2018.

IV

Ysidro, a paying passenger, was on board Bus No. 904 owned and operated by Yatco
Transportation Company (Yatco). He boarded the bus at Munoz, Nueva Ecija with Manila as his final
destination. He was seated on the first row, window seat on the left side of the bus. As the bus was
negotiating the national highway in front of the public market of Gerona, Tarlac, the bus came to a
full stop because of the traffic. The driver of the bus took this opportunity to check on the tires of the
bus and to relieve himself. As he was alighting from the bus to do these, an unidentified man
standing along the highway hurled a huge rock at the left side of the bus and hit Ysidro between his
eyes. He lost consciousness and immediately the driver, with the conductor, drove the bus to bring
him to the nearest hospital. He expired before the bus could reach the hospital.

Ysidro's wife and children brought a civil action to collect damages from Yatco, alleging that as a
common carrier, it was required to exercise extraordinary diligence in ensuring the safety of its
passengers. They contended that, in case of injuries and/or death on the part of any of its
passengers, the common carrier is presumed to be at fault. In its defense, Yatco alleged that it is not
an absolute insurer of its passengers and that Ysidro's death was not due to any defect in the means
of transport or method of transporting passengers, or the negligent acts of its employees. Since the
accident was due to the fault of a stranger over whom the common carrier had no control, or of
which it did not have any prior knowledge to be able to prevent it, the cause of Ysidro's death should
be considered a fortuitous event and not the liability of the common carrier.

(a) Is a common carrier presumed to be at fault whenever there is death or injury to its
passengers, regardless of the cause of death or injury? (2.5%)

(b) What kind of diligence is required of common carriers like Yatco for the protection of its
passengers? (2.5%)

(c) Will your answer be the same as your answer in (b) above, if the assailant was another
paying passenger who boarded the bus and deliberately stabbed Ysidro to death? (2.5%)

Answer:

a. Yes, a common carrier is presumed to be at fault, upon the death or injury to its passengers.
Under the Civil Code, there is a presumption of negligence on the part of the common carrier upon
the death or injury of a passenger. Unless, the cause of death or injury is a fortuitous event.
Here, Ysidro’s death was cause by a third person which is not a fortuitous event. There was
negligence on the part of the driver when he left the bus to check the tires and relieve himself.
Hence, a common carrier is presumed to be at fault, upon the death or injury to its passengers.
b. The kind of diligence required of common carriers like Yatco for the protection of its passengers is to
carry passengers safely as far as human care and foresight can provide, using the utmost diligence of
a very cautious person, with due regard for all circumstances.
c. Yes, my answer would not be the same.
The Supreme Court has held that a common carrier is responsible for the death or injury of a
passenger caused by the willful acts of other passengers or strangers, if the common carrier’s
 employees could have prevented it through the exercise of ordinary diligence of a good father of a
family.

2017.7

VII.

A.

Virtucio was a composer of llocano songs who has been quite popular in the llocos Region.
Pascuala is a professor of music in a local university with special focus on indigenous music. When
she heard the musical works of Virtucio, she purchased a CD of his works. She copied the CD and
sent the second copy to her Music instructions for the class to listen to the CD and analyze the
works of Virtucio.

Did Pascuala thereby infringe Virtucio's copyright? Explain your answer. (4%)

B.

Super Biology Corporation (Super Biology) invented and patented a miracle medicine for the cure of
AIDS. Being the sole manufacturer, Super Biology sold the medicine at an exorbitant price. Because
of the sudden prevalence of AIDS cases in Metro Manila and other urban areas, the Department of
Health (DOH) asked Super Biology for a license to produce and sell the AIDS medicine to the public
at a substantially lower price. Super Biology, citing the huge costs and expenses incurred for
research and development, refused.

Assuming you are asked your opinion as the legal consultant of the DOH, discuss how you will
resolve the matter. (4%)

Answer:

a. No, Pascuala did not infringe Virtucio’s copyright.

Under the Fair Use Doctrine, there is no infringement if the copyrighted work was used for teaching,
including limited number of copies for classroom use.
Here, Pascuala copied the song and sent it to her class which was primarily for an classroom use.
Hence, Pascuala did not infringe Virtucio’s copyright.
b. As the legal consultant of Department of Health, I would file a petition for compulsory licensing with
the Director of Legal Affairs of the Intellectual Property Office as provided for under the Intellectual
Property Code. This will enable the Department to exploit the patented medicine without
agreement on the part of the Owner, on the ground of public interest, in particular, the health and
safety of the public.
Upon grant of the petition, the Department may manufacture and sell the said medicine at a lower
price, subject to the royalties to be paid to Super Biology.
2018.16

Yosha was able to put together a mechanical water pump in his garage consisting of suction
systems capable of drawing water from the earth using less human effort than what was then
required by existing models. The water pump system provides for a new system which has the
elements of novelty and inventive steps. Yosha, while preparing to have his invention registered with
the IPO, had several models of his new system fabricated and sold in his province.

(a) Is Yosha's invention no longer patentable by virtue of the fact that he had sold several
models to the public before the formal application for registration of patent was filed with the
IPO? (2.5%)

(b) If Yosha is able to properly register his patent with the IPO, can he prevent anyone who
has possession of the earlier models from using them? (2.5%)

a. No, Yosha’s invention is still patentable despite the sale of his models to the public before the
formal application for registration of patent was filed.
Under the Doctrine of Non-Prejudicial Disclosure, the disclosure of information contained in the
application within twelve months preceding the filing date or the priority date of the application
shall not prejudice the application on the ground of lack of novelty, if such disclosure was made by
the inventor himself.
Hence, Yosha’s invention is still patentable.
b. No, Yosha cannot prevent the persons in possession of the earlier models from using them.
Under the Intellectual Property Code, the rights of the patent owner over the use of the patented
product by third persons is limited when the patented product has been put on the market in the
Philippines by the owner himself.
Hence, Yosha cannot prevent the persons in possession of the earlier models from using them.

2015.14

XIV.

A. Differentiate trademark, copyright and patent from each other. (6%)

B. What is the doctrine of equivalents? (2%)

C. In what ways would a case for infringement of trademark be different from a case for
unfair competition? (3%)

Answers:

a. A trademark is any visible sign capable of distinguishing goods. A copyright is an incorporeal right
granted in favor of an author or creator of an original literary and artistic works. A patent is a
technical solution of any problem in any field of human activity which is new or novel, requires an
inventive step and is industrially acceptable.
 A trademark has a term of ten years. A copyright has a term of 50 years after the death of the
author or creator. A patent has a term of 20 years from application.
A trademark and patent are required to be registered with the Intellectual Property Office in order
to be binding against third parties; while, a copyright need not be registered with the Intellectual
Property Office in order to be binding against third parties.
The object of a trademark is a visible sign. The object of a copyright is a literary or artistic work. The
object of a patent is a technical solution to any problem.
b. Under the Doctrine of Equivalents, patent infringement occurs when a device appropriates a prior
innovative concept and albeit with some changes and modification but performs the same functions
in a substantially similar way producing similar results.
c. In infringement of trademarks, prior registration of trademark is a requisite; while in unfair
competition, prior registration is not a requisite.
In infringement of trademarks, fraudulent intent is necessary; while in unfair competition, it is
unnecessary.
Trademarks infringement is the unauthorized use of a trademark; unfair competition is passing of
one’s good as those of another.

2019.A.8

A.8.

KLM Printers, Inc. operated a small outlet located at the ground floor of a university building in
Quezon City. It possessed soft copies of certain textbooks on file, and would print "book-alikes" of
these textbooks (or in other words, reproduced the entire textbooks) upon order and for a fee. It
would even display samples of such "book-alikes" in its stall for sale to the public.

Upon learning of KLM Printers, Inc.'s activities, the authors of the textbooks filed a suit against it for
copyright infringement. In its defense, KLM Printers, Inc. invoked the doctrine of fair use, contending
that the "book-alikes" are being used for educational purposes by those who avail of them.

(a) What is the doctrine of fair use? (2%)

(b) Is KLM Printers, Inc.'s invocation of the doctrine of fair use proper in this case?
Explain. (3%)

a. Under the doctrine of fair use, the use of copyrighted work for comment, criticism, teaching,
including limited copies for classroom use, research, scholarship and similar purposes does not
constitute copyright infringement.
b. No, KLM Printer’s invocation of the doctrine of fair use is not proper in this case.
Under the Intellectual Property Code, the doctrine of fair use may not be invoked if the copyrighted
work is used for commercial purposes,
Here, the copyrighted works are reproduced in its entirety upon order and for a fee which
corresponds to commercial use.
Hence, KLM Printer’s invocation of the doctrine of fair use is not proper in this case.

2019.A.9
 A.9.

X Pharmaceuticals, Inc. has been manufacturing the antibiotic ointment Marvelopis, which is

covered by a patent expiring in the year 2020. In January 2019, the company filed an application for
a new patent for Disilopis, which, although constituting the same substance as Marvelopis, is no
longer treated as an antibiotic but is targeted and marketed for a new use, i.e., skin whitening.

(a) What are the three (3) requisites of patentability under the Intellectual Property
Code? (3%)

(b) Should X Pharmaceuticals, Inc.'s patent application for Disilopis be granted?

Explain. (2%)

a. The three requisites of patentability are: 1) new or novelty, 2) inventive step, and 3) industrially
acceptable.
b. No, the X Pharmaceuticals, Inc.’s patent application for Disilopis should not be granted.
Under the Universal Access for Quality and Cheaper Medicines Act, medicines constituting the same
substance to that of a patented medicine cannot be patented for its new or alternative use.
Hence, the new patent for Disilopis constituted the same substance as Marvelopis, a patented drug,
cannot be patented based on its new use.

2019.A.10

A.10.

In 2005, W Hotels, Inc., a multinational corporation engaged in the hospitality business, applied for
and was able to register its trademark "W" with the Intellectual Property Office of the Philippines
(IPO) in connection with its hotels found in different parts of the world.

In 2009, a Filipino corporation, RST Corp., filed before the IPO a petition for cancellation of W
Hotels, Inc.'s "W" trademark on the ground of non-use, claiming that W Hotels, Inc. failed to use its
mark in the Philippines because it is not operating any hotel in the country which bears the "W"
trademark.

In its defense, W Hotels, Inc. maintained that it has used its "W" trademark in Philippine commerce,
pointing out that while it did not have any hotel establishment in the Philippines, it should still be
considered as conducting its business herein because its hotel reservation services, albeit for its
hotels abroad, are made accessible to Philippine residents through its interactive websites
prominently displaying the "W" trademark. W Hotels, Inc. also presented proof of actual booking
transactions made by Philippine residents through such websites.

