05 Divina - Commercial Law Bar Q - A

BARQ&A
IN
COMMERCIAL LAW
2021 Edition
DEAN NILO T. DIVINA

Philippines Copyright 2021
TABLE OF CONTENTS
By
DEAN NILO T. DIVINA

Pages
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No. 522 XVII ............................................................................. 24
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TABLE OF CONTENTS TABLE OF CONTENTS
Page Page
VII ................................................................................. 43
VIII ............................................................................ 208
Vll1 ............................................................................... 45 IX ................................................................................ 210
IX .................................................................................. 47
X ................................................................................. 213
X ................................................................................... 48
MULTIPLE CHOICE QUESTIONS ................................... 215
XI ....................................................... :.......................... 49
XII ............ ,.................................................................... 51
2014 BAR EXAMINATION ............................................ 232
XIII ................................................................................ 51
I ................................................................................... 232
XIV ............................................................................... 53
II ................................................................................. 233
xv ................................................................................. 54 III ................................................................................ 234
XVI ............................................................................... 55
IV ......................... : ................................................. .-.... 235
XVII .............................................................................. 56
V ..................................................................................237
VI ................................................................................ 237
2011 BAR EXAMINATION .............................................. 58 VII ............................................................................... 238
Set A ...................................... :.............................................. 58
VIII ............................................................................. 240
IX ................................................................................ 241
2012 BAR EXAMINATION ............................................ 122 X ................................................................................. 242
MULTIPLE CHOICE QUESTIONS (MCOs) .................... 122
XI ................................................................................ 243
ESSAY-TYPE QUESTIONS ............................................... 185
XII ............................................................................... 244
1 ................................................................................... 185
XIII .............. " .............................................................. 245
11 ... .. ....... 187 XIV ............................................................................. 246
III ... ... .. .. . ... . .. . .. ... .. .... ... .. ... .. .... .... .. . .. ...... 189 XV ......................................................................... 247
IV .............................................................................. 190 XVI ............................................................................ 248
V ................................................................................. 191 XVII ............................................................................ 248
VI ............................................................................... 193 XVIII ........................................................................... 250
VII .............................................................................. 195 XIX .............................................................................. 251
VIII ............................................................................. 198 XX ...............................................................................253
XXI .............................................................................. 255
2013 BAR EXAMINATION ............................................. 200 XXII ............................................................................ 257
ESSAY QUESTIONS ........................................................ 200 XXIII ........................................................................... 259
I ................................................................................... 200 XXIV ........................................................................... 259
II ................................................................................. 201 -X:X:V ............................................................................ 261
III ................................................................................ 202 -X:X:VI ........................................................................... 263
[V ................................................................................ 203 XXVII .......................................................................... 265
V ........................................... ., .................................... 204 xxvm ..................................................................... 266
VI ................................................................................ 206 XXIX ........................................................................... 267
VII. . ......................................................... 207
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lrii TABLE OF CONTENTS
TABLE OF CONTENTS
Page
Page !Ii
trl' .................................................. 309
2015 BAR EXAMINATION ............................................ 269 XVIII ..... .
XIX ............. .. ........................................ 311.
I ................................................................................... 269 1~
xx .......................... , .................... , .............. . 3 .1.0
II ................................................................................. 270
III ................................................................................ 271
2017 BAR EXAMINATION ............................................ 315
IV ................................................................................ 273
I ................................................................................... 315
V .......................................................................... .' ...... 275
A ......................................................................... 315
VI ................................................................................ 276
B ......................................................................... 316
VII ............................................................................... 278
II ................................................................................. 317
VIII ............................................................................. 279
A ..................................................................... 317
IX ................................................................................ 281
B ......................................................................... 318
X ................................................................................. 282
III. ............................................... " .............................. 320
XI ................................................................................ 283
A ......................................................................... 320
XII ............................................................................... 284
B ......................................................................... 321
XIII .............................................................................. 286
IV ................................................................................ 323
XIV ............................................................................. 286
V ................................................................................. 324
m; ............................................................................... 288
A ......................................................................... 324
XVI ............................................................................. 290
B ......................................................................... 325
C ....................... ............................... 326
2016 BAR EXAMINATION ............................................ 292
VI ................................................................................ 328
I ............... .. ............................................................... 292
A ...................................................................... 328
II ...... . ··························································292 B ....................................................................... 329
III ............................................................................... 293
VII ............................................................................... 330
IV ................................................................................ 295
A ......................................................................... 330
V ................................................................................... 2'96
B ......................................................................... 331
VI ................................................................................ 297
VIII ............................................................................. 332
VII ............................................................................... 297
A ......................................................................... 332
VIII ............................................................................. 298
B ......................................................................... 333
IX ................................................................................ 300
IX ................................................................................ 334
X ................................................................................. 301
A ......................................................................... 334
XI ................................................................................ 302
B ......................................................................... 335
XII ............................................................................... 303
X ................................................................................. 336
XIII .............................................................................. 304
XI ................................................................................. 337
XIV ........ ·..................................................................... 305 ... 339
Y':11 ········ ....................................................................... 306 XII
Y':1/I ............................................................................. 307
Y':l!II ............................................................................ 308
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TABLE OF CONTENTS TABLE OF CONTENTS
Page
Page
l~,
B.13 ............................................................................ 399
2018 BAR EXAMINATION ............................................ 341 B.14 ............................................................................. 405
I ................................................................................... 341 B.15 ..................................................................... .4.06
II ................................................................................. 343 B.16 ............................................................................. 408
III ................................................................................ 345 B.17 ............................. ;............................................... 409
B.18 ......................................... l ................................... 411
IV ................................................................................ 349
V ................................................................................. 351 B.19 ........................................................................... 412
VI ............................................................................... 352 B.20. ........................ ..... . . .... ... . ... . . . . . ..... 414
VII ............................................................................... 354
VIII ............................................................................. 356 -oOo-
IX ................................................................................ 359
X ................................................................................. 361
XI ................................................................................ 361
XII ........................................................................... _. ... 36?
XIII .............................................................................. 368
XIV ............................................................................. 370
}('I! ........................ '. .................... ,. ................................ 372
}(VI ............................................................................. 375
XVII ............................................................................ 376
. }(VIII ........................................................................... 379
2019 BAR EXAMINATION ............................................ 381

