a.

ABC Bank can set-off the loan from the

savings account being maintained by X
with ABC Bank.

b.

Set-off is not possible because legal

compensation is not allowed in banking
transaction.

c.

Deposit accounts are usually earmarked

for specific purpose hence offsetting is not
legally possible.

d.

Off -setting is not possible because the

obligation of X is a "simple loan".

Investment

76. All senior officers of ABC Bank are entitled to

obtain a housing loan. X is an Executive Vice
President for Operations of ABC Bank. She
obtained a housing loan with the ABC Bank.
Which statement is most accurate?

Insurance

73. X maintains a savings deposit in the amount of

Php1 Million with ABC Bank Corporation. X also
has obtained a loan from ABC Bank Corporation in
the amount of Php1 Million. In case of default,

an

75. XXX Bank Corporation and ZZZ Corporation were

merged into XX ZZ Bank Corporation. So as not to
create any unnecessary conflict, all the former
directors of both banks wanted to be appointed
/elected as members of the Board of Directors of
the merged bank. Each bank used to have eleven
(11) members of the board. The maximum number
of directors of the merged bank is -

a.

72. The government agency granted with the power of

supervision and examination over banks and nonbank financial institutions performing quasibanking functions, to ensure that the conduct of its
business is on a sound financial basis that will
provide continued solvency and liquidity is -

is

77. ABC Holdings Company, a Hong Kong company,

owns 10% of XYZ Bank. Because of the peace and
order situation in the Philippines, ABC Holding
Company wanted to sell its shareholdings in XYZ
Bank. Unfortunately, nobody is interested to buy a
1 0% shareholdings in a bank. The board of
directors of XYZ Bank thought that it would be a
good idea to buy back the shares owned by ABC
Holding Company. Which statement is most
acurate?
a.

Buying back the shares by XYZ Bank is

absolutely not allowed.

b.

Buying back the shares may be allowed

provided it is with the approval of the
Monetary Board and disposed of within
six (6) months.

c.

Buying back the shares may be allowed

provided such shares 'will be disposed of
within ten (1 0) years.

d.

Buying back the shares may be done

anytime provided the Board of Directors
will approve the same.

78. X is being charged for violation of Anti-Graft and

Corrupt Practices because he is suspected of having
accumulated unexplained wealth. X maintains
deposit accounts with ABC Bank. The Ombudsman
filed criminal cases against X before the
Sandiganbayan. Can the Court issue subpoenas
against ABC Bank to produce all documents
pertaining to all the deposit accounts of X?
a.

Yes, because there is already a pending

case and provided the subpoena must be
specific as to which account.

b.

Yes, it is enough that the specific bank is

identified.

c.

No, because the issuance of the subpoena

has no real legal basis.

d.

Even without a subpoena, information

about the deposit accounts of X can be
submitted to the Sandiganbayan because it
will be used in a pending case.

79. X, a private individual, maintains a dollar deposit

with ABC Bank. X is suspected to be the leader of
a Kidnap for Ransom Gang and he is suspected of
depositing all ransom money in said deposit
account which are all in US Dollars. The police
want to open said account to know if there are
really deposits in big amounts. Which statement is
most accurate?
a.

The same rules under Secrecy of Bank

Deposit Act will apply.

b.

An approval from the Monetary Board is

necessary to open the account.

c.

Because the deposit is in US Dollars, it is

covered by the Foreign Currency Deposit
Act which allows disclosure only upon the
written persmission of the depositor.

d.

c.

X can claim a total of Php750,000 from

all the three (3) accounts.

d.

X cannot claim anything from any of the

deposit accounts.

81. The Bank Secrecy Law (RA 1405) prohibits

disclosing any information about deposit records of
an individual without court order except a.

in an examination to determine gross

estate of a decedent.

b.

in an investigation for violation of AntiGraft and Corrupt Practices.

c.

in an investigation by the Ombudsman.

d.

in an impeachment proceeding.

82. X works as a research computer engineer with the

Institute of Computer Technology, a government
agency. When not busy with his work, but during
office hours, he developed a software program for
law firms that will allow efficient monitoring of the
cases, which software program is not at all related
to his work. Assuming the program is patentable,
who has the right over the patent?
a.

x;

b.

Institute of Computer Technology;

c.

Neither X nor the Institute of Computer

Technology can claim patent right over
the invention;

d.

X and the employer of X will jointly have

the rights over the patent.

83. The "test of dominancy" in the Law on

Trademarks, is a way to determine whether there
exists an infringement of a trademark by a.

determining if the use of the mark has

been dominant in the market.

b.

focusing on the similarity of the prevalent

features of the competing marks which
might create confusion.

Approval from the Court is necessary to

order disclosure of the account.

c.

looking at the mark whether they are

similar in size, form or color.

80. X is a depositor of AAA Bank. She has three (3)

deposit accounts all under her name. One, in
checking account, one in saving account and
another one in time deposit account. Each account
has a balance of Php250,000. AAA Bank became
insolvent.
Philippine
Deposit
Insurance
Corporation closed the Bank. X therefore is unable
to withdraw from all of the accounts. She then filed
her claims with the Philippine Deposit Insurance
Corporation. Which statement is most accurate?

d.

looking at the mark whether there is one

specific feature that is dominant.

a.

b.