Is W Hotels, Inc.'s defense against the petition for cancellation of trademark tenable?
Explain. (5%)

Yes, W Hotel’s defense against the petition for cancellation of trademark is tenable.

The Supreme Court has held in a similar case that the use of trademark is not only limited to actual
operations in the Philippines, but also through online transactions relating to its business which are
executed in the Philippines.
Here, W Hotel has proved that there were actual online booking transactions made by Philippine
residents of their hotel services, resulting in use of the trademark of W Hotels.

Hence, W Hotel’s defense against the petition for cancellation of trademark is tenable.

2019.B.19

B.19.

LMN, Inc. operates a beach resort in a secluded island off the coast of Puerto Princesa City,
Palawan. It operates three (3) motorized boats to ferry its guests from the city proper to the island
resort and vice-versa. During one rainy morning, the guests were informed that the ferry services for
that day were cancelled due to a storm forecast. In order to appease the apparent dismay of most of
the guests who will miss their flight back to Manila, the boat captain of one of LMN, Inc.'s motorized
boats decided to push through with its trip back to the city. Shortly after the boat sailed, the storm hit
and the winds and waves became stronger, causing engine trouble to the boat. Unfortunately, the
boat capsized and sank, resulting in the death of one of the passengers, Mr. X.

This prompted Mr. X's heirs to file a complaint for damages against LMN, Inc., which they alleged to
be a common carrier. In its defense, LMN, Inc. maintained that it is not a common carrier because its
boats are not available to the general public but only ferry resort guests and employees.

(a) May LMN, Inc. be considered a common carrier? Explain. (3%)

(b) Assuming LMN, Inc. is a common carrier, may it be absolved from liability on the
ground of fortuitous event? Explain. (2%)

Answer:

a. Yes, LMN, Inc. is considered as a common carrier.

Under the Civil Code, persons engaged in the transport of goods and passengers by land, air or
water, holding itself out to the public for compensation, is a common carrier. It is a common carrier
even though its services are limited to a limited clientele.
Here, the company operates three motorized boats to ferry its guest from the city proper to the
resort and vice versa.
Hence, LMN, Inc. is considered as a common carrier.
b. No, LMN, Inc. may not be absolved from liability due to fortuitous event.
Under the Civil Code, fortuitous event is any event or occurrence which is not foreseeable, or
though foreseeable is inevitable.
Here, the storm that caused the death of Mr. X is not a fortuitous event because it is foreseeable
and may have been avoided if the common carrier exercised extraordinary diligence.
Hence, LMN, Inc. may not be absolved from liability due to fortuitous event.

2018.6

VI
Shortly after Yin and Yang were wed, they each took out separate life insurance policies on their
lives, and mutually designated one another as sole beneficiary. Both life insurance policies provided
for a double indemnity clause, the cost for which was added to the premium rate. During the last 10
years of their marriage, the spouses had faithfully paid for the annual premiums over the life policies
from both their salaries. Unfortunately, Yin fell in love with his officemate, Vessel, and they carried
on an affair. After two years, their relationship bore them a daughter named Vinsel. Without the
knowledge of Yang, Yin changed the designation of the beneficiary to an "irrevocable designation" of
Vinsel and Vessel jointly. When Yang learned of the affair, she was so despondent that, having
chanced upon Yin and Vessel on a date, she rammed them down with the car she was driving,
resulting in Vin's death and Vessel's complete loss of mobilization. Yang was sued for parricide, and
while the case was pending, she filed a claim on the proceeds of the life insurance of Yin as
irrevocable beneficiary, or at least his legal heir, and opposed the claims on behalf of Vessel and her
daughter Vinsel. Yang claimed that her designation as beneficiary in Vin's life insurance policy was
irrevocable, in the nature of one "coupled with interest," since it was made in accordance with their
mutual agreement to designate one another as sole beneficiary in their respective life policies. She
also claimed that the beneficiary designation of Vessel and the illegitimate minor child Vinsel was
void being the product of an illicit relationship, and therefore without "insurable interest."

(a) Is Yang correct in saying that her designation as beneficiary was irrevocable? (2.5%)

(b) Do Vessel and Vinsel have "insurable interest" on the life of Yin? (2.5%)

Answers:

a. No, Yang was not correct in saying that her designation as beneficiary of Yin was irrevocable.
Under the Insurance Code, an insured has the right to change the beneficiary he designated in the
policy, unless he has expressly waived this right in the policy.
Here, the insurance contract did not explicitly state Yin waived his right to change the designated
beneficiary.
Hence, Yang was not correct in saying that her designation as beneficiary of Yin was irrevocable.
b. Vinsel, the illegitimate daughter of Yin, has insurable interest on the life of Yin. The Supreme Court
has ruled that children, whether or not born out of licit or illicit marriages, have insurable interest
over the life of their parents.
Vessel did not have insurable interest. Persons prohibited to become donees under the Rules on
Donation, such as those persons in an illicit relationship, cannot be appointed as beneficiaries of
each other.

2017.10

X.

Wisconsin Transportation Co., Inc. (WTC) owned and operated an inter-island de luxe bus service
plying the Manila-Batangas-Mindoro route. Three friends, namely: Aurelio, Jerome and Florencio
rode on the same WTC bus from Manila bound for Mindoro. Aurelio purchased a ticket for himself.
Jerome, being a boyhood friend of the bus driver, was allowed a free ride by agreeing to sit during
the trip on a stool placed in the aisle. Florencio, already penniless after spending all of his money on
beer the night before, just stole a ride in the bus by hiding in the on-board toilet of the bus.
During the trip, the bus collided with another bus coming from the opposite direction. The three
friends all suffered serious physical injuries.

What are WTC's liabilities, if any, in favor of Aurelio, Jerome and Florencio? Explain your answer.
(4%)

WTC is liable to Aurelio, Jerome and Florencio.

Under the Civil Code, a common carrier is presumed to be at fault or negligent upon the death or injury
of its passenger, unless the common carrier exercised extraordinary diligence in ensuring the safety of
its passengers. The Supreme Court also held in a similar case that contract of carriage is perfected
despite the failure of the passengers to pay the corresponding fare or fee.

Hence, WTC is liable to Aurelio, Jerome and Florencio, despite the failure of Jerome and Florencio to pay
the corresponding fare.

2019.A.6

A.6.

In January 2016, Mr. H was issued a life insurance policy by XYZ Insurance Co., wherein his wife,
Mrs. W, was designated as the sole beneficiary. Unbeknownst to XYZ Insurance Co., however, Mr.
H had been previously diagnosed with colon cancer, the fact of which Mr. H had concealed during
the entire time his insurance policy was being processed.

In January 2019, Mr. H unfortunately committed suicide. Due to her husband's death, Mrs. W, as
beneficiary, filed a claim with XYZ Insurance Co. to recover the proceeds of the late Mr. H's life
insurance policy. However, XYZ Insurance Co. resisted the claim, contending that: 1. the policy is
void ab initio because Mr. H fraudulently concealed or misrepresented his medical condition, i.e., his
colon cancer; and 2. as an insurer in a life insurance policy, it cannot be held liable in case of
suicide. Rule on each of XYZ Insurance Co.'s contentions. (5%)

Rule on each of XYZ Insurance Co.'s contentions. (5%)

Answer:

1. XYZ Insurance Co.’s contention that Mr. H fraudulently concealed his medical contention is not
meritorious.
Under the Incontestability Clause, the insurer cannot contest the representations made by the
insured after the lapse of two years from the effectivity of the insurance contract.
Here, XYZ Insurance Co. contested the concealment made by Mr. H in his insurance contract three
years after its effectivity.
Hence, XYZ Insurance Co.’s contention that Mr. H fraudulently concealed his medical contention is
not meritorious.
2. XYZ Insurance Co.’s contention that it cannot be held liable in case of suicide by the insured is
meritorious.
The Supreme Court has held that an insurer cannot be held liable to the death of the insured due to
suicide in a life insurance policy.
 Hence, XYZ Insurance Co.’s contention that it cannot be held liable in case of suicide by the insured
is meritorious.

2015.2

II.

A. Novette entered into a contract for the purchase of certain office supplies. The goods were
shipped. While in transit, the goods were insured by Novette. Does she have an insurable
interest over the goods even before delivery of the same to her? Explain. (2%)

B. Will an insurance policy be binding even if the premium is unpaid? What if it were partially
paid? (3%)

Answer:

a. Yes, Novette has insurable interest over the goods even before its delivery to her.
Under the Insurance Code, insurable interest may be an inchoate right over the property. Also, there
is insurable right when the party may be indemnified due of the damage, or loss of the property.
Here, Novette, the purchases of the office supplies, has inchoate right over the property and may be
indemnified due to its damage or loss.
Hence, Novette has insurable interest over the goods even before its delivery to her.
b. No, the insurance policy will not be binding if he premium is unpaid.
Under the Insurance Code, an insurance contract will be valid and binding only upon the payment of
the insured of the corresponding premium.
Even if it were partially paid, the insurance policy will still not be binding since the law explicitly
requires payment of the premium for the insurance contract to be valid and binding. However, if the
contract explicitly states that payment in installment may be made, it will be valid and binding.

2015.3

III.

A. Discuss the three-fold character of a bill of lading. (3%)

B. What is a "Jason clause" in a charter party? (2%)

C. Are common carriers liable for injuries to passengers even if they have observed ordinary
diligence and care? Explain. (2%)

a. The three-fold character of a bill of lading are it is a contract of carriage, a receipt and a document of
title.
It is a contract between the shipper, the carrier and the consignee, who undertake the specific terms
and conditions therein.
 It is also an evidence of receipt for goods shipped.
It is also a document of title to the goods shipped.
b. Under the Jason Clause, a shipowner, provided he exercised due diligence to make the ship
seaworthy and properly manned, equipped and supplied, could claim a general average contribution
from cargo, even when the damage was caused by faulty navigation of the vessel, provided that the
bill of lading excluded liability from such faults.
c. Yes, common carriers are liable for injuries to passengers even if they have observed ordinary
diligence and care.
Under the Civil Code, common carriers shall carry their passengers safely as far as human care and
foresight can provide, using the utmost diligence of a very cautious person, with due regard to all
circumstance.

2019.A.2

A.2.

In May 2018, ABC Corp. entered into a merchandising contract which terms and conditions were
totally lopsided in favor of the counterparty, XYZ, Inc. As a result, ABC Corp. suffered tremendous
financial losses.

A year after, or in May 2019, Mr. X became a stockholder of ABC Corp. Learning about the
circumstances surrounding the merchandising contract, Mr. X filed a derivative suit against ABC
Corp. 's directors to claim damages on behalf of ABC Corp. due to their mismanagement.