PART I ................................................................................ 381
A.1 .............................................................................. 381
A.2 .............................................................................. 383
A.3 .............................................................................. 384
A.4 .............................................................................. 385
A.5 .............................................................................. 387
A.6 .............................................................................. 389
A.7 ........................................ . ........................ 391
A.8 ................................. .. .. ............................ 391
A.9 ............................................ . ................... 393
A.10 ....................................... .. ..................... 394
PART II ............................................................................... 396
B.11 ............................................................................. 396
B.12 ............................................................................. 398
viii ix
BA·R EXAMS IN COMMERCIAL LAW
Dean Nilo T. Divina
2009 BAR EXAMINATION
PART I
TRUE or FALSE. Answer TRUE if the statement is

true, or FALSE if the statement is false. Explain
your answer in not more than two (2) sentences.
(5%)
[a] The Denicola Test in intellectual property

law states that if design elements of an article re-
flect a merger of aesthetic and functional consid-
erations, the artistic aspects of the work cannot be
conceptually separable from the utilitarian as-
pectsj thus, the article cannot be copyrighted.
Answer:
True. ,Applying the Denicola Test in Brandir In-

ternational, Inc. v. Cascade Pacific Lumber Co. (834
F.2d 1142, 1988 Copr.L.Dec. P26), the United States
2 BARO & A IN COMMERCIAL LAW 2009 BAR EXAMiNATION 3
Ii
Court of Appeals for the Second Circuit held that the [c] Even if the seller and the buyer in a sale
aesthetic or artistic aspects of a work may be copy- in bulk violate the Bulk Sales Law, the sale would
righted only if they can be separated from the utili- still be valid.
tarian element.
Answer:
[b] If the Ombudsman is convinced that
there is a violation of law after investigating a False. When the Bulk Sale Law is violated, the
complaint alleging illicit bank deposits of a public sale, transfer or mortgage shall be deemed fraudu-
officer, the Ombudsman may order the bank con- lent and void (Section 4 of Act No. 3952) However.
cerned to allow in camera inspection of bank re- the civil liabilities arising from the transaction re-
cords and documents. main enforceable between or among the parties
thereto. The buyer holds the sold properties in trust
Answer: for the sellers' creditors with the nght to demand
return of the purchase price plus damages.
False.
[d] Dividends on shares of stocks can only be
In the case of Marquez vs. Desierto (G.R. No. declared out of unrestricted retained earnings of
135882, June 27, 2001), the Supreme Court held that
the Ombudsman can only examine bank deposit ac- the corporation.
counts upon compliance with the following requi-
Answer:
sites:
a. There is a case pending before a court of True. Dividends cannot be declared out of the capi-
competent jurisdiction; tal. Otherwise, such declaration of dividend will vio-
late the trust fund doctrine.
b. The account holder and the bank official
must be informed of the examination: [e] A bank under receivership can still grant
c. The account to be exa.mined must be new loans and accept new deposits.
clearly identified; and,
Answer:
d. The examination must be limited to the ac-
count specified. False. During the receivership, the bari..k is for-
bidden to do business. Its assets and properties
If there is no pending case yet, but only an in-
shall be gathered and administered by the receiver
vestigation by the Ombudsman, any order for the
for the benefit of the bank's creditors. Granting new
examination of the bank account is premature.
loans and accepting new deposits would constitute
doing business for the bank in the ordinary course of
4 BAR Q & A !N COMMERCIAL L!\W
2009 8A'l EXAMiNATiON 5
business which is contrary to the purpose and na-

ture of a receivership proceeding. (Section 30 of RA wrongful acts committed· by the very directors and
7653) officers entrusted with the management of the cor-
poration and therefore, not expected to rectify their
wrongful acts even though the sam~ are prejudicial
II to the corporation. The suing stockholder will then
take the cudgels for the corporation to protect its
Atlantis Realty Corporation (ARC), a local firm interest.
engaged in real estate development, plans to sell
one of its prime assets - a three-hectare land val- [b] If such a suit is commenced, would it
ued at about P100-million. For this purpose, the constitute an intra-corporate dispute? If so, why
board of directors of ARC unanimously passed a and where would such a suit be filed? If not, why
resolution approving the sale of the property for not? (2%)
P75-million to Shangrila Real Estate Ventures
(SREV), a rival realty firm. The resolution also Answer:
called for a special stockholders meeting at which
the proposed sale would be up for ratification. Yes, such suit would constitute an intra-
corporate dispute under the Supreme Court-issued
Atty. Edric, a stockholder who owns only one Interim Rules of Procedure for Intra-Corporate Con-
(1) share in ARC, wants to stop the sale. He then troversy (Rule I, Section 1 (4). Independently of said
commences a derivative suit for and in behalf of rules, derivative suit is in the nature of intra-
the corporation, to enjoin the board of directors corporate controversy because it is a suit initiated
and the stockholders from approving the sale. by a stockholder against other stockholders who are
officers and directors of the same corporation and
fa] Can Atty. Edric, who owns only one (1) pertains to the enforcement of their rights and obli-
share in the company, initiate a derivative suit? gations under the Corporation Code. Such suit
Why or why not? (2%) should be filed in the RTC of the city where the
principal office of the corporation is located (Section
Answer:
5 of the Interim Rules)
Yes. Atty. Edric can initiate a derivative suit on [c] Will the suit prosper? Why or why not?
behalf of the corporation to enforce its corporate {3%)
right or cause of action to stop the sale of the prop-
erty for a price which is clearly disadvantageous to Answer:
the corporation. Derivative suit is a remedy avail-
able to the stockholder to assail and nullify the No. The suit will not prosper. In the case of Vil-
lamar, Jr. v. Umale (G.R. Nos. 172843 & 172881, Sep-
2009 BAR EXAMINAT:ON 7
6 BAR Q & A !N COMMERClAL LAW
offered, was available only to persons 50 to 75

tember 24, 2014), the Supreme Court held that an
intra-corporate dispute is dismissible unless the fol- years of age? Why or why not? (2%)
lowing are alleged in the complaint: a) the stock-
holder is suing on behalf of the corporation to en- Answer:
force a corporate right or cause of action; b) plaintiff No. By approving the application of Quirico who
must be a stockholder at the time the cause of ac- disclosed that he was already 80 years old, ALAC
tion accrued and at the time of filing unless the has waived its age requirement. Hence, ALAC is
cause of action is continuing in nature in which case now precluded from raising such defense of age of
it is enough that he is a plaintiff at the time of filing;
the insured.
c) exhaustion of intra-corporate remedies to obtain
the relief he desires under the corporation's articles [b] Did ALAC's issuance of a cover note re-
of incorporation and by-laws; d) no appraisal right is sult in the perfection of an insurance contract be-
available and e) complaint is not a nuisance or har- tween Ouirico and ALAC? Explain. (3%)
assment suit. Here, the first two elements are al-
leged but the rest were not. Answer:
III Yes. The issuance of a cover note resulted in the