84. X's painting of Madonna and Child was used by

her mother to print some personalized gift wrapper.
As part of her mother's efforts to raise funds for
Bantay Bata, the mother of X sold the wrapper to
friends. Y, an entrepeneur, liked the painting in the
wrapper and made many copies and sold the same
through National Bookstore. Which statement is
most accurate?

X can claim a total of Php500,000 for all

the three (3) accounts.

a.

Y can use the painting for his use because

this is not a copyrightable material.

X can only claim from one (1) account of

Php250,000.

b.

X can sue Y for infringement because

artistic works are protected from moment
of creation.

c.

Works of art need to be copyrighted also

to get protection under the law.

d.

Y can use the drawing even though not

copyrighted because it is already a public
property having been published already.

85. Compulsory Licensing of Inventions which are

duly patented may be dispensed with or will be
allowed exploitation even without agreement of the
patent owner under certain circumstances, like
national emergency, for reason of public interest,
like national security, etc. The person who can
grant such authority is a.

the Director General of the Intellectual

Property Office;

b.

the Director of Legal Affairs of the

Intellectual Property Office;

c.

the owner of the Patent right;

d.

any agent of the owner of the Patent right.

86. The Fair Use Doctrine allows others to utilize

copyrighted works under certain conditions. The
factors to consider whether use is fair or not would
be the purpose and character of the use, nature of
the copyrighted work, amount and substantiality of
the portions used, and what else?
a.

effect of the use upon the creator of the

work.

b.

effect of the use upon the potential market

of the work.

c.

effect of the use upon the public in

general.

d.

effect of the use upon the class in which

the creator belongs.

89. Which phrase best completes the statement - The

Deed of Chattel mortgage, if not registered with the
Register of Deeds where debtor resides:
a.

is not valid, hence not binding between

the mortgagor and the mortgagee;

b.

is binding between the mortgagor and the

mortgagee but will not affect third party;

c.

to be valid between the mortgagor and the

mortgagee, it must be coupled with the
delivery of the subject matter of the
chattel mortgage;

d.

is as if a non-existent chattel mortgage.

90. Which phrase best completes the statement - To

bind third parties, a chattel mortgage of shares of
stock must be registered:
a.

with the Register of Deeds where the

debtor resides;

b.

with the Register of Deeds where the

principal office of the corporation is;

c.

in the Stock and Transfer Book of the

corporation with the Corporate Secretary;

d.

with the Register of Deeds where the

debtor resides and the principal office of
the corporation.

91. Which phrase best completes the statement - The

affidavit of good faith in a Deed of Chattel
Mortgage is:
a.

an oath where the parties swear that the

mortgage is made for the purpose of
securing the obligations specified and that
the obligation is just and valid;

b.

an affidavit, the absence of which will

vitiate the mortgage between the parties;

c.

necessary only if the chattel being

mortgaged are growing crops;

d.

a certification from the mortgagor that he

is the mortgagor of the chattel.

87. Which phrase best completes the statement - A

chattel mortgage can be constituted to secure:
a.

obligations both past and future;

b.

obligations existing at the time the

mortgage is constituted;

c.

future obligations only;

d.

past obligations only.

88. Which phrase best completes the statement - A

chattel mortgage can cover:
a.

only property described in the deed

without exception;

b.

can also cover substituted property;

c.

d.

92. X defaulted in his loan with Y. Y instituted extrajudicial foreclosure of the property subject of a real
estate mortgage that secured the loan. X has one
year within which to redeem the property. After the
foreclosure, X filed an action questioning the
validity of the extra- judicial foreclosure sale.
Which statement is most accurate?
a.

The one (1) year period within which to

redeem will be interrupted by the filing of
an action questioning the validity of the
foreclosure.

properties described in the deed except in

case of stock in trade being a substitute;

b.

The one (1) year period will not be

interrupted by the filing of the action.

after acquired property.

c.

The one (1) year period will be extended

for another year because of the filing of an
action questioning the validity of the
foreclosure sale.

d.

If the action which questions the validity

of the foreclosure prospers, the period will
be interrupted.

a.

No, because handling charges and other

fees are usual in certain banking
transactions.

93. What is the effect if the. proceeds in an extrajudicial foreclosure sale is not sufficient to pay for
the obligation?

b.

Yes, because ABC Bank is required to

provide XYZ Corporation not only the
amount of the monthly installments but
also the details of the finance charges as
required by the Truth in Lending Act.

c.

No, because the Finance Agreement is a

valid document to establish the existence
of the obligation.

d.

Yes, because legally, finance charges are

never allowed in any banking transaction.

a.

the mortgagee can claim for deficiency

judgment from the debtor.

b.

the mortgagee can claim for deficiency

judgment from the mortgagor even though
it is a third party mortgage.

c.

the mortgagee has no more recourse or

claim against the debtor.

d.

the mortgagee cannot claim for deficiency

judgment from the debtor because its an
extrajudicial foreclosure.

94. X mortgaged her residential house and lot in favor

of ABC Bank. X defaulted in her loan and so the
bank foreclosed the real estate mortgage on the
residential house. Y then bought the residential
house and lot before the expiration of the
redemption period. Can Y now take possession of
the property?
a.

No, because it is still covered by the

redemption period and the purchaser is not
yet entitled as a matter of right to take
possession of the property.

b.

Yes, the purchaser is now entitled to the

possession of the house.

c.

No, because there is a need to talk to X to

leave the house.

d.

No, because Y was not the one who

foreclosed the mortgage on the property.