(a) What is a derivative suit? (2%)

(b) Was Mr. X's filing of a derivative suit proper? Explain. (3%)

a. The Supreme Court has held that a derivative suit is an action filed by a stockholder in the name of
and in behalf of the corporation to enforce a cause of action or corporate right to set aside wrongful
acts committed by its directors, trustees or officer.
b. No, Mr. X’s filing of a derivative suit is not proper.
The Supreme Court has held in a similar case that a derivative suit may be filed by a stockholder who
was a stockholder at the time the transaction constituting the action occurred and at the time of the
filing of the derivative suit.
Here, Mr. X became a stockholder a year after the alleged prejudicial transaction.
Hence, Mr. X’s filing of a derivative s
uit is not proper.

2019.A.3

A.3.
In June 2018, DEF Corp. sent notices to its stockholders informing them of the corporation's
issuance of new shares of stock. The notice included a reminder that, pursuant to DEF Corp.' s
Articles of Incorporation, any stockholder who fails to exercise his or her pre-emptive right within
three (3) weeks from receipt of notice would be considered to have waived the same.

Ms. Z, a stockholder of DEF Corp., failed to exercise her pre-emptive right within the said period.
However, she claimed that she did not validly waive her right to do so because a waiver must be
expressed in writing.

(a) Explain the concept of pre-emptive right under the Corporation Code. (2 %)

(b) Is Ms. Z's contention correct? Explain. (3%)

a. Under the Revised Corporation Code, a pre-emptive right is a right of a stockholder to subscribe to
any or all issuance or disposition of shares of any class by the corporation in proportion to their
shareholdings in the corporation. These may be exercised in case of an increase capital stock,
opening for subscription of unissued portion of existing capital stock, and disposition of treasury
shares.
b. No, Ms. Z’s contention is not correct.
The Supreme Court has held that pre-emptive right may be limited in the Article of Incorporation of
a corporation.
Hence, the limitation on the exercise of pre-emptive right set forth in the Articles of Incorporation of
DEF Corp. is binding against Ms. Z. Thus, her contention is not correct.

2019. A.4

A.4.

In 2016, X Corp. obtained a loan worth ₱50,000,000.00 from J Bank, which was secured by a third-
party mortgage executed by Y, Inc. in favor of X Corp. Since X Corp. was not able to settle its loan
obligation to J Bank when it fell due, and despite numerous demands, J Bank foreclosed the
mortgaged properties. The properties were sold in a foreclosure sale for ₱35,000,000.00, thereby
leaving a ₱15,000,000.00 deficiency. For failure of X Corp. to pay said deficiency, J Bank filed a
complaint for sum of money against X Corp., its President, Mr. P, and Y, Inc.

With respect to Mr. P, J Bank argued that he should be held solidarily liable together with X Corp.
because he signed the loan document on behalf of X Corp. in his capacity as President. On the
other hand, J Bank contended that Y, Inc. should also be held solidarily liable because the
shareholdings of both corporations are identically owned and their operations are controlled by the
same people; hence, Y, Inc. is a mere alter ego of X Corp.

(a) Should Mr. P be held liable? Explain. (2.5%)

(b) Should Y, Inc. be held liable? Explain. (2.5%)

Answer:
a. No, Mr. P should not be held liable for the loan obtained by X Corp. against J Bank.
Under the Doctrine of Separate and Distinct Personality, a corporation has a personality separate
and distinct from the shareholders, members, composing it and directors, trustee or officers who act
on its behalf.
Here, Mr. P signed the loan document in his capacity as the President of X Corp. and not in his
personal capacity.
Hence, Mr. P should not be held liable for the loan of X Corp. against J Bank.
b. No, Y, Inc. should not be held liable for the loan obtained by X Corp. against J Bank.
Under the Piercing the Corporate Veil Doctrine, the similarity in the shareholders constituting the
corporation and its management does not constitute a violation of the said doctrine.
Hence, Y, Inc. should not be held liable for the loan obtained by X Corp. against J Bank.

2019.A.5

A.5.

Mr. Y filed a case captioned as "Injunction with Prayer for Status Quo Order, Temporary Restraining
Order and Damages" against Z Company to prohibit the latter from selling shares which Mr. Y
purportedly bought from Z Company. Mr. Y alleged that the subscription for the said shares was
already partly paid by him, but the subject shares were nonetheless being offered for sale by Z
Company to the corporation's other stockholders.

(a) Is the case filed by Mr. Y against Z Company considered an intra-corporate

dispute? Explain. (2.5%)

(b) Assuming that it was Z Company which instead filed a case against Mr. Y in order
to collect the unpaid balance of his stock subscriptions, is the case considered an
intra-corporate dispute? Explain. (2.5%)

Answer:

a. No, the case filed by Mr. Y against Z Company is not considered an intra-corporate dispute.
The Supreme Court has held that an action filed by a stockholder against the corporation is an intra-
corporate suit.
Here, partial payment by Mr. Y of his subscription with Z Company does not make him a stockholder.
Hence, the case filed by Mr. Y against Z Company is not considered an intra-corporate dispute.
b. Yes, the case filed by Z Company against Mr. Y is an intra-corporate dispute.
The Supreme Court has held that an action filed by the corporation against a stockholder for
collection of unpaid balance of his stock subscription is an intra-corporate suit.
Hence, the case filed by Z Company against Mr. Y is an intra-corporate dispute.

2018.9
 IX

Yangchou lnc.'s (YI) Articles of Incorporation (AOI) provides for two (2) types of shares of stock:
common and preferred shares. Its AOI further provides that "the preferred shares shall have a
guaranteed annual dividend of 3% of the par value." Its By-Laws also specifically provides that
"preferred shareholdings shall be cumulative and participating." No other terms of preference are
provided for preferred shares in either the AOI or By-Laws of YI.

For the first five years of operations, the company was operating at a loss. At the end of the sixth
year, YI realized a net profit of PhP 100 million, and unrestricted retained earnings of PhP 30 million.
The YI Board of Directors declared and paid out dividends of 1 % on common shares, and 5% on
preferred shares, which amounted to a total of PhP 30 million.

However, the preferred shareholders made a formal demand that they be given an additional 3%
dividend for each of the five (5) years based on the preferred shares features of "cumulative and
participating," and an additional 1 % given to the common shareholders, which could all be
accommodated within the remaining balance of the net profits.

Should Yi's Board heed the demand of its preferred shareholders? (2.5%)

Answer:

No, the demand of Yangchou Inc.’s preferred shareholders against its Board is without merit.

The Supreme Court has held that dividends in favor of preferred shareholders shall be binding against
the corporation upon declaration made by the Board of Directors. The feature of “cumulative and
participating” is irrelevant since there was no declaration by the Board in the prior years.

Hence, the demand of Yangchou Inc.’s preferred shareholders against its Board is without merit.

2017.3

III.

A.

Data Realty, Inc. (DRI) was engaged in realty development. The family of Matteo owned 100°/o of
the capital stock of ORI. Matteo was also the President and Chairman of the Board of Directors.
Other members of Matteo's family held the major positions in ORI. Because of a nasty takeover fight
with D&E Realty Co., Inc. (D&E), another realty developer, for the control of a smaller realty
company with vast landholdings, ORI and D&E engaged in an expensive litigation that eventually led
to a money judgment being rendered in favor of D&E.

Meantime, DRI, facing inability to pay its liabilities as they fall due but still holding substantial assets,
filed a petition for voluntary rehabilitation. Trying to beat the consequences of rehabilitation
proceedings, D&E moved in the trial court for the issuance of a writ of execution. The trial court also
happened to be the rehabilitation court. The writ of execution was issued.
Serving the writ of execution, Merto, the court sheriff who had just passed his Credit Transactions
subject in law school, garnished Matteo's bank accounts, and levied his real properties, including his
house and lot in Makati.

Are the garnishment and levy of Matteo's assets lawful and proper? Explain your answer. (4%)

B.

Sid used to be the majority stockholder and President of Excellent Corporation (Excellent). When
Meridian Co., Inc. (Meridian), a local conglomerate, took over control and ownership of Excellent, it
brought along its team of officers. Sid thus became a minority stockholder and a minority member of
the Board of Directors. Excellent, being the leading beverage manufacturer in the country, became
the monopoly when Meridian's own beverage business was merged with Excellent's, thereby making
Excellent virtually the only beverage manufacturer in the country.

Left out and ignored by the management, Sid became a fiscalizer of sorts, questioning during the
Board meetings the direction being pursued by Excellent's officers.

Ultimately, Sid demanded the inspection of the books and other corporate records of Excellent. The
management refused to comply, saying that his right as a minority stockholder has been much
reduced.

State under what conditions may Sid properly assert his right to inspect the books and other
corporate records of Excellent. Explain your answer. (3%)

Answer:

A. No, the garnishment and levy of Matteo’s assets is not lawful and proper.
Under the Doctrine of Separate Juridical Personality, a corporation has a separate and distinct
personality from the stockholders and members who compose it or directors, trustees and officers
who manage it.
Here, DRI has a separate and distinct personality from Matteo, the President and Chairman of the
Board of Directors of the former.
Hence, the garnishment and levy of Matteo’s assets is not lawful and proper.
B. Under the Revised Corporation Code, Sid may properly assert his right to inspect the books and
corporate records of Excellent under the following circumstances:
1. The purpose of the inspection is legitimate and germane to his interest as a stockholder;
2. The right should be exercised any time during reasonable hours on a business day; and
3. He has not improperly used any information secured in previous inspection.

2018.11

XI

Yenetic Corporation wants to increase its Authorized Capital Stock (which is currently fully
subscribed and issued) to be able to increase its working capital to undertake business expansions.
The Board of Directors consults with you as legal counsel on the proper answers to the following
issues: (2.5% each)

(a) Can Yenetic's AOI be formally amended to remove the right of appraisal on all dissenting
stockholders in all matters under the law which requires a ratification vote of the
stockholders?

(b) If the increase in Authorized Capital Stock is formally submitted to the stockholders in a
meeting duly called for the purpose, what is the vote necessary for the stockholders'
ratification, and may the dissenting stockholders exercise their appraisal right?

(c) Once the increase in the Authorized Capital Stock of Yenetic has been legally effected
with the SEC, can the new shares from the unissued shares be offered to a new limited
group of investors without having to offer them to the shareholders of record since no pre-
emptive right is provided for in the AOI and By-laws of Yenetic?

a. No, Yenetic’s AOI cannot be formally amended to remove the right of appraisal on all dissenting
stockholders in all matters under the law which requires a ratification vote of the stockholders.
The Supreme Court has held that appraisal right are statutory rights; hence, stockholders cannot be
deprived of it through amendment in the articles of incorporation.
b. Under the Revised Corporation Code, increase in Authorized Capital Stock should be ratified by two-
thirds (2/3) vote of the stockholders having outstanding capital stocks of the corporation.
Under the Revised Corporation Code, dissenting stockholders cannot exercise their right of appraisal
upon approval of increase in Authorized Capital Stock.
c. No, new shares from the unissued shares cannot be offered to a new limited group of investors
without having to offer them to the shareholders of record since no pre-emptive right is provided
for in the AOI and By-laws of Yenetic.
Under the Revised Corporation Code, pre-emptive right may be restricted or denied only by express
provision of the articles of incorporation. Since the articles do not contain such restriction or
limitation, pre-emptive right may be exercised by the shareholders of record.