perfection of the contract of insurance. Cover notes
Antarctica Life Assurance Corporation (ALAC} are issued to bind' the insurer temporarily pending
publicly offered a specially designed insurance issuance of the policy (Section 52 of the Insurance
policy covering persons between the ages of 50 to Code,. as amended). They are valid for a period of
75 who may be afflicted with ser.ious and debili- sixty days. No separate premium is to be paid on a
tating illnesses. Quirico applied for insurance cov- cover note. Within sixty days after issuance of the
erage, stating that he was already 80 years old. cover note, a policy shall be issued in lieu thereof.
Nonetheless, ALAC approved his application. including within its terms the identical insurance
bond under the cover note and the premiums there-
Quirico then requested ALAC for the issuance
for.
of a cover note while he was trying to raise funds
to pay the insurance premium. ALAC granted the IV
request. Ten days after he received the cover note,
Ouirico had a heart seizure and had to be hospital- Cecilio is planning to put up a grocery store in
ized. He then filed a claim on the policy. the subdivision where he and his family reside. To
[aJ Can ALAC validly deny the claim on the promote this proposed business venture, he told
ground that the insurance coverage, as publicly his wife and three children to send out promo·
8 BAR Q & A IN COMMERCIAL LAW 2009 BAR EXAMINATION 9
tional text messages to all the residents in the Barbara then negotiated the bill to her sister,
subdivision. Cecilio's family members did as in- Elena, who paid for it for value, and wl1o did not
structed, and succeeded in reaching, through text know who Lorenzo was. On due date, Elena pre-
messages, more than 80% of the residents in the sented the bill to Diana for payment, but the latter
subdivision. promptly dishonored the instrument because, by
then, Diana had already learned of her husband's
Is Cecilio habitually engaged in commerce
even if the grocery store has yet to be established? dalliance.
Explain your answer. (3%) [a] Was the bill lawfully dishonored by
Diana? Explain. (3%)
Answer:
Answer:
Yes. Cecilio is already habitually engaged in
commerce even if the grocery store has yet to be es- No, the bill was not lawfully dishonored by
tablished when per his instruction the members of Diana. Elena, to whom the instrument was negoti-
his family reached through tex'i: messages more than ated, was a holder in due course inasmuch as she
80% the residents of the subdivision where they re- paid value therefor in good faith. Hence, Elena is en-
side. Under Article 3 of the Code of Commerce, the titled to receive the face value of the i::>ill cf ex-
"legal presumption of habitually engaging in com- change.
merce shall exist from the moment the person who
intends to engage therein announced through circu- [b] Does the illicit cause or consideration ad-
lars, newspapers, handbills, posters exhibited to the versely affect the negotiability of the bill? Explain.
public, or in any other manner whatsoever, an es- (3%)
tablishment which has for its object some commer-
ciai operation." Promotional text messages will fall Answer:
under "announcement in any other manner whatso-
ever." No, illicit cause or consideration does not ad-
versely affect the negotiability of the bill. An m-
strument is negotiable if on its face it conforms to
V the elements of negotiability under Section 1 of the
Negotiable Instruments law. Legality of considera-
Lorenzo drew a bill of exchange in the
tion is not one of these elements. Thus, an instru-
amount of Pl00,000.00 payable to Barbara or or-
t ment may be negotiable even though the considera-
der, with his wife, Diana, as drawee. At the time
tion is unlawful.
the bill was drawn, Diana was unaware that Bar-
bara is Lorenzo's paramour.
10 BAR Q & A 'N COMMERCIAL LAW
2009 BAR t:X"'-M'NATION ~ ·'i
VI
been loaded; b) some of the cargoes were sacrificed
deliberately for the common safety: and c) the vessel
Global Transport Services, Inc. (GTSI) oper-
and other cargoes were successfully saved. The
ates a fleet of cargo vessels plying interisland
general average loss of Romualdo entitles him to
routes. One of its vessels, MV Dona Juana, left the
compensation or inde:m..-riification from the ship-
port of Manila for Cebu laden with, among other
owner and the owners of the cargoes saved by the
goods, 10,000 television sets consigned to
jettison.
Romualdo, a TV retailer in Cebu.
When the vessel was about ten nautical miles VII
away from Manila, the ship captain heard on the
radio that a typhoon which, as announced by Maharlikang Filipino Banking Corporation
PAG-ASA, was on its way out of the country, had (MPBC) operates several branches of Maharlikang
suddenly veered back into Philippine territory. Pilipino Rural Bank in Eastern Visayas. Almost all
The captain realized that MV Dona Juana would the branch managers are close relatives of the
traverse the storm's path, but decided to proceed members of the Board of Directors of the corpora-
with the voyage. True enough, the vessel sailed tion. Many undeserving relatives of the branch
into the storm. The captain ordered the jettison of managers were granted loans. In time, the
the 10,000 television sets, along with some other branches could not settle their obligations to de-
cargo, in order to lighten the vessel and make it positors and creditors.
easier to steer the vessel out of the path of the ty-
phoon. Eventually, the vessel, with its crew intact, Receiving reports of these irregularities, the
arrived safely in Cebu. Supervising and Examining Department (SED) of
the Monetary Board prepared a detailed report
Will you characterize the jettison of (SED Report) specifying the facts and the chronol-
Romualdo's TV sets as an average? If so, what ogy of events relative to the problems that beset
kind of an average, and why? Against whom c:loes MPBC rural bank branches. The report concluded
Romualdo have a cause of action for indemnity of that the bank branches were unable to pay their
his lost TV sets? Explain. liabilities as they fell due, and could not possibly
continue in business without incurring substantial
Answer:
losses to its depositors and creditors.
The jettison of Romualdo's TV sets resulted in a [a] May the Monetary Board order the clo-
general average loss because the elements of gen- sure of the MPBC rural hanks relying only on the
eral average are present: a) there was a common SED Report, without need of an examination? Ex-
danger to the ship and the cargoes after they have plain. (3%)
2009 BAR EXAMINATION 13
12 BAR Q & A \N COMMERCIAL LAW
Answer: VIII
Yes. Under Republic Act No. 7653, otherwise When is there an ultra vires act on the part of
known as the New Central Bank Act, prior notice [a] the corporation; [b] the board of directors; and
and hearing are no longer required and a report [c] the corporate officers. (3%)
made by the head of he SED suffices for a bank to be
closed. The purpose of the law is to make the clo- Answer:
sure of the bank summary and expeditious for the
a. Under Section 45 of the Corporation Code
protection of the public interest (Rural Bank of San
("Code"), no corporation shall possess or
Miguel vs. Monetary Board, G.R. No. 150886, Febru-
exercise any corporate power except
ary 16, 2007)
those conferred by the Code or by its arti-
[b] If MPBC hires you as lawyer because the . cles of incorporation and except such as
Monetary Board has forbidden it from carrying on are necessary or incidental to the exercise
of the powers so conferred. When the cor-
its business due to its imminent insolvency, what
poration does an act or engages in an ac-
action will you institute to question the Monetary
tivity which is outside of its express, im-
Board's order? Explain. (3%)
plied or incidental powers set out in the
Answer: Code and its articles of incorporation, the
act is deemed to be ultra vires
The order of the Monetary Board may be ques-
tioned through a petition for certiorari with the b. The Board commits an ultra vires act
Court of Appeals on the ground that the action was when it engages in an activity without the
arbitrary and made in bad faith tantamount to grave ratificatory or affirmative vote of the
abuse of discretion amounting to lack or excess of stockholders in those instances where the
jurisdiction. The petition for certiorari may only be Corporation Code so requires such vote or
filed by the stockholders of record representing at in cases where corporate powers are re-
least majority of the outstanding capital stock served solely to the stockholders.
within 10 days from receipt by the board of directors
c, When a corporate officer enters into a con-
of the MPBC of the order directing the closure of the
tract on behalf of the corporation without
bank or the appointment of a conservator or re-
having been so expressly or impliedly au-
ceiver. (Central Bank of the Philippines vs. Court of
thorized by the laws of the Corporation or
Appeals, 208 SCRA 652)
by the board of Directors, even when the
act or contract falls within the corpora-
14 BAR Q & A IN COMMERCIAL Ll\W
2009 BAR EXAtliliNAT!CN 15
tion's express, implied or incidental