95. Which phrase best completes the statement - When

a debt is secured by a real estate mortgage, upon
default of the debtor:
a.

the only remedy of the creditor is to

foreclose the real estate mortgage;

b.

another remedy is filing an action for

collection and then foreclose if collection
is not enough;

c.

d.

the creditor can foreclose the mortgage

and demand collection for any deficiency;
None of the above.

96. XYZ Corporation bought ten (1 0) units of Honda

Civic from CCC Corporation. ABC Bank granted a
loan to XYC Corporation which executed a
financing agreement which provided for the
principal amount, the installment payments, the
interest rates and the due dates. On due dates of the
installment payments, XYZ Corporation was asked
to pay for some handling charges and other fees
which were not mentioned in the Financing
Agreement. Can XYC Corporation refuse to pay
the same?

97. Which of the following is an exception to the

secrecy of bank deposits which are in Philippine
Pesos, but NOT an exception to the secrecy of
foreign currency deposits?
a.

Upon Bangko Sentral ng Pilipinas (SSP)

inquiry into or examination of deposits or
investments with any bank, when the
inquiry or examination is made in the
course of the SSP's periodic special
examination of said bank to ensure
compliance
with
the
Anti-Money
Laundering Act (AMLA);

b.

Upon Philippine Deposit Insurance

Corporation (PDIC) and SSP inquiry into
and examination of deposit accounts in
case there is a finding of unsafe or
unsound banking practice;

c.

Upon inquiry in cases of impeachment;

d.

Upon inquiry by the Commissioner of

Internal Revenue in the event a taxpayer
files an application to compromise his tax
liabilities on the ground of financial
incapacity.

98. The Anti-Money Laundering Law is a law that

seeks to prevent money laundering activities by
providing for more transparency in the Philippine
Financial System, hence the following institutions
are covered by the law, except:
a.

bank and any financial institutions;

b.

pawnshops;

c.

casino operators;

d.

All of the above.

99. For purposes of determining violation of the

prov1s1ons of Anti-Money Laundering Law, a
transaction is considered as a "Suspicious
Transaction" with "Covered Institutions" regardless
of the amount involved, where which the following
circumstances exist/s?
a.

the amount involved is not commensurate

with the client's business or financial
capacity;

b.

there is no underlying legal or trade

obligation,
purpose
or
economic
justification;

c.

client is not properly identified;

d.

All of the above.

100.The main feature of the Foreign Investment Act of

1991 is to introduce the concept of "Negative
Lists". Under the said law, what is a "Negative
List"?
a.

It is a list of business activities or

enterprises in the Philippines that
foreigners are disqualified to engage in.

b.

It is a list of business activities or

enterprises in the Philippines that
foreigners are qualified to engage in.

c.

d.

It is a list of business activities or

enterprises that are open to foreign
investments provided it is with the
approval of the Board of Investment.
It is a list of business activities or
enterprises that are open to foreign
investments provided it is with the
approval of the Securities and Exchange
Commission.

sales, CCC Car, Inc. used the proceeds to buy another ten
(10) units of BMW 3 series.
a.

Is the action of CCC Car, Inc. legally justified?

Explain your answer. (5%)

b.

Will the corporate officers of CCC Car, Inc. be held

liable under the circumstances? Explain your
answer. (5%)

III
X borrowed money from Y in the amount of Php1Million
and as payment, issued a check. Y then indorsed the check
to his sister Z for no consideration. When Z deposited the
check to her account, the check was dishonored for
insufficiency of funds.
a.

Is Z a holder in due course? Explain your answer.

(5%)

b.

Who is liable on the check. The drawer or the

indorser? Explain your answer. (5%)

IV
Indicate and explain whether the promissory note is
negotiable or non-negotiable.
a.

I promise to pay A or bearer Php100,000.00 from

my inheritance which I will get after the death of
my father. (2%)

b.

I promise to pay A or bearer Php100,000 plus the

interest rate of ninety (90) day treasury bills.
(2%)

c.

I promise to pay A or bearer the sum of

Php100,000 if A passes the 2012 bar exams. (2%)

d.

I promise to pay A or bearer the sum of

Php100.000 on or before December 30, 2012. (2%)

e.

I promise to pay A or bearer the sum of

Php100,000. (2%)

- NOTHING FOLLOWS MERCANTILE LAW

I
ABC Company filed a Petition for Rehabilitation with the
Court. An Order was issued by the Court, (1) staying
enforcement of all claims, whether money or otherwise
against ABC Company, its guarantors and sureties not
solidarily liable with the company; and (2) prohibiting ABC
Company from making payments of its liabilities,
outstanding as of the date of the filing of the Petition. XYC
Company is a holder of an irrevocable Standby Letter of
Credit which was previously procured by ABC Company in
favor of XYC Company to secure performance of certain
obligations. In the light of the Order issued by the Court.
a.

b.

Can XYC Company still be able to draw on their

irrevocable Standby Letter of Credit when due?
Explain your answer. (5%)

V
X borrowed from CCC Bank. She mortgaged her house and
lot in favor of the bank. X insured her house. Tt1e bank also
got the house insured.