2019.B.14

B.14.

ABC Corp. is a company which shares are listed in the Philippine Stock Exchange. In 2015, 25% of
ABC Corp.'s shareholdings were acquired by XYZ, Inc., while 40% of the same were acquired by
RST, Inc., both of which are non-listed private corporations. Meanwhile, the remaining 35% of ABC
Corp.'s shareholdings are held by the public.

In 2018, or three years (3) after it acquired its 25% stake in ABC Corp., XYZ, Inc. sought to obtain an
additional 12% shareholding in ABC Corp. by purchasing some of the shares owned by RST, Inc.
therein. The new acquisition will not, however, result in XYZ, Inc. gaining majority control of ABC
Corp.'s Board.

Is XYZ, Inc. required to conduct a tender offer? Explain. (3%)

Answer:

No, XYZ, Inc. is not required to conduct a tender offer.

Under the Securities Regulation Code, a tender offer should be made when a corporation acquires
ownership of more than 35% one-time or over a period of 12 months, or when it acquires less than 35%
and the purchase will result in ownership of over 51% of total outstanding equity securities.

Here, XYZ Inc. did not acquire 35% shares of ABC Corp. nor did it acquire shares resulting in ownership of
more than 51% of the total outstanding equity securities of the corporation.

Hence, XYZ, Inc. is not required to conduct a tender offer.

2019.B.15

B.15.

Mr. P, the President of JKL, Inc. which shares are listed in the Philippine Stock Exchange, was
notified that the corporation has just been awarded a ₱5,000,000,000.00 construction contract by a
reputable private company. Before this information could be disclosed to the public, Mr. P called his
stockbroker to purchase 20,000 shares of JKL, Inc. He also mentioned the transaction to his brother,
Mr. B. Mr. B, who was not involved at all in the business of JKL, Inc., also bought 50,000 shares of
JKL, Inc. because of the tip disclosed to him by Mr. P.

(a) Is the information disclosed by Mr. P to Mr. B considered as material nonpublic

information for purposes of insider trading? Explain. (2%)

(b) Should Mr. P and Mr. B be held liable for insider trading? Explain. (3%)

Answer:

a. Yes, the information disclosed by Mr. P to Mr. B is considered as material, non-public information
for purposes of insider trading.
Under the Securities Regulation Act, a material, non-public information is any information which is
generally not available to the market and would likely affect the market price of the security after
being disseminated to the public and would be considered by a reasonable person important under
the circumstances in determining his course of action whether to buy, sell or hold the security.
b. Yes, Mr. P and Mr. B may be held liable for insider trading.
Under the Securities Regulation Act, insider trading is any unlawful trading done by an insider upon
a material, non-public information. An insider may be a stockholder, director or officer of a listed
corporation or a tipee who derived information from an insider.
Hence, Mr. P may be held liable for insider trading as he is considered an insider who traded using
material, non-public information about a listed corporation. Mr. B is also liable for insider trading as
a tipee.
Hence, Mr. P and Mr. B may be held liable for insider trading.
2017.4

IV.

Procopio, a Director and the CEO of Parisian Hotel Co., Inc. (Parisian), was charged along with
other company officials with several counts of estafa in connection with the non-remittance of SSS
premiums the company had collected from its employees. During the pendency of the cases,
Parisian filed a petition for rehabilitation. The court, finding the petition to be sufficient in form and
substance, issued a commencement order together with a stay or suspension order.

Citing the commencement order, Procopio and the other officers facing the criminal charges moved
to suspend the proceedings in the estafa cases.

(a) What is a commencement order, and what is the effect of its issuance? Explain your
answer. (4%)

(b) Suppose you are the trial judge, will you grant the motion to suspend of Procopio, et
al.? Explain your answer. (4%)

Answer:

a. Under the Financial Rehabilitation and Insolvency Act, a commencement order is an order issued by
the RTC for the commencement of an approved Rehabilitation Plan of a Debtor.
The issuance of a commencement order puts the Debtor under the control of a rehabilitation
receiver for the implementation of the Rehabilitation Plan. Moreover, the issuance of a
commencement order together with a stay or suspension order suspends all the actions or
proceedings for the enforcement of claims against the Debtor.
b. No, as the trial judge, I will not grant the motion to suspend of Procopio, et al.
Under the Financial Rehabilitation and Insolvency Act, a stay or suspension order suspends all
proceedings or actions involving claims against the Debtor. The proceedings or actions suspended
only involve claims against the debtor corporation and not against its directors or officers.
Here, the motion to suspend involved estafa case filed against Procopio and other officers.
Hence, I will not grant the motion to suspend.

2018.5

Yellow Fin Tuna Corporation (Yellow Fin), a domestic corporation, applied for a credit facility in the
amount of PhP 50 million with Yengzi Financial Corporation (YFC). The application was approved
and the Credit Agreement was signed and took effect. Ysko and Yuan, Yellow Fin Chairman and
President, respectively, executed a Continuing Suretyship Agreement in favor of YFC wherein they
guaranteed the due and full payment and performance of Yellow Fin's guarantee obligations under
the credit facility. YFC soon discovered material inconsistencies in the financial statements given by
Yellow Fin, drawing YFC to conclude that Yellow Fin committed misrepresentation. Under the Credit
Agreement, any misrepresentation by Yellow Fin or its sureties will constitute an event of default.
YFC thus called an event of default and filed a complaint for sum of money against Yellow Fin, Ysko,
and Yuan. Immediately thereafter, Yellow Fin filed a petition for rehabilitation. The court suspended
the proceedings in YFC's complaint until the rehabilitation court disposed of the petition for
rehabilitation. YFC posits that the suspension of the proceedings should only be with respect to
Yellow Fin but not with respect to Ysko and Yuan.

Is YFC correct? (2.5%)

Answer:

Yes, YFC is correct that the suspension of the proceedings should only be with respect to the action or
proceeding against Yellow Fin and not with respect to Ysko and Yuan.

Under the Financial Rehabilitation and Insolvency Act, a suspension order results in the suspension of all
actions or proceedings against the debtor corporation. It does not apply against the directors or officers
of the debtor corporation.

Here, the suspension order may only be applied against Yellow Fin, the debtor corporation, and not
against Ysko and Yuan, the corporations’s chairman and president, respectively.

Hence, YFC is correct.

2017.6

VI.

A.

Hortencio owned a modest grocery business in Laguna. Because of the economic downturn, he
incurred huge financial liabilities. He remained afloat only because of the properties inherited from
his parents who had both come from landed families in Laguna. His main creditor was Puresilver
Company (Puresilver), the principal supplier of the merchandise sold in his store. To secure his
credit with Puresilver, he executed a real estate mortgage with a dragnet clause involving his family's
assets worth several millions of pesos.

Nonetheless, Hortencio, while generally in the black, now faces a situation where he is unable to pay
his liabilities as they fall due in the ordinary course of business. What will you advise him to do to
resolve his dire financial condition? Explain your answer. (5%)

B.

Wyatt, an internet entrepreneur, engaged in a sideline business of creating computer programs for
selected clients on a per project basis and for servicing basic computer problems of his friends and
family members. His main job was being an IT consultant at Futurex Co., a local computer company.

Because of his ill-advised investments in the stock market and the fraud perpetrated against him by
his trusted confidante, Wyatt was already drowning in debt, that is, he had far more liabilities than his
entire assets.
What legal recourse remained available to Wyatt? Explain your answer. (5%)

Answer:

A. I would advise Hortencio to file a petition for rehabilitation before the proper Regional Trial Court as
provided for under the Financial Rehabilitation and Insolvency Act.
Under the said Act, Hortencio may file a voluntary or debtor-initiated rehabilitation on the ground
that he will not be able to pay his liabilities or obligations as they fall due. The commencement order
which includes a stay or suspension order of all proceedings and actions of claims against Hortencio
will enable him to improve his financial condition.

B. The legal recourse available to Wyatt is to file a petition for voluntary liquidation as provided for
under the Financial Rehabilitation and Insolvency Act.
Under the said Act, Wyatt may file a voluntary insolvency petition on the ground that the value of
his liabilities is greater compared to that of his assets. This will enable him to be discharged of his
outstanding liabilities, to maximize the recovery from his remaining assets, and to effect equitable
distribution of the proceeds of such assets based on the rules of concurrence and preference of
credit.

2019.B.17

B.17.

Several public officials were charged before the Sandiganbayan for violation of the Anti-Graft and
Corrupt Practices Act involving the anomalous award of a multi-billion contract to Corporation Z. The
Information alleged that each of the accused received kickbacks from Corporation Z in exchange for
the dispensation of certain bidding requirements, and that the said kickbacks were deposited to the
accused's respective bank accounts in the Philippines. Upon request of the Office of the
Ombudsman, the Compliance and Investigation Staff of the Anti-Money Laundering Council (AMLC)
conducted an intelligence database search. The search revealed that there were remittances to the
bank accounts of the accused with six (6) different banks.

(a) May the AMLC examine the bank accounts of the accused-public officials even
without seeking a prior court order? Explain.(2.5%)

(b) May a court order be issued ex parte for the freezing of the bank accounts of the
accused-public officials upon application of the AMLC? If so, in what instance may
this be done and which court can issue such order? Explain. (2.5%)

Answer:

a. Yes, the Anti-Money Laundering Council may examine the bank accounts of the accused-public
officials even without seeking a prior court order.
 Under the Anti-Money Laundering Act, the Anti-Money Laundering Council has the right to examine
bank accounts of the accused-public officials without prior court approval since they are charged
with offense involving graft and corrupt practices.
the AMLC may examine the bank accounts of the accused-public officials even without seeking a
prior court order.
b. Yes, a court order may be issued ex parte for the freezing of bank accounts of accused-public
officials upon application of the Anti-Money Laundering Council.
Under the Anti-Money Laundering Act, the Anti-Money Laundering Council may file an ex parte
petition Court of Appeals to freeze the bank accounts of accused-public officials with the. The Court
of Appeals would then issue a freeze order upon determination that probable cause exist that any
monetary instrument or property represents, involves or relates to the proceeds of an unlawful
activity which includes graft and corruption.