power. then the unauthorized act of the
e. Those issued by banks. except its own
shares.
corporate officer is deemed to be ultra
vires. f. Other securities as may be classified by
the SEC.
IX
PART II
What are the so-called exempt securities un-
der the Securities Regulation Code ("SRC")? (2%)
X
Answer:
TRUE or FALSE. Answer TRUE if the statement is
Under Section 9 of the SRC, the so-called ex- true, or FALSE if the statement is false. Explain
empt securities are: your answer in not more than two (2) sentences.
(5%)
a. Those issued or guaranteed by the gov-
ernment of the Philippines or any of its po- [al A loan agreement which provides that
litical subdivisions or agencies; the debtor shall pay interest at the rate deter-
b. Those issued or guaranteed by the gov- mined by the bank's branch manager violates the
ernment of any foreign country with which disclosure requirement of the Truth in Lending
the Philippines has diplomatic relations, or Act.
any other state on the basis of reciprocity,
although the Securities and Exchange Answer:
Commission may require compliance with
True. This is contrary to the duty of the creditor
the form and content of disclosures;
to disclose prior to the consummation of the transac-
C. Those issued by the receiver or by the tion the interests, charges and other figures indicat-
trustee in a bankruptcy duly approved by ing in detail the true cost of the credit granted to the
the proper adjudicatory board; debtor.
d. Those involving the sale or transfer which
Ib] Under the Warehouse Receipts Law, a
is by law, under the regulation of the Of-
warehouseman loses his lien upon the goods
fice of the Insurance Commission, Housing
when he surrenders possession thereof.
and Land Use Regulatory Board, or the Bu-
reau of Internal Revenue; and
16 BAR Q &A IN COMlv\ERCIAL LAW
2009 BAR EXAMiNA .,.ION 17
Answer:
"If, for any reason. the receivables or
True. A warehouseman's lien is possessory in any part thereof cannot be paid by the obli-
nature. When a warehouseman surrenders posses- gors, the ASSIGNOR unconditionally and ir-
sion, he thereby loses his lien on the goods. revocably agrees to pay the same, assuming
the liability to pay, by way of penalty, three
[c] A document, dated July 15, 2009, that percent (3%) of the total amount unpaid, for
reads: "Pay to X or order the sum of P5,000.00 five the period of delay until the same is fully
days after his pet dog, Sparky, dies. Signed Y." is a paid."
negotiable instrument.
When the checks became due, BFC deposited
Answer: them for collection, but the drawee banks dishon-
ored all the checks for one of the following rea-
True. The relevant element of negotiability here sons: "account closed," "payment stopped," "ac-
is whether the promise to pay is determinable or count under garnishment," or "insufficiency of
conditional. An instrument is payable at a deter- funds." BFC wrote Gaudencio notifying him of the
minable future time if it is expressed to be payable dishonored checks, and demanding payment of
on or at a fixed period after the occurrence of an the loan. Because Gaudencio did not pay, BFC
event which is certain to happen, though the time of filed a collection suit.
happening be uncertain. (Section 4 of NIL). The dy-
In his defense, Gaudencio contended that [a]
ing of the dog is a day which is certain to come al-
BFC did not give timely notice of dishonor (of the
though the time of the happening is uncertain.
checks); and [b] considering that the checks were
duly indorsed, BFC should proceed against the
XI drawers and the indorsers of the checks,
Gaudencio, a store owner, obtained a Pl- Are Gaudencio's defenses tenable? Explain.
million loan from Bathala Financing Corporation (5%)
(BFC). As security, Gaudencio executed a "Deed of
Assignment of Receivables," assigning 15 checks Answer:
received from various customers who bought mer-
No. Gaudencio's defenses are untenable. The
chandise from his store. The checks were duly in-
cause of action of BFC arose from the non-payment
dorsed by Gaudencio's customers.
of loan. The checks merely serve as collateral to se-
The Deed of Assignment contains the follow- cure the payment of the loan. Under the Deed of As-
ing stipulation: signment, Gaudencio bound himself to pay for the
receivables if for any reason they cannot be paid by
Q&A LAW 2009 BAR EX.AMINA TION 19
18 BAR IN COMMERCIAL
the obligors. (Great Asian Sales Corporation vs. Answer:

Court of Appeals, 381 SCRA 557)
Ciriaco, not SBC, is entitled to receive the pro-
ceeds of the insurance policy. A contract of insur-
XII ance is personal in nature. In agreeing to be bound
by the insurance contract, each party has in mind
Ciriaco leased a commercial apartment from
the character, credit and conduct of the other. SBC
Supreme Building Corporation (SBC). One of the is not privy to the contract signed by Ciriaco and
provisions of the one-year lease contract states: FUIC. FUIC approved the insurance contract bear-
ing in mind the personal qualifications of Ciriaco.
"18. xx x The LESSEE shall not insure
The stipulation that the policy is deemed assigned
against fire the chattels, merchandise, tex-
and transferred to SBC does not bind FUIC. Besides,
tiles, goods and effects placed at any stall or
such stipulation is void because SBC has no insur-
store or space in the leased premises with-
able interest in the merchandise of Ciriaco. (Spouses
out first obtaining the written consent of
Cha vs. Court of Appeals, G.R. No. 124520, August
the LESSOR. If the LESSEE obtains fire in-
surance coverage without the consent of the 18, 1997)
LESSOR, the insurance policy is deemed as-
signed and transferred to the LESSOR for XIII
the latter's benefit."
XXX Corporation (XXX) and its sister com-
Notwithstanding the stipulation in the con- pany, YYY Corporation (YYY), are both under ju-
tract, without the consent of SBC, Ciriaco insured dicial receivership. The receiver has the option to
the merchandise inside the leased premises sell all or substantially all of the properties of YYY
against loss by fire in the amount .of P500,000.00 to XXX, or simply merge the two corporations.
with First United Insurance Corporation (FUIC). Under either option, the requirements under the
Corporation Code have to be complied with.
A day before the lease contract expired, fire
broke out inside the leased premises, damaging The receiver seeks your advice on whether
Ciriaco's merchandise. Having learned of the in- the Bulk Sales Law will apply to either, or both,
surance earlier procured by Ciriaco, SBC de- options. What will your advice be? Explain. (4%)
manded from FUIC that the proceeds of the insur-
ance policy be paid directly to it, as provided in Answer:
the lease contract.
I will advise the receiver that the Bulk Sales
Who is legally entitled to receive the insur- Law does not apply to both options. Section 8 of the
ance proceeds? Explain. (4%)
2009 BAR EXAMINATION 2-;
20 BAR Q&A IN COMMERCIAL LAW
Bulk Sales Law expressly provides that it will not used his image without his permission;
apply to executors, administrators, receivers, and (2%)
assignees in insolvency, or public officers, acting
under judicial process. In this case, the receiver is [b] For copyright infringement because of
acting under judicial process. the unauthorized use of the published
photographs; (2%) and
XIV For injunction in order to stop Lacoste
[c]
International from featuring him in their
After disposing of his last opponent in only
commercials. (2%)
two rounds in Las Vegas, the renowned Filipino
boxer Sonny Bachao arrived at the Ninoy Aquino Will these actions prosper? Explain.
International Airport met by thousands of hero-
worshipping fans and hundreds of media photog- Can Lacoste International validly invoke
[dl
raphers. The following day, a colored photograph the defense that it is not a Philippine
of Sonny wearing a black polo shirt embroidered company and, therefore, Philippine
with the 2-inch Lacoste crocodile logo appeared on courts have no juri'.sdiction? Explain.
the front page of every Philippine newspaper. (2%)
Lacoste International, the French firm that
manufactures Lacoste apparel and owns the La- Answer:
coste trademark, decided to cash in on the univer- a. Sonny Bachao cannot sue for infringement
sal popularity of the boxing icon. It reprinted the of trademark. An action for trademark in-
photographs, with the permission of the newspa- fringement will not lie unless the trademark
per publishers, and went on a world~wide blitz of is registered with the Intellectual Property
print commercials in which Sonny is shown wear- Office. The photographs showing Bachao
ing a Lacoste shirt alongside the phrase "Sonny wearing a Lacoste shirt were not registered
Bachao just loves Lacoste. " as a trademark.
When Sonny sees the Lacoste advertisements, b. Sonny Bachao cannot sue for infringement
he hires you as lawyer and asks you to sue Lacoste of copyright for the unauthorized use of the
International before a Philippine court: photographs. The copyright to the photo-
graphs belong to the photographer or to the
[a] For trademark infringement in the Phil- newspaper company which published them
ippines because Lacoste International if the photographers are employees of the
former.
22 BAR Q & A !N COMMERCiAL LAvv
2009 8AR EXAMiN.JHION 23
C. The complaint for injunction to stop La- Today, Paterno sues XYZ Corporation for spe-
coste International from featuring him in its
cific performance, for the payment of dividends
advertisements will prosper. A contrary
on, and to compel the redemption of, the preferred
rnle amounts to violation of Bachao's right
to privacy. shares, under the terms and conditions provided
in the stock certificates. Will the suit prosper? Ex-
d. No. A foreign corporation with license to do plain. (3%)
business is subject to Philippine courts' ju-
risdiction. It is a condition for the grant of Answer:
its license to do business in the Philippines.
If has no license to do business, it can not The suit will prosper if XYZ Corporation has suf-
sue or intervene in any action before our ficient unrestricted retained earnings. Otherwise,
courts or administrative tribunal but it may Paterno cannot compel XYZ Corporation to pay divi-
be sued or proceeded against on any cause dends. Holders of preferred shares are not creditors
of action recognized under Philippine laws of the corporation and their preference as to divi-
(Section 133 of the Corpbration Code) dends only applies if the corporation declares divi-
dends out of the corporation's surplus profits. (Re-
public Planters Bank v.s. Agana, GR No. 51765,
xv March 3, 1997)
On September 15, 2007, XYZ Corporation is- Paterno can not compel the corporation to re-
sued to Paterno 800 preferred shares with the fol- deem the shares because based on the terms of is-
lowing terms: suance, the redemption is at the option and discre-
tion of the Corporation.
"The Preferred Shares shall have the
following rights, preferences, qualifica- XVI
tions, and limitations, to wit:
1. The right to receive a quarterly Philippine Palaces Realty (PPR) had been rep-
dividend of One Per Centum (1 %), cumu- resenting itself as a registered broker of securities,
lative and participating; duly authorized by the Securities and Exchange
Commission (SEC). On October 6, 1996, PPR sold
2. These shares may be redeemed, to spouses Leon and Carina one (1) timeshare
by drawing of lots, at any time after two of Palacio del Boracay for US$7,500.00. However,
(2) years from date of issue, at the option
its Registration Statement became effective only
of the Corporation; x x :1<."
on February 11, 1998 after the SEC issued a reso-
2009 BAR EX1\MINATlON 25
24 8AR Q & A iN COMMERCIAL LAW
lution declaring that PPR was authorized to sell merely 33 common shares as the corporation's is-
securities, including timeshares. sued and outstanding shares.
On March 30, 1998, Leon and Carina wrote [a] In 1982, Juancho, the sole heir of one of
PPR rescinding their purchase agreement and the original incorporators filed a petition with the
demanding the refund of the amount they paid, Securities and Exchange Commission (SEC) for the
because the Palacio def Boracay timeshare was registration of his property rights over 120 foun-
sold to them by PPR without the requisite license ders' shares and 12 common shares. The petition
or authority from the SEC. PPR contended that was supported by a copy of the Articles of Incor-
the grant of the SEC authority had the effect of poration indicating the incorporators' initial capi-
ratifying the purchase agreement (with Leon and tal stock subscription. Will the petition be
Carina) of October 6, 1996. granted? Why or why not? (3%)
Is the contention of PPR correct? Explain.
Answer:
(3%)
Yes. The articles of incorporation defines the
Answer: charter of the corporation and the contractual rela-
tionship between the State and the corporation, the
The contention of PPR is not correct. Timeshare
State and the stockholders, and between the corpo-
certificates are considered securities (Timeshare
ration and the stockholders. Its contents are thus
Realty vs. Lao, G.R. No. 158941, February 11, 2008) binding upon both the corporation and the stock-
Under Section 8 of the Securities Regulation Code,
holders, conferring on Juancho a clear right to have
no securities shall be sold or offered for sale or dis-
his stockholding recorded. The stock and transfer
tribution in the Philippines without a registration book can not be used as the sole basis for determin-
statement duly filed and approved by the SEC. The ing shares issued to stockholders more so when the
permit to sell should be issued before the actual sale articles of incorporation show a significantly larger
or distribution of the securities. The permit does not amount of shares issued and outstanding compared
retroact to the date of the actual sale. to that listed in the stock and transfer book. (Lanuza
vs. Court of Appeals, G.R. No. 131394, March 28,
XVII 2005)
Triple A Corporation (Triple A) was incorpo- [b] On May 6, 1992, a special stockholders'
rated in 1960, with 500 founders' shares and 78 meeting was held. At this meeting, what would
common shares as its initial capital stock sub- h.ave constituted a quorum? Explain. (3%)
scription. However, Triple A registered its stock
and transfer book only in 1978, and recorded
Answer: curred; Teresita, the bus driver's mistress who