Explain the nature of Letters of Credit as a

financial devise. (5%)

II
CCC Car, Inc. obtained a loan from BBB Bank, which fund
was used to import ten (10) units of Mercedes Benz S class
vehicles. Upon arrival of the vehicles and before release of
said vehicles to CCC Car, Inc., X and Y, the President and
Treasurer, respectively, of CCC Car, Inc. signed the Trust
Receipt to cover the value of the ten (10) units of Mercedes
Benz S class vehicles after which, the vehicles were all
delivered to the Car display room of CCC Car, Inc. Sale of
the vehicles were slow, and it took a month to dispose of the
ten (10) units. CCC Car, Inc. wanted to be in business and to
save on various documentations required by the bank,
decided that instead of turning over the proceeds of the

a.

Is this double insurance? Explain your answer.

(3%)

b.

Is this legally valid? Explain your answer. (3%)

c.

In case of damage, can X and CCC Bank separately

claim for the insurance proceeds? (4%)

VI
X is a Filipino immigrant residing in Sacramento,
California. Y is a Filipino residing in Quezon City,
Philippines. Z is a resident alien residing in Makati City.
GGG Corporation is a domestic corporation - 40% owned
by foreigners and 60% owned by Filipinos, with T as
authorized representative. CCC Corporation is a foreign
corporation registered with the Philippine Securities and
Exchange Commission. KKK Corporation is a domestic

corporation (100%) Filipino owned. S is a Filipino, 16 years

of age, arid the daughter of Y.
a.

Who can be incorporators?

subscribers? (2%)

Who

can

b.

What are the differences between an incorporator

and a subscriber, if there are any? (2%)

b.

be

What is the meaning of a "dragnet clause" in a

Deed of Real Estate Mortgage? Under what
circumstances will the "dragnet clause" be
applicable? ( 5%)

IX

c.

Who are qualified to become members of the board

of directors of the corporation? (2%)

d.

Who are qualified to act as Treasurer of the

company? (2%)

e.

Who can be appointed Corporate Secretary? (2%)

A, B, C, D, E are all duly elected members of the Board of

Directors of XYZ Corporation. F, the general manager,
entered into a supply contract with an American firm. The
contract was duly approved by the Board of Directors.
However, with the knowledge and consent of F, no
deliveries were made to the American firm. As a result of
the non-delivery of the promised supplies, the American
firm incurred damages. The American firm would like to file
a suit for damages. Can the American firm sue:

VII
X obtained a loan for Php50Million from SSS Bank. The
collateral is his vacation house in Baguio City under a real
estate mortgage. X needed more funds for his business so he
again borrowed another Php10Million, this time from BBB
Bank, another bank, using the same collateral. The loan
secured from SSS Bank fell due and X defaulted.
a.

If SSS Bank forecloses the real estate mortgage,

what rights, if any, are left with 888 Bank as
mo1igagee also? (2%)

b.

If the value of the Baguio property is less than the

amount of loan, what would be the recourse of SSS
Bank? BBB Bank? (2%)

c.

If the value of the property is more that the amount

of the loan, who will benefit from the excess value
of the property? (2%)

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 executed in its
favor? (2%)

e.

Does X have any legal remedy after the foreclosure

in the event that later on he has the rnoney to pay
for the loan? (1%)

f.

If SSS Bank and BBB Bank abandon their rights

under the real estate mortgage, is there any legal
recourse available to them? (1%)

VIII

The members of the Board of Directors

individually, because they approved the
transaction? (2%)

b.

The corporation? (2%)

c.

F, the general manager, personally, because the

non-delivery was with his knowledge and consent?
(2%)

d.

Explain the rules on liabilities of a corporation for

the act of its corporate officers and the liabilities of
the corporate officers and Board of Directors of a
corporation acting in behalf of the corporation.
(4%)

X
AAA Corporation is a bank. The operations of AAA
Corporation as a bank was not doing well. So, to avert any
bank run, AAA Corporation, with the approval of the
Monetary Board, sold all its assets and liabilities to BBB
Banking Corporation which includes all deposit accounts. In
effect then, BBB Corporation will service all deposits of all
depositors of AAA Corporation.
a.

Will the sale

Corporation
automatically
existence of
answer. (5%)

of all assets and liabilities of AAA

to BBB Banking Corporation
dissolve or terminate the corporate
AAA Corporation? Explain your

b.

What are the legal requirements in order that a

corporation may be dissolved? (5%)

- NOTHING FOLLOWS -

X obtained a Php10Million loan from BBB Banking

Corporation. The loan is secured by Real Estate Mortgage
on his vacation house in Tagaytay City. The original Deed of
Real Estate Mortgage for the Php10Million was duly
registered. The Deed of Real Estate Mortgage also provides
that "The mortgagor also agrees that this mortgage will
secure the payment of additional loans or credit
accommodations that may be granted by the mortgagee ... "
Subsequently, because he needed more funds, he obtained
another Php5Million loan. On due dates of both loans, X
failed to pay the Php5Million but fully paid the
Php10Million. BBB Banking Corporation instituted
extrajudicial foreclosure proceedings.
a.

a.

Will the extrajudicial foreclosure prosper

considering that the additional Php5Million was
not covered by the registration? (5%)

2013 BAR EXAMINATIONS

Rudy is a fine arts student in a university. He stays in a

boarding house 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 Jam on display at the university cafeteria. The cafeteria operator
said he purchased the painting from Bernie who represented
himself as its painter and owner.