2018.18

XVIII

Through various acts of graft and bribery, Mayor Ycasiano accumulated a large amount of wealth
which he converted into U.S. dollars and deposited in a Foreign Currency Deposit Unit (FCDU)
account with the Yuen Bank (YB). On a tip given by the secretary of the mayor, the Anti-Money
Laundering Council (AMLC) sent an order to YB to confirm the amount of U.S. dollars that Mayor
Ycasiano had in his FCDU account. YB claims that, under the Foreign Currency Deposit Act (R.A.
No. 6426, as amended), a written permission from the depositor is the only instance allowed for the
examination of FCDU accounts. YB alleges that AMLC on its own cannot order a banking institution
to reveal matters relating to bank accounts.

(a) Is the legal position of YB, in requiring written permission from the depositor, correct?
(2.5%)

(b) Does AMLC have the power to order a banking institution to reveal matters relating to
bank accounts? (2.5%)

Answer:

a. Yes, YB is correct in requiring the written permission of the depositor, Mayor Ycasiano, regarding
bank inquiry.
Under the Anti-Money Laundering Act, an inquiry on the bank deposits of any person may be allow
upon an ex parte application filed by the Anti-Money Laundering Council before the proper Court of
Appeals and after determination of probable cause by the Court of Appeals that money is related to
any unlawful activity as provided for in the Act.
Here, the Anti-Money Laundering Council only sent an order to disclose bank details of Mayor
Ycasiano without filing a petition with the Court of Appeals.
Hence, YB is correct in requiring the written permission of the depositor, Mayor Ycasiano, regarding
bank inquiry.
b. Yes, Anti-Money Laundering Council have the power to order a banking institution to reveal matters
relating to bank accounts
 Under the Anti-Money Laundering Act, the Anti-Money Laundering Council has the power to order
the disclosure of bank accounts, without any court order, in cases involving kidnapping for ransom,
drug trafficking, terrorism and similar foreign offenses.

2019.A.1

A.1.

Define the following terms:

(a) Trust fund doctrine (2%)

(b) Unfair competition (2%)

(c) Insurable interest in property (2%)

(d) Splitting of deposits (2%)

Answer:

a. Under the Trust Fund Doctrine, the corporation’s subscribed capital stock is held for the benefit of
its creditors for the satisfaction of their credit. Hence, a corporation is prohibited from distribution
its capital stock, unless after its liquidation, or amendment of its articles of incorporation to reduce
authorized capital stock.
b. Under the Intellectual Property Code, unfair competition is the passing off or the attempt to pass of
upon the public of the good or business of one person as the goods or business of another, with the
ultimate end of deceiving the public.
c. Under the Insurance Code, an insurable interest in property exists when an insured may be
indirectly damnified from the loss or damage resulting from the perils or risks insured against from.
It may be an existing right, and inchoate interest founded on an existing interest, or an expectancy
couple with an existing interest in that out of which the expectancy arises.
d. Under the Philippine Insurance Deposit Commission Charter, splitting of deposits occurs when a
deposit accounts with an outstanding balance exceeding the statutory maximum amount of
insurable deposit is broken down and transferred to two or more deposit accounts in the name of
natural or juridical persons who have no beneficiary ownership on it, within 120 days immediately
preceding from the announcement of a bank holiday or declaration of closure of the bank.

2010.B.11.

W Medical, Inc. operated a full-service hospital named WMed. Using its stockholders' advances and
a mortgage loan from Bank X, W Medical, Inc. commenced the construction of a new 11-storey
WMed Annex Building. Unfortunately, due to financial constraints, only seven (7) floors were
constructed and the WMed Annex Building remained unfinished.

Despite the non-completion of the WMed Annex Building, W Medical, Inc. continued its operations
and earned modest revenues. While W Medical, Inc.'s assets are more than its liabilities and it is
able to turn a monthly profit, it could not pay its loan installments to Bank X as they fall due.
 (a) What is the concept of "insolvency" under the Financial Rehabilitation and
Insolvency Act (FRIA)? May W Medical, Inc. be considered "insolvent" under the
FRIA? Explain. (3%)

(b) Assuming that W Medical, Inc. is considered "insolvent", may it file a petition for
suspension of payments under the FRIA? Explain. (2%)

(c) Assuming that W Medical, Inc. is considered "insolvent", what are the legally
recognized modes of rehabilitation it may opt to avail of? (3%)

(d) If W Medical, Inc. files a petition for rehabilitation before the court, is it possible for
the rehabilitation proceedings to be converted into one for liquidation? Explain. (2%)

Answer:

a. Under the Financial Rehabilitation and Insolvency Act, insolvency refers to the status of a Debtor
where its total liabilities are more than its assets or is generally unable to pay its or his liabilities, in
the ordinary course of business.
Here, W Medical, Inc. is unable to pay its loan installations as it falls due.
Hence, it may be considered an insolvent under the Financial Rehabilitation and Insolvency Act.
b. No, W Medical, Inc. cannot file a petition for suspension of payments under the FRIA.
Under the Act, a petition for suspension of payments may only be filed by an individual insolvent
debtor.
Hence, W Medical, Inc., being a juridical insolvent debtor, cannot file a petition for suspension of
payments.
c. Under the Financial Rehabilitation and Insolvency Act, W Medical, Inc. can apply for a court
supervised voluntary or involuntary rehabilitation, or pre-negotiated rehabilitation before the
proper courts or execute an out-of-court or informal restructuring agreement.
In voluntary rehabilitation, the debtor, W Medical, Inc., files a petition for rehabilitation before the
proper courts. In pre-negotiated rehabilitation, the debtor, and its creditors, who represent 2/3 of
total obligations of the debtor and which comprise 50% of secured obligations and 50% of
unsecured obligations, may execute a pre-negotiated rehabilitation plan subject to the proper
court’s approval. In an out-of-court or informal restructuring agreement, the debtor, and its
creditors, who represent 85% of total obligations of the debtor and which comprise 67% of secured
obligations and 75% of unsecured obligations, may execute an out-of-court rehabilitation or
restructuring agreement.
d. Yes, it is possible for a rehabilitation proceeding to be converted into one for liquidation.
Under the Financial Rehabilitation and Insolvency Act, the debtor under rehabilitation proceedings
may voluntarily file for the conversion into a liquidation proceeding, provided that the debtor is
insolvent and there is no likelihood that the debtor can be rehabilitated.

2019.B.12.

EFG, Inc. is indebted to Bank Y in the amount of ₱50,000,000.00. The loan was secured by a
suretyship agreement issued by Z Insurance Co.
Due to EFG, Inc's default, Bank Y filed a case against Z Insurance Co. as surety. There is also a
pending criminal case for violation of the Bouncing Checks Law against the President of EFG, Inc.,
Mr. P, who signed the check as signatory for the company.

Unable to meet its obligations as they fell due, EFG, Inc. filed a petition for rehabilitation. Finding the
petition sufficient in form and substance, the court issued a Commencement Order, which was
thereafter published.

(a) Should the case filed against Z Insurance Co. be suspended in light of the
Commencement Order? Explain. (2.5%)

(b) Should the criminal case filed against Mr. P be suspended in light of the
Commencement Order? Explain. (2.5%)

Answer:

a. No, the case filed against Z Insurance Co. should not be suspended in light of the Commencement
Order.
Under the Financial Rehabilitation and Insolvency Act, a commencement order with stay order
results in the suspension of all actions or proceedings regarding claims against the debtor. The stay
order does not apply to the EFG, Inc.’s solidary debtors, or its surety.
Hence, the case filed against Z Insurance Co., surety of EFG Inc.’s, should not be suspended.
b. No, the criminal case filed against Mr. P should not be suspended in light of the Commencement
Order.
Under the Financial Rehabilitation and Insolvency Act, a commencement order with stay order
results in the suspension of all actions or proceedings regarding claims against the debtor. Thus, the
stay order does not apply to criminal actions filed against the directors or officers of the debtor, EFG,
Inc.
Hence, the criminal case filed against Mr. P, President of EFG, Inc., should not be suspended.

2019.B.13.

Enumerate at least two (2) rights of a data subject under the Data Privacy Act. (2%)

Answer:

Under the Data Privacy Act, the rights of a data subject are:

1. Right to dispute inaccuracy or error in the personal information and to demand correction by
the personal information controller immediately and accordingly and,
2. Right to reasonable access, upon demand, to the personal information obtained by the personal
information controller.

2019.B.16.

Mayor J has two (2) bank accounts: 1. a Peso savings account with Bank P; and 2. a U.S. Dollar
savings account with Bank D.
In 2018, Mayor J's former business partner, Mr. K, filed a civil case for collection of sum of money
against him.

In the same year, a criminal case for Direct Bribery under the Revised Penal Code was filed against
Mayor J. It was alleged in the Information that in exchange for the expeditious approval of various
permits and licenses, Mayor J received kickbacks which amounts were deposited to his bank
accounts.

(a) In the event Mayor J is held ultimately liable in the civil case filed by Mr. K, may
Mayor J's bank accounts in Bank P and Bank D be subject to garnishment? Explain.
(2.5%)

(b) Assuming that the prosecution in the criminal case sought from the court an
inquiry of Mayor J's bank accounts in Bank P and Bank D, may a bank inquiry order
be issued? Explain. (2.5%)

Answer:

a. Mayor J’s bank account in Bank P may be subject to garnishment, but his bank account in Bank D
may not be subject to garnishment, in the event that Mayor J is held liable in a civil case.
Under the General Banking Laws, bank accounts may be subject to garnishment upon valid order by
a court of competent jurisdiction. However, it was also provided under the law that bank accounts
with foreign currency deposits cannot be subjected to garnishment.
b. The Court may issue a bank inquiry order on Mayor J’s bank account with Bank P but could not issue
the same order on his bank account with Bank D.
Under the General Banking Laws, inquiry into bank accounts may be made upon proper order of the
court. However, bank accounts with foreign currency deposits cannot be subjected to such order.

2018.1

Yeti Export Corporation (YEC), thru its President, negotiated for Yahoo Bank of Manila {YBM) to
issue a letter of credit to course the importation of electronic parts from China to be sold and
distributed to various electronic manufacturing companies in Manila. YBM issued the letter of credit
and forwarded it to its correspondent bank, Yunan Bank (YB) of Beijing, to notify the Chinese
exporters to submit the bill of lading in the name of YBM covering the goods to be exported to Manila
and to pay the Chinese exporters the purchase price upon verification of the authenticity of the
shipping documents.