usually accompanied the driver on his trips. for
A quorum consists of the majority of the voting free; and Uriel, holder of a free riding pass he won
shares of the corporation Thus, the quorum for such in a raffle held by CTC,
meeting would be 289 shares or a majority of the
578 shares issued and outstanding as indicated in [a] Will a suit for breach of contract of car-
the articles of incorporation. This includes the 33 riage filed by Romeo, Samuel, Teresita and Uriel
common shares reflected in the stocks and transfer against CTC prosper? Explain. (3%)
book, there being no mention or showing of any
transaction effected from the time of Triple A's in- Answer:
corporation in 1960 up to the said meeting. Romeo cannot sue for breach of contract of car-
riage for the simple reason that there was no valid
[c] What is a stock and transfer book? (1 %)
contract of carriage between a stowaway, who se-
Answer: cures passage through fraud, and the carrier
Samuel and Teresita cannot sue for breach of
A stock and transfer book is a book which re- contract of carriage. They were never accepted by
cords all stocks in the name of the stockholders al- the carrier as passengers. Samuel did not board the
phabetically arranged; the installments paid or un- bus to be transported but to commit robbery. Tere-
paid on all stocks for which subscriptions have been sita did not board the bus to be transported but to
made, and the date of payment of any installment; a accompany the driver while he was performing his
statement of every alienation, sale or transfer of
work
stock made, the date thereof, and by and to whom
made; and such other entries as the by-laws may Uriel can sue for breach of contract of carriage.
prescribe. (Section 74 of the Corporation Code) He was a passenger although he was being trans-
ported gratuitously (Article 1758 of the Civil Code)
XVIII [b J What, if any, are the valid defenses that

CTC and UT! can raise in the respective actions
One of the passenger buses owned by Conti-
against them? Explain. {3%)
nental Transit Corporation (CTC), plying its usual
route, figured in a collision with another bus Answer:
owned by Universal Transport, Inc. (UTI). Among
those injured inside the CTC bus were: Romeo, a With respect to Romeo, Samuel and Teresita,
stow away; Samuel, a pickpocket then in the act since there was no pre-existing contractual relation-
of robbing his seatmate when the collision oc- ship between them and CTC. CTC can raise the de-
A LAW 2009 BAR EXAMl'iATION 29
28 BAR Q & IN COMMERCIAL
fense that it exercised the due diligence of a good tend credit on any security an amount greater than
father of a family in the selection and supervision of whichever is higher of:
its driver. a) 65% of the current market price of the secu-
It can raise the same defense against Uriel if rity;
there is a stipulation that exempts it from liability b) 100% of the lowest market price of the se-
for simple negligence, but not for willful acts or curity during the preceding 36 calendar
gross negligence (Article 1758 of the Civil Code) months, but not more than 75% of the cur-
CTC can also raise against all the plaintiffs the rent market price. (Section 48 of the Securi-
defense that the collision was due exclusively to the ties Regulation Code)
negligence of the driver of UTI which constitutes a The purpose of the Margin Trading Rule is to
fortuitous event, because it was unforeseen and prevent excessive use of credit for the purchase and
there was no concurrent or contributory negligence carrying of securities. It is a counter to broker's de-
on the part of its own driver. sire to generate more sales by encouraging clients
CTC can also raise against Samuel the defense to buy securities on credit.
that he was engaged in an illegal act at the time of
the collision, for which he can be held liable for
damages based on quasi-delict.
Since UTI had no pre-existing contractual rela-
tionship with any of the plaintiffs, it can raise the
defense that it exercised due diligence in the selec-
tion and supervision of its driver, that the collision
was due to force majeure, and that Samuel was
committing an illegal act at the time of the coHision.
XIX
Under the Securities Regulation Code, what is

the Margin Trading Rule? (2%)
Answer:
Under the Margin Trading Rule, no registered

broker or dealer, or member of an exchange shall ex-
30 BAR Q & A IN COMMERCIAL LAW
2010 8.A.R EXAMiNAT!ON 31
e. Receive other types of deposits. as

2010 BAR EXAMINATION well as deposit substitutes;
f. Buy and sell foreign exchange, as well
I as gold or silver bullion;
g. Acquire marketable bonds and other
Briefly describe the following types of banks:
(2% each) debts securities; and
h. Extend credit, subject to such rnies
A. universal bank
promulgated by the Monetary Board.
B. commercial bank (Section29 ofGBL)
C. thrift bank C. A thrift bank is one established as a sav-
ings and mortgage bank. a stock savings
D. rural bank
and loan association, or a private develop-
E. cooperative bank ment bank, for the purpose of:
Answer: a. Accumulating the savings of deposi-

tors and investing them together with
A. A universal bank is a commercial bank capital loans secured by bonds. mort-
gages in real estate and msured J.m.
which has the power of an investment
house and the power to invest in the equity provements thereon chattel mortgage,
bonds and other forms of security, or
of non-allied enterprises (Section 23 of the
RA 8791, otherwise known as the new
in loans for personal or household fi-
nance, whether secured or unsecured,
General Banking Act). It is otherwise
or in financing for homebuilding and
known as an expanded commercial bank
home development, in readily market-
B. A commercial bank is a bank that can: able and debt securities, in commer-
a. Accept drafts; cial papers and account receivables.
drafts, bill of exchange, acceptance or
b. Issue letters of credit; notes, ans mg out of commercial
c. Discount and negotiate promissory transactions or in outlets determined
note, bills of exchange, and other evi- by the Monetary Board as necessary
dence of debt; in the furtherance of national eco-
d. Accept or create demand deposits; nomic objectives;
b. Providing short-term working capital,
medium and long-term financing. to
2010 BAR EXAMINATiON 33
business engaged in agriculture, ser- Answer:

vices, industry and housing; and
C. Providing diversified financial and al- The stipulation relieving the bar1k of liability m
lied services for its chosen market and connection with the use of the safety deposit box is
constituencies especially for small void as it is against law and public policy.
and medium enterprises and indi-
viduals (Section 3 of RA 7906). C. Differentiate "bank deposits" from "de-
posit substitutes." (2%)
D. A rural bank is one established to provide
credit facilities to farmers and merchants or Answer:
their cooperatives and, in general, to the
people of the rural communities (Section 2 Bank deposits are funds obtained by a bank
of RA 7353) from the public which are relent by such bank to its
own borrowers. They are governed by the law on
E. A cooperative bank is a bank organized
loans. They give rise to creditor-debtor relationship
under the Cooperative Code to provide fi-
between the bank, as debtor and the depositors, as
nancial and credit services to cooperatives.
creditors. Deposit substitutes are alternative forms
of obtaining funds from the public, other than de-
II posits, through the issuance, endorsement, or ac-
ceptance of debt instruments for the own account of
A How do you characterize the legal rela- the borrower, for the purpose of relending or pur-
tionship between a commercial bank and its chasing of receivables and other obligations. These
safety deposit box client? (2%) instruments may include, but need not be limited to,
bankers acceptances, promissory notes, participa-
Answer:
tions, certificates of assignment and similar instru-
ments with recourse, and repurchase agreements.
A contract for the use of safety deposit box is a
special kind of deposit. The relationship between a D. Why are banks required to maintain re-
commercial bank and its safety deposit box client is serves' against their deposits and deposit substi•
that of a bailee and bailor, the bailment being for tutes1 State one of three purposes for these re-
hire and mutual benefit. (Sia vs. Court of Appeals, serves. (2%)
G.R. No. 102970, May 13, 1993)
,
B. Is a stipulation in the contract for the use
of a safety deposit box relieving the bank of liabil-
ity in connection with the use thereof valid? (2%)
34 BAR Q & A IN COMMERCIAL LAW 2010 BAR EXAM!N.~.TION 35
Answer: Answer:
Any one of the following purposes for requiring Yes. The multi-ievel marketing scheme consti-
banks to maintain reserves against their deposits tutes an "investment contract". -(Power Homes
and deposit substitutes will suffice: Unlimited vs. SEC, 546 SCRA 567) Under the Securi-
ties and Regulation Code, an "investment contract•·
1. To control the volume of money arising from
is a contract, transaction or scheme whereby a per-
the credit operations of the banking sys-
son invests his money in a common enterprise with
tem;
the expectation of profits primarily from the efforts
2. To provide the banks reserves which they of another.
can tap in case of inadequate liquidity to
service withdrawals of bank deposits; B. What procedure must be followed under
the Securities Regulation Code to authorize the
3. To help Government to finance its opera-
sale or offer for sale or distribution of an invest-
tion: and
ment' contract? (2%)
III Answer:
Andante Realty, a marketing company that Prior to the sale or offering for saie or distribu-
promotes and facilitates sales of real property tion to the public of an investment contract, the Is-
through leverage marketing, solicits investors suer must file a registration statement with and ob-
who are required to be a Business Center Owner tain a permit to sell from the Securities and Ex-
(BCO) by paying an enrollment fee of $250. The change Commission in accordance with Section 8 of
BCO is then entitled to recruit two other investors the Securities and Regulation Code.
who pay $250 each. The BCO receives $90 from
the $250 paid by each of his recruits and is cred- C. What are the legal consequences of fail-
ited a certain amount for payments made by inure to follow this procedure? (2%)
vestors through the initial efforts of his Business
Center. Once the accumulated amount reaches . Answer:
$5,000, the same is used as down payment for the
The failure to follow this procedure shall give
real property chosen by the BCO. rise to criminal, civil and administrative liabilities,
A. Does this multi-level marketing scheme The penal sanction, upon conviction, includes a fine
constitute an "investment contract" under the Se- P50,000 to P5,000,000 and/or imprisonment of 7-12
curities Regulation Code? Define an "investment years). It carries also civil liabilities such that the
contract." (2%) purchaser can recover from the seller (i) the consid-
36 8AR Q & A IN COMMERCIAL LAW
eration paid with interest thereon, less the amount

of any income received on the purchased securities, junction with the Corporation Code that the sale is
upon the tender of such securities, or (ii) damages if considered substantially all if after the sale, the
the purchaser no longer owns such securities. Fur- sell~r can not continue with the business for which
thermore, the Securities and Exchange Commission it was organized. In this case, Venezia is still in
may issue a cease and desist order to enjoin the sale busine9s despite the sale of its Manila outlet inven-
of the unregistered securities and impose adminis- tory.
trative sanctions against the Issuer and its respon-
sible directors, officers and agents. R If instead of selling its Manila outlet,
Venezia merely mortgages its assets there, would
it need to comply with the requirements of the
IV Bulk Sales Law? (2%)
Venezia is a famous international fashion Answer:
chain with outlets in Makati, Ortigas, and Manila.
It has complied with the minimum capitalization For the same reasons stated in the answer to
required under the Retail Trade Nationalization (1) above, Venezia need not comply with the re-
Act and carries on retail business worth more than quirements of the Bulk Sales Law. While the bulk
$3 million for each of its outlets. As its Manila out- sales also covers mortgage, the same should like-
let is not doing very well, it decides to sell all of its wise involve all or substantially all of the business
business there consisting of remaining inventory, or assets of the seller.
furniture and fixtures and other assets to its com-
petitor. C. What are the legal consequences of a fail-
ure to comply with the requirements of the Bulk
A. Venezia's Manila outlet constitutes one- Sales Law? (2%)
third (1/3) of its total business. Should it comply
with the requirements of the Bulk Sales Law? Answer:
Why or why not? (2%}
Failure to comply with the requirements of a
Answer: Bulk Sales Law renders the sale, transfer, mortgage,
or assignment fraudulent and void, and makes any
Venezia need not comply with the requirements person found guilty of violating any provision of the
of the Bulk Sales Law as the sale does not constitute Bulk Sales Law punisl:lable by imprisonment for not
a sale of all or substantially all of its business. While less than 6 months nor more than 5 years, or a fine
the law does not define what sale of substantially in an amount not exceeding P5,000, or both such
all of the business mean, this should be read in con- imprisonment and fine in the discretion of the court.
V B. Enumerate three (3) stipulations that are

prohibited in technology transfer agreements.
A. What contractual stipulations are re-
(3%)
quired in all technology transfer agreements? (2%)
Answer: Answer:
The following stipulations are prohibited in