ESSAY QUESTIONS
I.
Antonio issued the following instrument:
August
Makati City

10,2013

P100,000.00
Sixty days after date, I promise to pay Bobby or his
designated .representative the sum of ONE HUNDRED
THOUSAND PESOS(P 100,000.00) from my BPI Acct. No.
1234 if, by this due date, the sun still sets in the west to
usher in the evening and rises in the east the following
morning to welcome the day.
(Sgd.) Antonio Reyes
Explain each requirement of negotiability present or absent
in the instrument. (8%)
II.
Benny applied for life insurance for Php 1.5 Million. The
insurance company approved his application and issued an
insurance policy effective Nov. 6, 2008. Benny named his
children as his beneficiaries. On April 6, 2010, Benny died
of hepatoma, a liver ailment.
The insurance company denied the children's claim for the
proceeds of the insurance policy on the ground that Benny
failed to disclose in his application two previous
consultations with his doctors for diabetes and hypertension,
and that he had been diagnosed to be suffering from
hepatoma. The insurance company also rescinded the policy
and refunded the premiums paid.
Was the insurance company correct? (8%)
III.
From his first term in 2007, Congressman Abner has been
endorsing his pork barrel allocations to Twin Rivers in
exchange for a commission of 40% of the face value of the
allocation. Twin Rivers is a non-governmental organization
whose supporting papers, after audit, were found by the
Commission on Audit to be fictitious. Other than to prepare
and submit falsified papers to support the encashment of the
pork barrel checks, Twin Rivers does not appear to have
done anything on the endorsed projects and Congressman
Abner likewise does not appear to have bothered to monitor
the progress of the projects he endorsed. The congressman
converted most of the commissions he generated into US
dollars, and deposited these in a foreign currency account
with Banco de Plata (BDP).
Based on amply-supported tips given by a congressman
from another political party, the Anti-Money Laundering
Council sent BDP an order: (1) to confirm Cong. Abner's
deposits with the bank and to provide details of these
deposits; and (2) to hold all withdrawals and other
transactions involving the congressman's bank accounts.

Rudy and the cafeteria operator immediately confronted

Bernie. While admitting that he did not do the painting,
Bernie claimed ownership of its copyright since he had
already registered it in his name with the National Library as
provided in the Intellectual Property Code.
Who owns the copyright to the painting? Explain. (8%)
V.
You are a member of the legal staff of a law firm doing
corporate and securities work for Coco Products Inc., a
company with unique products derived from coconuts and
whose shares are traded in the Philippine Stock Exchange. A
partner in the law firm, Atty. Buenexito, to whom you
report, is the Corporate Secretary of Coco Products. You
have long been investing in Coco Products stocks even
before you became a lawyer.
While working with Atty. Buenexito on another file, he
accidentally gave you the Coco Products file containing the
company's planned corporate financial rehabilitation. While
you knew you had the wrong file, your curiosity prevailed
and you browsed through the file before returning it. Thus,
you learned that a petition for financial rehabilitation is
imminent, as the company could no longer meet its
obligations as they fell due.
Soon after, your mother is rushed to the hospital for an
emergency operation, and you have to raise money for her
hospital bills. An immediate option for you is to sell your
Coco Products shares. The sale would be very timely
because the price of the company's stocks are still high.
Would you sell the shares to raise the needed funds for your
mother's hospitalization? Take into account legal (5%) and
ethical (3%) considerations. (8% total points)
VI.
Delano Cruz is in default in the payment of his existing loan
from BDP Bank. To extend and restructure this loan, Delano
agreed to execute a trust receipt in the bank's favor covering
the iron pellets Delano imported from China one year
earlier. Delano subsequently succeeded in selling the iron
pellets to a smelting plant, but the proceeds went to the
payment of the separation benefits of his employees who
were laid off as he reduced his operations.
When the extended loan period expired 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 against Delano. The bank
is contemplating the filing of estafa pursuant to the
provisions of Pres. Decree No. 115 (Trust Receipts Law) to
force Delano to tum in at least the proceeds of the sale of the
iron pellets.

As counsel for BDP, would you advise the bank to comply

with the order? (8%)

Would you, as bank counsel and as an officer of the court,

advise the bank to proceed with its contemplated action?
(8%)

IV.

VII.

Stable Insurance Co. (SIC) and St. Peter Manufacturing Co.

(SPMC) have had a long-standing insurance relationship
with each other; SPMC secures the comprehensive fire
insurance on its plant and facilities from SIC. The standing
business practice between them has been to allow SPMC a
credit period of 90 days from the renewal of the policy
within which to pay the premium.

deployed. The main pilot, on the other hand, had a very high
level of blood 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
following questions came up:
(A) Explain the causes of action legally possible
under the given facts against the airline and the
pilots; whom will you specifically implead in these
causes of action? (5%)