The electronic parts arrived in the Port of Manila, and YBM released them to the custody of YEC as
an entrustee under a trust receipt. When YEC unpacked the imported parts in its warehouse, it found
that they were not only of inferior quality but also did not fit the descriptions contained in the bill of
lading. YEC refused to pay YBM the amount owed under the trust receipt. YBM thereafter
commenced the following:

(a) Civil suit to hold YB liable for failure to ensure that the electronic parts loaded for
exportation in China corresponded with those described in the bill of lading. Is there any
merit in the case against YB? (2.5%)
 (b) Criminal suit against YEC and its President for estafa, and sought the payment of the
amount covered in the trust receipt. The defense of the YEC President is that he cannot be
held liable for a transaction of the corporation, of which he only acted as an officer, and that
it is YEC as the principal that should be held liable under the trust receipt, which was entered
into in the name of YEC and pursuant to YEC's corporate purposes. He cited as his legal
ground the "Doctrine of Separate Juridical Personality." Is the President's contention
meritorious? (2.5%)

Answer:

a. No, Yunan Bank cannot be held liable in a civil suit for failure to ensure that the electronic parts
loaded for exportation in China corresponded with those described in the bill of lading.
The Supreme Court has ruled that a advising bank in a letter of credit transaction cannot be held
liable for any defects in the shipment of goods by the seller to the buyer.
Here, Yunan Bank, the notifying bank, is only required to notify the Chinese exporters to submit the
bill of lading in the name of Yahoo Bank of Manila upon verification of the shipping documents.
Hence, Yunan Bank cannot be held liable in the said civil suit.
b. No, the President’s contention that he cannot be held liable for estafa on the ground of “Doctrine of
Separate Juridical Personality” is without merit.
As an exception to the Doctrine of Separate Juridical Personality, the “Piercing of Corporate Veil
Doctrine” states that the officers, directors, trustees, stockholder or members of a corporation may
be held solidarily liable with the corporation for the acts of latter done to perpetrate fraud, justify a
wrong or defend a crime.
Here, the non-payment by Yeti Export Corporation (YEC) to Yahoo Bank of Manila under the trust
receipt constitutes estafa. Thus, the President of YEC can be held liable for the estafa committed by
the corporation under the “Piercing of Corporate Veil Doctrine.”
Hence, the President’s contention is without merit.

2018.7

Yelp Pictures Inc. (Yelp Pictures), a movie production company based in California, USA, entered
into a contract with Yehey Movies Inc., a Filipino movie production and distribution company which is
registered in the Philippines under the Securities Regulation Code (SRC) and listed in the Philippine
Stock Exchange Inc. (PSE), for the exclusive distribution in the Philippines of movies produced in the
USA by Yelp Pictures. Yehey Movies is currently owned 85% by Yavic Yamson, and the balance, by
the public in the Philippines. For purposes of entering into the contract, suing for breach of such
contract, and prosecuting unauthorized showing of movies produced by Yelp Pictures, it appointed
Atty. Yson, a local lawyer, as its attorney-in-fact.

Simultaneously with the execution of the film distribution agreement, Yehey Movies also granted
Yelp Pictures an option to acquire up to 40% of the total outstanding capital stock in Yehey Movies
post-exercise of the option, at the option price of PhP .01 per number of shares covered by the
option, exercisable within a period of one (1) year from the date of the grant, at the exercise price of
PhP 100 per share. Once exercised, Yelp Pictures was granted the right to nominate two (2)
directors to the Board of Yehey Movies, and Yavic Yamson agreed to vote all his shares for the
election of directors to be nominated by Yelp Pictures.
 (a) May the acts of entering into the film distribution contract, the subsequent execution and
performance of the terms of the contract in the Philippines, and the appointment of Atty.
Yson, be considered as act of "doing business" in the Philippines that will require Yelp
Pictures to register as a foreign corporation and obtain a license to do business in the
Philippines? (2.5%)

(b) Will your answer in (a) be the same if Yelp Pictures exercises the option, becomes a
substantial shareholder, and is able to elect two (2) directors in the Board of Yehey Movies?
(2.5%)

(c) Must the option granted to Yelp Pictures be registered under the SRC? (2.5%)

Answer:

a. No, the acts of Yelp Pictures do not require it to register as a foreign corporation and obtain a
license to do business in the Philippines.
Under the Revised Corporation Code, mere execution by Yelp Pictures of a distribution contract with
Yehey Movies, or appointment of a Atty. Yson as its attorney-in-fact to enter into the contract or
prosecute future actions by or against the foreign corporation does not constitute doing business in
the Philippines.
Hence, the acts of Yelp Pictures do not require it to register as a foreign corporation and obtain a
license to do business in the Philippines
b. Yes, my answer in (a) will be the same if Yelp Pictures exercises the option granted by Yehey Movies.
Under the Revised Corporation Code, mere exercise by Yelp Pictures of the option granted by Yehey
Movies which will result in acquisition of 40% ownership over latter and grant of the right to
nominate two (2) directors does not constitute doing business in the Philippines.
Hence, my answer in (a) will be the same.
c. No, the option granted to Yelp Pictures is exempt from registration under the SRC.
Under the Securities Regulation Code, an investment contract issued by a publicly-listed corporation
is exempt from registration if it is issued to less than 20 persons or entity.
Here, the options were issued only to Yelp Pictures.
Hence, the option granted to Yelp Pictures is exempt from registration under the SRC

2018.8

Yenkell Cement Corporation (YCC) is a public corporation whose shares are listed at the PSE. It is
60% owned by Yenkell Holdings Corporation (YHC) and 20% by Yengco Exploration Inc. (YEI). The
remaining 20% is held by the public. YHC is a private non-listed corporation which, in turn, is 60%
owned by Yatlas Mines Inc. (YMI), and 40% by Yacnotan Consolidated Inc. (YCI). On August 8,
2008, the Board of Directors of YEI passed a resolution approving the acquisition of 50% and 25% of
the shares held by YMI and YCI, respectively, in the authorized capital stock of YHC.

Yolly, one of the staff members in the office of the Corporate Secretary of YEI, was immediately
asked to type the resolution and file the disclosure with the PSE and the Securities and Exchange
Commission (SEC). Before doing that, she secretly called her brother who works with a stock
brokerage company, to purchase, in the name of Yolly's husband, 5,000 shares in YCC. After the
acquisition was disclosed to the SEC and the PSE, the market price of YCC increased by 50%.
 (a) In acquiring 75% of the total capital stock of YHC, should YEI be required to do a
mandatory tender offer? (2.5%)

(b) Can Yolly be held liable for insider trading? (2.5%)

Answer:

a. Yes, YEI is required to do a mandatory tender offer after the acquisition of 75% of the total capital
stock of YHC.
Under the Securities Regulation Code, any person or group of persons who intend to acquire at least
35% one-time or over a 12-month period, or even if less than 35%, when the purchase will result to
ownership of over 51% of the outstanding equity shares of a listed corporation.
Here, the acquisition by YEI of 75% total capital stock of YHC will result in indirect ownership of 45%
through YHC and direct ownership of 20% over YCC, a listed corporation.
Hence, YEI is required to do a mandatory tender offer.
b. Yes, Yolly can be held liable for insider trading.
Under the Securities Regulation Code, insider training is committed by an insider, using a material,
non-public information before its disclosure to the public, purchases shares of stocks of a
corporation in his or her name, his or her spouse or relatives within 4 th civil degree by blood or
affinity.
Here, Yolly used the material non-public information which she obtained as an insider, being a staff
member of the Corporate Secretary of YEI, to purchase the shares of stock of YCC in the name of her
husband.
Hence, Yolly can be held liable for insider trading.

YCC

YHC 60%

YEI 75% - 45%

YEI 20%

Public 20%

YHC

YMI 10%

YCI 15%

YEI 75%

2018.10

Ybarra is the registered shareholder of 500 shares in Yakal Inc., of which only 50% has been paid
up, but for which the corporation had erroneously issued a covering certificate of stock for the entire
500 shares. Ybarra sells the entire 500 shares for cash pursuant to a notarized Deed of Sale in favor
of Ynchon, and which certificate was duly endorsed and delivered. When Ynchon presented the
Deed of Sale and the endorsed certificate of stock, as well as proof of payment to the Bureau of
Internal Revenue (BIR) of the tax due on the sale of shares, the Corporate Secretary of Yakal Inc.
refused to register the sale on the ground of lack of written authority from Ybarra to cancel the
certificate and have the shares registered in the name of Ynchon.

(a) Does Ynchon have a cause of action to file a petition for mandamus to compel the
corporation to register the 500 shares in his name in the corporation books? (2.5%)

(b) Who is liable to pay the remaining unpaid 50% balance - Ybarra or Ynchon? (2.5%)

Answer:

a. Yes, Ynchon has a cause of action to file a petition for mandamus to compel the corporation to
register the 500 shares in his name in the corporations books.
The Supreme Court has held that the duty of the corporate secretary to record stock transfer is
ministerial, except when the transferee’s title to the shares has no prima facie validity or is
uncertain.
Here, there is no uncertainty over the title Ynchon over the corporation’s shares, as the error on the
issuance of 500 shares where 50% thereof has not yet been paid was on the part of the corporation.
Thus, the corporate secretary has a ministerial duty to record the said shares.
Hence, Ynchon has a cause of action to file a petition for mandamus.
b. Ybarra is liable to pay the remaining unpaid 50% balance
Under the Revised Corporation Code, the corporation may demand the unpaid subscription from the
Ybarra, whom it was originally issued, since Ynchon bought the 500 shares of stock in good faith and
without knowledge that the 50% thereof was not yet paid.

2018.11

Yashtag Holdings, lnc.'s (Yashtag Holdings) AOI states that its primary purpose is "to invest in real
and personal properties of every kind or otherwise acquire and deal with stocks, bonds, and other
securities or evidence of indebtedness of any other corporation, and to hold or to own, use, sell, deal
in, and dispose of, any such stock." It further states that it has an authorized capital stock of PhP 1
million, all of which have been fully subscribed and paid up.

Yashtag Holdings' President, Mr. Yokada, convinced Yeh, Yah, and Yo to lend/invest money with
Yashtag, which money will be invested in a sister company, Yashtag Realty, Inc. (Yashtag Realty), a
corporation that develops premium real estate projects in the Philippines. For the amount
loaned/invested, Yashtag Holdings issued two (2) postdated checks to each lenderflnvestor, one
representing the principal amount, and the other covering the guaranteed interest that ranged
between 18-32% p.a. On the maturity dates of the checks, the individual lender/investor can review
the loans/investment, and may either collect only the interest or roll over the same with the principal
amounts. Eventually, the bursting of the real estate bubble brought about a serious financial crisis
around the world, including the Philippines. Yashtag Realty collapsed and with it Yashtag Holdings
defaulted in the payment of its loans/investments, as well as the dishonor of the tens of thousands of
postdated checks issued to its various lenders/investors.