Soon after the new policy was issued and before premium
payments could be made, a fire gutted the covered plant and
facilities to the ground. The day after the fire, SPMC issued
a manager's check to SIC for the fire insurance premium, for
which it was issued a receipt; a week later SPMC issued its
notice of loss.
SIC responded by issuing its own manager's check for the
amount of the premiums SPMC had paid, and denied
SPMC's claim on the ground that under the "cash and carry"
principle governing fire insurance, no coverage existed at
the time the fire occurred because the insurance premium
had not been paid.
Is SPMC entitled to recover for the loss from SIC? (8%)
VIII.
In the November 2010 stockholders meeting of Greenville
Corporation, eight (8) directors were elected to the board.
The directors assumed their posts in January 20 ll. Since no
stockholders' meeting was held in November 2011, the eight
directors served in a holdover capacity and thus continued
discharging their powers.
In June 2012, two (2) of Greenville Corporation's directorsDirector A and Director B -resigned from the board. Relying
on Section 29 of the Corporation Code, the remaining six
(6) directors elected two (2) new directors to fill in the
vacancy caused by the resignation of Directors A and B.
Stockholder X questioned the election of the new directors,
initially, through a letter-complaint addressed to the board,
and later (when his letter-complaint went unheeded),
through a derivative suit filed with the court. He claimed
that the vacancy in the board should be filled up by the vote
of the stockholders of Greenville Corporation. Greenville
Corporation's directors defended the legality of their action,
claiming as well that Stockholder X's derivative suit was
improper.
Rule on the issues raised. (8%)
IX.
Fil-Asia Air Flight 9 I 6 was on a scheduled passenger flight
from Manila when it crashed as it landed at the Cagayan de
Oro airport; the pilot miscalculated the plane's approach and
undershot the runway. Of the I 50 people on board, ten (10)
passengers died at the crash scene.
Of the ten who died, one was a passenger who managed to
leave the plane but was run over by an ambulance coming to
the rescue. Another was an airline employee who hitched a
free ride to Cagayan de Oro and who was not in the
passenger manifest.
It appears from the Civil Aeronautics Authority
investigation that the co-pilot who had control of the plane's
landing had less than the required flying and landing time
experience, and should not have been in control of the plane
at the time. He was allowed to fly as a co-pilot because of
the scarcity of pilots - Philippine pilots have been recruited
by foreign airlines under vastly improved flying terms and
wages so that newer and less trained pilots are being locally

(B) How will you handle the cases of the passenger

run over by the ambulance and the airline
employee allowed to hitch a free ride to Cagayan
de Oro? (3%)
X.
Bell Philippines, Inc. (BelPhil) is a public utility company,
duly incorporated and registered with the Securities and
Exchange Commission. Its authorized capital stock consists
of voting common shares and non-voting preferred shares,
with equal par values of P100.00/share. Currently, the issued
and outstanding capital stock of BelPhil consists only of
common shares shared between Bayani Cruz, a Filipino
with 60% of the issued common shares, and Bernard Fleet, a
Canadian, with 40%.
To secure additional working fund, BelPhil issued preferred
shares to Bernard Fleet equivalent to the currently
outstanding common shares. A suit was filed questioning the
corporate action on the ground that the foreign equity
holdings in the company would now exceed the 40% foreign
equity limit allowed under the Constitution for public
utilities.
Rule on the legality of Bernard Fleet's current holdings.
(8%)
MULTIPLE CHOICE QUESTIONS
I. Claude, the registered stockholder of 1 000 shares in ABC
Corp., pledged the shares to Conrad by endorsement in
blank of the covering stock certificates and, execution of a
Deed of Assignment of Shares of Stock, intended as
collateral for a loan of P1.0 Million that was also supported
by a separate promissory note.
I. (1) Under these facts, is there a valid pledge of
the shares of stock to Conrad? (1%)
(A) No, because shares of stock are
intangible personal properties whose
possession cannot be delivered and,
hence, cannot be the subject of a pledge.
(B) No, because the pledge of shares of
stock requires double registration with the
Register of Deeds of the principal place of
business of the corporation and of the
residence of the pledgor.
(C) Yes, because endorsement and
delivery of the certificates of stock is
equivalent to the transfer of possession of
the covered shares to the pledgee.
(D) Yes, because the execution of the
Deed of Assignment of Shares of Stock is
equivalent to a lawful pledge of the shares
of stock.

I. (2) After Claude defaulted on the loan, Conrad

sought to have the shares registered in his name in
the books of the corporation. If you are the
Corporate Secretary of ABC Corporation, would
you register the shares in the name of Conrad
without any written instruction from Claude? (1%)
(A) Yes, since the endorsement and
delivery of the certificates of stock
executed by Claude constitute the legal
authority to cancel the shares in his name
and to place them in Conrad's name.
(B) Yes, since the execution of the Deed
of Assignment by Claude would constitute
the legal authority to cancel the shares in
his name and place them in Conrad's
name.
(C) No, because corporate officers can
only take direct instructions from the
registered owners on the proper
disposition of shares registered in their
names.
(D) No, because the corporation has a
primary lien on the shares covering the
unpaid subscription.
II. A foreign delegation of businessmen and investment
bankers called on your law firm to discuss the possibilities
of investing in various projects in the Philippines, and
wanted your thoughts on certain issues regarding foreign
investments in the Philippines.
II. (1)The delegation has been told about the
Foreign Investments Act of 1991, as amended (FIA
'91), and they asked what exactly is the law's
essential thrust regarding foreign investments in
Philippine business and industries.
You replied that FIA '91 essentially reflects
__________. (1 %)

the Corporation Code, 100% of whose

capital stock, outstanding and entitled to
vote, are wholly-owned by Filipino
citizens
(D) All of the above, because the law
considers the juridical personality,
whether domestic or foreign, as a mere
medium; the test of nationality is on the
individuals who control the medium
(E) None of the above, because the term
Philippine national can only cover
individuals and not juridical entities.
II. (3) The delegation heard that foreigners can
invest up to 100% of the equity in "export oriented
enterprises" and you were asked exactly what the
term covers.
You replied that an "export oriented enterprise"
under FIA '91 is an enterprise that __________.
(1%)
(A) only engages in the export of goods
and services, and does not sell goods or
services to the domestic market
(B) exports consistently at least 40% of its
goods or services, and sells at least 60%
of the rest to the domestic market
(C) exports consistently at least 60% of
the goods or services produced, and sells
at least 40% of the rest to the domestic
market
(D) exports consistently at least 60% of its
goods or services produced, and can sell
goods or services to the domestic market
(E) None of the above.

(B) the "Foreign Investments Positive

Lists" concept

II. (4) As a last question and by way of a concrete

example, a delegation member finally inquired which of the following corporations or businesses
in the Philippines may it invest in and up to what
extent? (1%)

(C) the "Foreign Investments Negative

Lists" concept

(A) A lifestyle magazine publication

corporation, up to 40% equity

(D) the "Control Test" concept(E) All of

the above.

(B) An advertising corporation, up to

100% equity

II. (2)The delegation asked: aside from Filipino

ctt1zens, what entities would fall under the
definition of "Philippine National" under FIA '91?

(C) A commercial bank, up to 60o/o

equity

(A) the "Filipino First Policy"

You replied that the definition of "Philippine

national" under FIA '91 covers __________. (1%)
(A) domestic partnerships
composed of Filipino citizens

wholly

(B) domestic corporations 60% of whose

capital stock, outstanding and entitled to
vote, are owned and held by Filipino
citizens
(C) foreign corporations considered as
doing business in the Philippines under

(D) A jeepney manufacturing corporation,

up to 100% equity
(E) A real estate development corporation,
up to 60% equity
III. Dennis subscribed to 10,000 shares of XYZ Corporation
with a par value of P100 per share. However, he paid only
25% of the subscription or P250,000.00. No call has been
made on the unpaid subscription.
How many shares is Dennis entitled to vote at the annual
meeting of the stockholders of XYZ? (1%)

(A) 10,000 shares

Choose the correct statement relating to Gawsengsit Corp.

(1%)

(B) 2,500 shares

(C) 100 shares
(D) 0 shares
(E) None of the above.
IV. ABC Corp. issued redeemable shares. Under the terms of
the issuance, the shares shall be redeemed at the end of 10
years from date of issuance, at par value plus a premium of
10%.
Choose the correct statement relating to these redeemable
shares. (1%)
(A) ABC Corp. would need unrestricted retained
earnings to be able tore deem the shares.
(B) Corporations are not allowed to issue
redeemable shares; thus, the issuance by ABC
Corp. is ultra vires.
(C) Holders of redeemable shares enjoy a
preference over creditors.
(D) ABC Corp. may redeem the shares at the end
of 10 years without need for unrestricted retained
earnings provided that, after the redemption, there
are sufficient assets to cover its debts.
(E) All of the above are incorrect.
V. Arnold, representing himself as an agent of Brian for the
sale of Brian's car, approached Dennis who appeared
interested in buying the car. At Arnold's prodding, Dennis
issued a crossed check payable to Brian for P25,000.00 on
the understanding that the check would only be shown to
Brian as evidence of Dennis' good faith and interest in
buying the car. Instead, Arnold used the check to pay for the
medical expenses of his wife in Brian's clinic after Brian, a
doctor, treated her.

(A) Gawsengsit Corp. is doing business in the

Philippines and requires alicense from the
Securities and Exchange Commission (SEC).
(B) Gawsengsit Corp. is not doing business in the
Philippines by its mere investment in a Philippine
corporation and does not need a license from the
SEC.
(C) Gawsengsit Corp. has to appoint a resident
agent in the Philippines.
(D) Gawsengsit Corp. cannot elect directors in
Bumblebee Corp.
(E) All the above choices are incorrect.
VII. The BIR assessed ABC Corp. for deficiency income tax
for taxable year2010 in the amount of P26,731,208.00,
inclusive of surcharge and penalties.
The BIR can __________. (1%)
(A) run after the directors and officers of ABC
Corp. to collect the deficiency tax and their liability
will be solidary
(B) run after the stockholders of ABC Corp. and
their liability will be joint
(C) run after the stockholders of ABC Corp. and
their liability will be solidary
(D) run after the unpaid subscriptions still due to
ABC Corp., if any
(E) None of the above choices is correct.
VIII. Anton imported perfumes from Taiwan and these were
released to him by the bank under a trust receipt. While the
perfumes were in Anton's warehouse, thieves broke in and
stole all of them.

Is Brian a holder in due course (HI DC)? (1%)

Who will shoulder the loss of the stolen perfumes? (1%)
(A) Yes, Brian is a HIDC because he was the payee
of the check and he received it for services
rendered.
(B) Yes, Brian is a HIDC because he did not need
to go behind the check that was payable to him.
(C) No, Brian is not a HIDC because Dennis issued
the check only asevidence of good faith and
interest in buying the car.
(D) No, Brian is not a HIDC because Brian should
have been placed on notice: the check was crossed
in his favor and Arnold was not the drawer.
(E) No, Brian is not a HIDC because the requisite
consideration to Dennis was not present.
VI. Gawsengsit Corp. is a corporation incorporated in
Singapore. It invested in Bumblebee Corp., a Philippine
corporation, by acquiring 30% of its shares. As a result,
Gawsengsit Corp. nominated 30o/o of the directors of
Bumblebee Corp., all of whom are Singaporeans and
officers of Gawsengsit Corp.