Yeh, Yah, and Yo filed several charges against Yashtag Holdings and its President, making them
solidarily liable for the investments they failed to recover. Yeh, Yah, and Yo proved that Yashtag
Holdings, acting through Mr. Yokada, was able to get a total of PhP 800 million of loans/investments
from the public under the scheme, and from which Mr. Yokada, as the controlling stockholder, was
able to withdraw a total amount of PhP 300 million for his personal account and entered into the
books of Yashtag Holdings as "Advances to Stockholders." Mr. Yokada pleads as a defense that he
cannot be made personally liable on the claim of the group under the doctrines of "Separate Juridical
Personality" and "Limited Liability."

(a) What are the doctrines of "Separate Juridical Personality" and "Limited Liability"? (2.5%)

(b) Decide on the merits of Mr. Yokada's defense against being made liable for Yashtag
Holdings' obligations. (2.5%)

Answer:

a. Under the Separate Juridical Personality Doctrine, a corporation has a separate and distinct
personality from the stockholders or members who compose it or the officers, director or trustees
who manage it. Hence, the stockholders, members, officers, directors and trustees cannot be held
liable for the obligations incurred by the corporation.
Under the Limited Liability Doctrine, a stockholder or member of a corporation can only be held
liable up to the amount invested in the corporation.
b. The defenses of “Separate Juridical Personality Doctrine” and “Limited Liability Doctrine” pleaded by
Mr. Yokada are without merit.
Under the Trust Fund Doctrine, the subscribed capital stock of a corporation is held for the benefit
of its stockholders.
Here, the withdrawal made by Mr. Yokada, President of the corporation, of Php300 million capital
stock of Yashtag Holding’s is violative of the Trust Fund Doctrine. Thus, he cannot invoke the
Separate Juridical Personality Doctrine and Limited Liability Doctrine for having acted in bad faith
against the other stockholders.
Hence, the defenses pleaded by Mr. Yokada are without merit.

2018.13

YBC Bank extended a loan of PhP 50 million to Mr. Yamato secured by a real estate mortgage
(REM) on a large tract of land. The covering Transfer Certificate of Title (TCT) of the property
mortgaged did not indicate any encumbrance or lien on it, and the bank was able to obtain a certified
true copy of the TCT from the Register of Deeds showing that the owner's copy submitted to the
bank was a genuine title. The Loan Agreement provided an escalation clause which stated that, at
the anniversary date of the loan, YBC Bank was granted the option to increase the interest rate
whenever there would be an increase in the Bangko Sentral ng Pilipinas' prevailing rates. Three
years later, Mr. Yamato received a formal notice from YBC Bank raising the interest rate of the loan
based on the escalation clause provided for in the Loan Agreement. Mr. Yamato refused to pay
based on the increased interest rate that was effected without his consent. YBC Bank insists on the
binding effect of the escalation clause appearing on their Loan Agreement.

Mr. Yamato subsequently defaulted on the loan and vanished. Thus, YBC Bank extrajudicially
foreclosed on the REM, and was the highest bidder at the public auction sale. It was only then that
the bank determined that there were actually two separate TCTs issued for the property and one of
which was in the name of Mr. Yamsuan who occupied the property after having bought it earlier from
Mr. Yamato.

(a) Can YBC Bank unilaterally increase the interest rates on the loan? (2.5%)
 (b) Is YBC Bank a mortgagee buyer in good faith? Is it preferred over Mr. Yamsuan? (2.5%)

Answer:

a. No, YBC Bank cannot unilaterally increase the interest rates on the loan.
The Supreme Court has decided on a similar case that a Bank could not unilaterally increase the
interest rates on the loan as it is violative of the principle of mutuality of contracts.
Hence, YBC Bank cannot unilaterally increase the interest rates on the loan.
b. No, YBC Bank is not a buyer in good faith and is not preferred over Mr. Yamsuan.
The Supreme Court has held that a bank should exercise extraordinary diligence in the performance
of its business. Thus, it should not rely on the face of the transfer certificate of title presented to it,
but should conduct inspection of the property to determine if the registered owners on the title
have actual possession over it.
Here, the Bank merely relied on the transfer certificate of title, but did not conduct inspection on
the property.
Hence, YBC Bank is not a buyer in good faith and is not preferred over Mr. Yamsuan.

2018.14

On June 21, 2008, Yate took out a life insurance policy on her life in the amount of PhP 10 million
and named her husband Vandy and daughter as joint irrevocable beneficiaries. Before the policy
was issued and the premiums were paid, Yate underwent a medical checkup with a physician
accredited by the insurer, and the only result found was that she was suffering from high blood
pressure. Yate was previously diagnosed by a private physician of having breast cancer which she
did not disclose to the insurer in her application, nor to the insurer's accredited physician because by
then, she was told that she was already cancer-free after undergoing surgery which removed both
her breasts. She was later diagnosed with psychotic tendency that graduated into extreme
despondency. She was found dead hanging in her closet 36 months after the issuance of the policy.
The police authorities declared it to be a case of suicide. The policy did not include suicide as an
excepted risk.

(a) Can the insurer raise the issue of failure to disclose that she had cancer as a cause for
denying the claim of the beneficiaries? (2.5%)

(b) Are the beneficiaries entitled to receive the proceeds of the life insurance notwithstanding
the fact that the cause of death was suicide? (2.5%)

Answer:

a. No, the insurer cannot raise the issue of failure to disclose that she had cancer as a cause for
denying the claim of the beneficiaries.
Under the Insurance Code, an insurer cannot prove that the policy is void ab initio or is rescindable
on the ground of concealment or misappropriation, after the policy has been in force during the
lifetime of the insured for a period of two years from the date of its issue or last reinstatement.
Here, the insurer cannot prove the validity of the policy on the ground of concealment for failure to
disclose that she had cancer since the death of the insured happened 36 months or three years after
the issuance of the policy.
 Hence, the insurer cannot raise the issue of failure to disclose that she had cancer as a cause for
denying the claim of the beneficiaries.
b. Yes, the beneficiaries are entitled to receive the proceeds of the life insurance notwithstanding the
fact that the cause of death was suicide.
Under the Insurance Code, the insurer is liable in case of suicide committed in the state of insanity,
whether or not it occurred before or after the 2 year period under the incontestability clause.
Here, Yate committed suicide in the state of insanity.
Hence, the beneficiaries are entitled to receive the proceeds of the life insurance notwithstanding
the fact that the cause of death was suicide.

2018.15

A distinctive-tasting pastillas is well-known throughout the country as having been developed within
a close-knit women's group in Barangay San Ysmael which is located along a very busy national
highway. Its popularity has encouraged the setting up of several shops selling similar delicacies, with
the most famous product being the pastillas of "Barangay San Ysmael." Eventually, the pastillas of
Aling Voling under the brand name "Ysmaellas" began to attract national distinction. Aling Voling
therefore registered it as a copyright with the National Library. Her neighbor, Aling Yasmin, realizing
the commercial value of the brand, started using the term "Ysmaellas" for her pastillas but used
different colors. Aling Yasmin registered the brand name "Ysmaellas" with the Intellectual Property
Office (IPO).

(a) Can Aling Voling successfully obtain court relief to prohibit Aling Yasmin from using the
brand name "Ysmaellas" in her products on the basis of her (Aling Yoling's) copyright? What
is the difference between registration as a copyright and registration as a trade or brand
name? (2.5%)

(b) Can Aling Yasmin seek injunctive relief against Aling Voling from using the brand name
"Ysmaellas," the latter relying on the doctrine of "prior use" as evidenced by her prior
copyright registration? (2.5%)

(c) Can Aling Voling seek the cancellation of Aling Yasmin's trademark registration of the
brand name "Ysmaellas" on the ground of "Well Known Brand" clearly evidenced by her
(Aling Yoling's) prior copyright registration, actual use of the brand, and several magazine
articles? (2.5%)

Answer:

a. No, Aling Yoling cannot obtain court relief to prohibit Aling Yasmin from using the brand name
“Ysmaelleas” on the basis of Aling Yoling’s copyright.
Under the Intellectual Property Code, a copyright is an right granted on author or creator of an
artistic or literary work; while a trade or brand name is the name or designation which identifies or
distinguishes a business.
Here, brand name “Ysmaellas” cannot be registered as a copyright as it is not an artistic or literary
work.
Hence, Aling Yoling cannot obtain court relief to prohibit Aling Yasmin from using the brand name
“Ysmaelleas” on the basis of Aling Yoling’s copyright
b.

2018.16

Yosha was able to put together a mechanical water pump in his garage consisting of suction
systems capable of drawing water from the earth using less human effort than what was then
required by existing models. The water pump system provides for a new system which has the
elements of novelty and inventive steps. Yosha, while preparing to have his invention registered with
the IPO, had several models of his new system fabricated and sold in his province.

(a) Is Yosha's invention no longer patentable by virtue of the fact that he had sold several
models to the public before the formal application for registration of patent was filed with the
IPO? (2.5%)

(b) If Yosha is able to properly register his patent with the IPO, can he prevent anyone who
has possession of the earlier models from using them? (2.5%)

Answer:

a. No, Yosha’s invention is patentable even though he sold several models to the public before
application for registration was filed with the IPO.
Under the Non-Prejudicial Disclosure Rule, the disclosure by the inventor of his invention to the
public 12 months before the filing of his application for registration of patent.
Here, Yosha’s invention is patentable even though he sold several models to the public before
application for registration was filed with the IPO.
b. No, Yosha, after registering his patent, cannot prevent anyone who had possession of the earlier
models from using them.
Under the Intellectual Property Code, the limitations on patent rights include the use of a patented
product which has been put on the market in the Philippines by the patent owner, in so far as the
use is performed after the product has been put on the market.

2018.17

Yvan was a slot machine operator supervisor in a casino operated by the Philippine Amusement and
Gaming Corporation (PAGCOR). On the basis of an intelligence report, he was found, in connivance
with some slot machine customers, to have padded the credit meter readings of slot machines in the
casino where he was employed. After being served with notice and opportunity to contest the
findings, he was found guilty of the charges and ordered dismissed by PAGCOR. After receiving his
copy of the order for dismissal, he claimed to have sent to the Board of PAGCOR his motion for
reconsideration through facsimile transmission. After a considerable time, when his motion for
reconsideration was unacted upon, he filed an action with the Civil Service Commission (CSC) for
illegal dismissal. PAGCOR claimed that his action has prescribed because it was filed more than 15
days after his dismissal became final. Yvan claimed that there was no final decision yet because the
Board of PAGCOR has not yet acted on his motion for reconsideration. He presented a copy of his
facsimile transmission addressed to the Board of PAGCOR seeking reconsideration of his dismissal,
and the fact that there has been no action taken. He claimed that based on the Electronic
Commerce Act of 2000, his facsimile transmission should be considered like any genuine and
authentic paper pleading. PAGCOR denied having received it and was able to prove that the
telephone number of PAGCOR used in the facsimile transmission was wrong. CSC denied his
complaint on account of prescription. He appealed CSC's dismissal in court.