(A) The loss of the perfumes will be borne by the

bank in whose behalf the perfumes were held in
trust.
(B) Anton will bear the loss.
(C) The exporter can hold both the bank and Anton
liable for the loss.
(D) The exporter from whom Anton bought the
perfumes will bear the loss.
(E) No one bears the loss for an unforeseen event.
IX. A bank may acquire real property __________. (1%)
(A) by purchase at a public sale of properties levied
to satisfy tax delinquencies
(B) by purchase from a real estate corporation in
the ordinary course of the bank's business

(C) through dacion en pago in satisfaction of a debt

in favor of the bank

death of thousands of Filipinos. A ransom of P15 million

was placed on Kaddafy Benjelani's head.

(D) in exchange for the purchase of shares of

stocks of the bank
(E) All of the above.

Worried about the future of their family, Kaddafy

Benjelani's estranged wife, Aurelia, secured in December
2010 a life insurance policy on his life and designated
herself as the beneficiary.

(F) None of the above.

Is the policy valid and binding? (1%)

X. Under the Anti-Money Laundering Act, a depositor's

bank account may be frozen __________. (1%)
(A) by the bank when the account is the subject of
a suspicious or covered transaction report
(B) by the Anti-Money Laundering Council
(AMLC) when the account belongs to a person
already convicted of money laundering
(C) by the Regional Trial Court, upon ex parte
motion by the AMLC, in a criminal prosecution for
money laundering pending before it
(D) by the Court of Appeals motu proprio in an
appeal from a judgment of conviction of a criminal
charge for money laundering
(E) In none of the above.
XI. Unknown to the other four proponents, Enrico (who had
been given the task of attending to the Articles of
Incorporation of the proposed corporation, Auto Mo,Ayos
Ko) misappropriated the filing fees and never filed the
Articles of Incorporation with the Securities and Exchange
Commission (SEC). Instead, he prepared and presented to
the proposed incorporators a falsified SEC certificate
approving the Articles. Relying on the falsified SEC
certificate, the latter began assuming and discharging
corporate powers.
Auto Mo, Ayos Ko is a __________. (1%)
(A) de jure corporation
(B) de facto corporation
(C) corporation by estoppel
(D) general partnership
(E) None of the above.
XII. Preferred shares cannot vote on the proposal
__________. (1%)
(A) to include other corporate officers in the
corporation's by-laws
(B) to issue corporate bonds
(C) to shorten the corporate term
(D) All of the above.
(E) None of the above.
XIII. In 2010, the Philippine National Police declared
Kaddafy Benjelani "Public Enemy No. 1" because of his
terrorist activities in the country that have resulted in the

(A) Yes, the policy is valid and binding because

Aurelia has an insurable interest on the life of
Kaddafy Benjelani.
(B) No, the policy is not valid and binding because
Kaddafy Benjelani has been officially declared a
public enemy.
(C) Yes, the policy is valid and binding because it
has been in force for more than two years.
(D) No, the policy is not valid and binding since
the spouses' estrangement removed Aurelia's
insurable interest in Benjelani's life.
(E) None of the above.
XIV. Muebles Classico, Inc. (MC), a Manila-based furniture
shop, purchased hardwood lumber from Surigao Timber,
Inc. (STI), a Mindanao-based logging company. MC was to
pay STI the amount of P5.0 million for 50 tons of lumber.
To pay STI, MC opened a letter of credit with Banco de
Plata (BDP). BOP duly informed STI of the opening of a
letter of credit in its favor.
In the meantime, MC- which had been undergoing financial
reverses- filed a petition for corporate rehabilitation. The
rehabilitation court issued a Stay Order to stay the
enforcement of all claims against MC.
After shipping the lumber, STJ went to BDP, presented the
shipping documents, and demanded payment of the letter of
credit opened in its favor. MC, on the other hand, informed
the bank of the Stay Order and instructed it to deny payment
to STI because of the Stay Order. BDP comes to you for
advice. Your best advice is to __________. (1%)
(A) grant STI's claim. Under the "Independence
Principle," the bank deals only with the documents
and not the underlying circumstances; hence, the
presentation of the letter of credit is sufficient.
(B) deny STI's claim. The Stay Order covers all
claims against the debtor and binds all its creditors.
The letter of credit is a claim against the debtor that
is covered by the Stay Order.
(C) grant STI's claim. The letter of credit is not a
claim against the debtor under rehabilitation, but
against the bank which has assumed a solidary
obligation.
(D) deny STI's claim. If the bank disregards the
Stay Order, it may be subject to contempt by the
rehabilitation court. STI should file its claim with
the rehabilitation court.
(E) file an action for inter pleader to resolve the
parties' competing claims.
XV. Akiro of Tokyo, Japan sent various goods to his friend
Juan in Cebu City, Philippines, through one of the vessels of

Worth well Shippers, Inc., an American corporation. En

route to Cebu City, the vessel had two stops, first in Hong
Kong, and second, in Manila.
XV. (1) While travelling from Tokyo to Hong
Kong, the goods were damaged. What law will
govern? (1%)
(A) Japanese law
(B) Hong Kong law
(C) Chinese law
(D) Philippine law
(E) American law
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
within 10 years from delivery.
(C) Yes, provided he files the complaint
within 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
within 1 year from discovery of the
damage.