(a) Was CSC correct in dismissing the case? (2.5%)

(b) Can Yvan's bank be ordered by the court to disclose if there were unreasonable
increases in his bank deposit when the alleged acts were committed? (2.5%)

Answer:

c. Yes,

2017.1

A.

Absolute Timber Co. (ATC) has been engaged in the logging business in lsabela. To secure one of
its shipments of logs to be transported by Andok Shipping Co., ATC purchased a marine policy with
an "all risks" provision. Because of a strong typhoon then hitting Northern Luzon, the vessel sank
and the shipment of logs was totally lost. ATC filed its claim, but the insurer denied the claim on
several grounds, namely: (1) the vessel had not been seaworthy; (2) the vessel's crew had lacked
sufficient training; (3) the improper loading of the logs on only one side of the vessel had led to the
tilting of the ship to that side during the stormy voyage; and (4) the extremely bad weather had been
a fortuitous event.

ATC now seeks your legal advice to know if its claim was sustainable. What is your advice? Explain
your answer. (3%)

Answer:

As the legal adviser of ATC, I would advise him to file a collection case against the insurer since the
grounds of the insurer to deny its claim are without merit.

The Supreme Court has ruled in a similar case that the “all risks” provision in an insurance contract is
given a broad and comprehensive meaning covering any loss, except willful and fraudulent acts of the
insured.

Here, the grounds raised by the insurer are not considered as willful and fraudulent.

Hence, I would advise him to file a collection case against the insurer.

B.

The newly restored Ford Mustang muscle car was just released from the car restoration shop to its
owner, Seth, an avid sportsman. Given his passion for sailing, he needed to go to a round-the-world
voyage with his crew on his brand-new 180-meter yacht. Hearing about his coming voyage, Sean,
his bosom friend, asked Seth if he could borrow the car for his next roadshow. Sean, who had been
in the business of holding motor shows and promotions, proposed to display the restored car of Seth
in major cities of the country. Seth agreed and lent the Ford Mustang to Sean. Seth further expressly
allowed Sean to use the car even for his own purposes on special occasions during his absence
from the country. Seth and Sean then went together to Bayad Agad Insurance Co. (BAIC) to get
separate policies for the car in their respective names.

SAIC consults you as its lawyer on whether separate policies could be issued to Seth and Sean in
respect of the same car.

(a) What is insurable interest? (2%)

(b) Do Seth and Sean have separate insurable interests? Explain Briefly your answer(3%)

Answer:

a. Under the Insurance Code, insurable interest on property is the interest of a person or entity over a
property to be damnified for the loss or damage caused by the risk or peril insured against.
b. Yes, Seth and Sean have separate insurable interests over the property.
Under the Insurance Code, a person or entity has insurable interest over a property if he may be
damnified for the loss or damage on the thing caused by the risk or peril insured against.
Here, Seth, as the owner or bailor, and Sean, as the bailee, has insurable interest over the property
since he will be both damnified in case of loss or damage on the property.
Hence, Seth and Sean have separate insurable interests over the property

2017.5

A.

Under the Nell Doctrine, so called because it was first pronounced by the Supreme Court in the 1965
ruling in Nell v. Pacific Farms, Inc. (15 SCRA 415), the general rule is that where one corporation
sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts
and liabilities of the transferor.

State the exceptions to the Nell Doctrine. (4%)

Answer:

The exceptions to the Nell Doctrine are:

1. When the transfer amounts to a merger or consolidation of two constituent companies;

2. When the agreement expressly provides that the purchasing corporation will assume the
liabilities of the selling corporation;
3. When the sale or transfer is done in fraud of the selling corporation’s creditors;
4. When the purchasing corporation merely continues the business of the selling corporation.

B.

Santorini Corporation (Santorini) was in dire straits. In order to firm up its financial standing, it agreed
to entertain the merger and takeover offer of Proficient Corporation (Proficient), the leading company
in their line of business. Erica, the major stockholder of Santorini, strongly opposed the merger and
takeover. The matter of the merger and takeover by Proficient was included in the agenda of the
next meeting of Santorini's Board of Directors. However, owing to Erica's serious illness that
required her to seek urgent medical treatment and care in Singapore, she failed to attend the
meeting and was consequently unable to cast her vote. The Board of Directors approved the merger
and takeover. At the time of the meeting, Santorini had been in the red for a number of years owing
to its recurring business losses and reverses.

Erica seeks your legal advice regarding her right as a stockholder opposed to the corporate action.
Explain your answer. (4%)

Answer:

I will advise Erica to exercise her appraisal right as a stockholder opposed to the corporate action of
approving the merger and takeover.

Under the Revised Corporation Code, Erica may exercise her right of appraisal by making a written
demand on Santorini Corporation within 30 days from the date the vote was taken for the payment of
the fair value of her shares.

C.

Samito is the President and a Director of Lucky Bank (Lucky}, a commercial bank holding its main
office in Makati. His brother, Othello, owned a big fishing business based in Malabon. Othello
applied for a loan of PSO Million with Lucky. Othello followed the ordinary banking procedures in all
the stages of the processing of his application. When required, he made the necessary
arrangements to guarantee the loan. Thus, in addition to the real estate mortgage, Othello executed
a joint and solidary suretyship, issued postdated checks, and submitted all other requirements
prescribed by Lucky.

When the loan application was about to be approved and the proceeds released, BG Company, a
keen competitor of Othello in the fishing industry, wrote to the Board of Directors and the
management of Lucky questioning the loan on the ground of conflict of interest due to Samito and
Othello being brothers, citing the legal restriction against bank exposure of directors, officers,
stockholders or their related interests (DOSRI).

(a) What are the three restrictions imposed by law on DOSRI transactions? (4%)

(b) Is BG Company's opposition based on conflict of interest and violation of the restrictions
on DOSRI transactions legally and factually correct? Explain your answer. (4%)

Answer:

a.

2017.8

A.

Flora, a frequent traveller, found a purse concealed between the cushions of a large sofa inside the
VIP lounge in NAIA while she was waiting for her flight to be called. Inside the purse was a very
valuable diamond-studded necklace. She decided not to turn over the purse to the airport
management, and instead to keep it. On her return from her travels, she had a dependable jeweller
appraise the necklace, and the latter told her that the necklace was easily worth at least
₱5,000,000.00 in the open market. To test the appraisal, she pawned the necklace for
₱2,000,000.00. She then deposited the entire amount in her checking account with Metro Bank.
Promptly, Metro Bank reported the transaction to the Anti-Money Laundering Council (AMLC).

Given that her appropriation of the necklace was theft, may Flora be successfully prosecuted for
money laundering? Explain briefly your answer. (4%)

Answer:

No, Flora may not be prosecuted for money laundering.

Under the Anti-Money Laundering Act, money laundering is committed by a person who knowingly
transacts a monetary instrument which represents, involves or relates to an unlawful activity. One of the
enumerated unlawful activity under the law is qualified theft.

Here, Flora committed theft which is not an unlawful activity as defined under the Anti-Money
Laundering Act.

Hence, Flora may not be prosecuted for money laundering.

B.

Prosperous Bank is a domestic bank with head office in Makati. It handles the banking requirements
of thousands of clients.

The AMLC initiated a discreet investigation of the financial transactions of Lorenzo, a suspected
drug trafficker based in Naga City. The intelligence group of the AMLC, in coordination with the
counterpart group from the PDEA and the NBI, gathered ample evidence establishing Lorenzo's
unlawful drug activities. The AMLC had probable cause that his deposits and investments in various
banks, including Prosperous Bank, were related to money laundering.

Accordingly, the AMLC now transmits to Prosperous Bank a formal demand to allow its agents to
examine the banking transactions of Lorenzo, but Prosperous Bank refuses the demand.

Is Prosperous Bank's refusal justified? Explain your answer. (4%)

Answer:

No, Prosperous Bank’s refusal to disclose the banking transactions of Lorenzo is not justified.

Under the Anti-Money Laundering Act, the AMLC may examine the bank transactions of Lorenzo
without order from a competent court because he is being investigated of the violation of the
Dangerous Drugs Act.

Hence, Prosperous Bank’s refusal to disclose the banking transactions of Lorenzo is not justified.

2017.11
TRUE or FALSE - Explain briefly your answer.

(b) The term capital in relation to public utilities under Sec. 11, Art. XII of the 1987
Constitution refers to the total outstanding capital stock comprising both common and non-
voting preferred shares. (2%)

(d) News reports are not copyrightable. (2%)

(e) The law on life insurance prohibits double insurance. (2%)

Answer:

a. TRUE. The Supreme Court has ruled that capital, in relation to public utilities under Article XII of the
1987 Constitution, refers to ownership in relation to both the total outstanding stocks with voting
rights (common shares) and the total outstanding capital stock (common and non-voting preferred
shares), regardless of the voting rights.
b. TRUE. Under the Intellectual Property Code, news reports are subject to copyright since these are
under the definition of ideas which are not copyrightable.
c. FALSE. Under the Insurance Code, the insurable interest of a person on life of another is not limited
or does not have any value. Hence, double insurance is not prohibited under the law on life
insurance.

2017.12

Onassis Shipping, Inc. (Onassis) operated passenger vessels and cargo trucks, and offered its
services to the general public. In line with its vision and mission to protect the environment, Go-
Green Asia (Go-Green), an NGO affiliated with Greenpeace, entered into a contract with Onassis
whereby Go-Green would operate with its own crew the MN Dolphin, an ocean-going passenger
vessel of Onassis.

While on its way to Palawan carrying Go-Green's invited guests who were international and local
observers desirous of checking certain environmental concerns in the area, the MN Dolphin
encountered high waves and strong winds caused by a typhoon in the West Philippine Sea. The
rough seas led to serious physical injuries to some of the guests.

Discuss the liabilities of Onassis and Go-Green to the passengers of the M/V Dolphin. Explain briefly
your answer. (3%)

Answer:

The contract entered into by the parties is a charter by demise or bareboat charter.

Under the Code of Commerce, a charter by demise results when a private charterer enters into a
contract with a common carrier where the command, possession and consequent control over the
voyage it transferred to the private charterer. In a charter by demise, the private charterer is liable in
case of damage due to negligence caused during the voyage. However, the shipowner is still liable for
the compliance with the legal requirements of the vessel for being engaged in public service. Both would
also be exempted from liability if the loss or damage was caused by a fortuitous event.
Hence, it is only Greenpeace, private charterer who will be responsible for the serious physical injuries
sustained by the guests because these resulted from its negligence. The typhoon is not considered a
fortuitous event, which would have exempted Greenpeace from liability, because the it could have
avoided it by checking the day’s weather forecast.