The following stipulations are required in all
technology transfer agreements:
technology transfer agreements:
a. Those pursuant to which the licensor re-
a. The laws of the Philippines shall govern its serves the right to fix the sale or resale
interpretation and in the event of litigation, prices of the products manufactured on the
the venue shall be the proper court in the basis of the license;
place where the licensee has its principal
place of business; b. Those that contain restricti.ons regarding
the volume and structure of production;
b. Continued access to improvements in tech-
niques and processes related to the tech- c, Those that prohibit the use of competitive
nology shall be made available during the technologies in no-exclusive agreement;
period of the technology transfer arrange-
ment; C. Can an article of commerce serve as a trade-
mark and at the same time enjoy patent and
c. In case it shall provide for arbitration, the copyright protection? Explain and give an ex-
Procedure of Arbitration of the Arbitration ample. (2%)
Law of the Philippines or the Arbitration
Rules of the International Chamber of Answer:
Commerce (ICC) or the Rules of Concilia-
tion and Arbitration of the International Yes, because an article of commerce may have
Chamber of Commerce shall apply and the different objector purpose which can be separately
venue of arbitration shall be the Philippines covered by the three intellectual property rights.
or any neutral country:
:A stamped or marked container of goods can be
d. The Philippine taxes on all payments relat- registered as a trademark. The ornamental design
ing to the technology transfer agreement appearing on the container of goods can be copy-
shall be borne by the licensor. (Section 88 righted if it can be conceptually separated from the
of the IPC) utilitarian aspect of the container. Such design if it
can be used as pattern for industrial product or
handicraft can also be covered by a patent for indus-
40
BAR Q & A IN COMMERCIAL LAW
2010 BAR EXAM,NAT!ON 4!
trial design. Thus, a container of goods which has

an original ornamental design can be registered as a or in concert with other.persons) to acquire the eq-
trademark, can be copyrighted, and can be regis- uity securities of a public company. A tender offer 1s
tered as an industrial design. meant to protect minority stockholders against any
scheme that dilutes the share value of their invest-
ments. It gives them the chance to sell their shares
VI
for the same price ru'1.d under the same terms offered
to the majority stockholders, provided that such
Union Mines, Inc. has total assets of P60 mil-
price is supported by a fairness opinion prepared by
lion with 210 stockholders holding at least 100
shares each. an independent public accountant.
Under the Securities Regulation Code and its
The company has two principal stockholders,
implementing rules, a mandatory tender offer is re-
ABC which owns 60% of the shares of stock, and
XYZ which owns 17%. quired:
a. When at least 35% of the outstanding
ABC in tum is owned to the extent of 21.31 % shares of a public company is to be ac-
by Acme, Inc.; 29.69% by Golden Boy, Inc.; 9% by quired in one transaction. or a series of
XYZ; and the rest by individual stockholders. transaction during a 12-month period; or
None of the parties is a publicly-listed com- b. Even if any acquisition is less than 35%
pany.
threshold but the result thereof is the own-
XYZ now proposes to buy Acme's and Golden ership of more than 51 % of the total out-
Boy's shares in ABC, which would give it direct standing shares of a public company. (Rule
control of ABC and indirect control of Union 19.2.5)
Mines.
The mandatory tender offer rule also applies
Is the proposed acquisition by XYZ subject to even if the acquisition, direct or indirect, is less than
the mandatory tender offer rule? Why or why not? 35% when the purchase would result in ownership
What is a tender offer and when is it mandatory? of over 51 % of the total outstanding equity securities
(5%)
of a public company (Cemco Holdings Inc . .rs. Na-
tional Life Insurance Company of the Philippines.
Answer:
G.R. No. 171815, August 7, 2007)
Yes, the proposed acquisition is subject to In tbis case, Union Mines is clearly a public
mandatory tender offer rule. A tender offer is a pub- company, since it has a total asset of P60 Million
licly announced intention by a person (acting alone with 210 stockholders holding at least 100 shares
each. A public company is defined as a corporation
2010 BAR EXAlv1iNATION 43
42 8P-R Q & A !N COMMERCIAL LAW
listed on the stock exchange, or a C(?rporation within a period of 12 montl1s, shall disclose such in-
amounts to at least P50 Million, with at least 200 tention and contemporaneously make a tender offer
stockholders holding not less than 100 shares each for the percentage sought to all holders of such se-
of such corporation. curities within the said period.
XYZ's acquisition of shares of Acme, Inc. and 19.2.3 Any person or group of persons acting
Golden Boy, Inc., taken separately, does not reach in concert, who intends to acquire 35% of the out-
35% threshold and therefore on that scor.e is not sub- standing voting shares or such outsta.'1ding voting
ject to mandatory tender offer. However, since, XYZ shares that is sufficient to gain control of the board
already owns 9% of ABC. Its acquisition of the in a public company directly from one or more
shares of Acme and Golden Boy will result in XYZ stockholders shall be required to make tender offer
owning 60% of ABC. This means that it will now infor all the outstanding voting shares.
directly own approximately 36% of ABC. However, 19.2.4. If any acquisition would result in own-
when the acquisitions are added to XYZ's 17% share ership of over 50% of the total outstanding equity
ownership in Union Mines, they meet the more- securities of a public company, the acquirer shall be
than-51 % threshold for mandatory tender offer. required to make a tender offer for all the out-
NB As of this writing, the SEC-revised definition standing equity securities to all remaining stock-
of tender offer is a publicly announced intention by a holders of the said company at a price supported by
person acting alone or in concert with others to ac- a fairness opinion provided by an independent fi.
quire outstanding equity securities of a public com- nancial advisor or equivalent third 'party. The ac-
pany or outstanding equity securities of an associ- quirer in such tender offer shall be required to ac-
ate or related company of such public company cept all securities tendered.
which controls the said public company.
VII
Likewise, mandatory tender offers include:
19.2.1. Any person or group of persons acting Marlon deposited with LYRIC Bank a money
in concert, who intend to acquire 15% of equity se- market placement of Pl million for a term of 31
curities in a public company in one or more transac- days. On maturity date, one claiming to be Marlon
tions within a period of 12 months shall file a decla- called up the LYRIC Bank account officer and in-
ration to that effect with the Commission. structed him to give the manager's check repre-
senting the proceeds of the money market place-
19.2.2. Any person or group of persons acting
in concert, who intends to acquire 35% of the out- ment to Marlon's girlfriend Ingrid.
standing voting shares or such outstanding voting The check, which bore the forged signature of
shares that is sufficient to gain control of the board Marlon, was deposited in Ingrid's account with
in a public company in one or more transactions
2010 BAR EXAtl,1INATION 45
YAMAHA Bank. YAMAHA Bank stamped a guar- loss should bear sixty per cent of the loss v\Jhile the
anty on the check reading: "All prior endorse- collecting bank should bear forty per cent thereof.
ments and/or lack of endorsement guaranteed."
Upon presentment of the check, LYRIC Bank VIII
funds the check. Days later, Marlon goes to LYRIC Your client Dianne approaches you for legal
Bank to collect his money market placement and
advice on putting up a medium-sized restaurant
discovers the foregoing transactions.
business that will specialize in a novel type of cui-
Marlon thereupon sues LYRIC Bank which in sine. As Dianne feels that the business is a little
turn files a third-party complaint against YA- risky, she wonders whether she should use a cor-
MAHA Bank. Discuss the· respective rights and li- poration as the business vehicle, or just run it as a
abilities of the two banks. (5%) single proprietorship. She already has an existing
corporation that is producing meat products prof-
Answer: itably and is also considering the alternative of
simply setting up the restaurant as a branch office
This is similar to the case of BPI vs. Court of
of the existing corporation.
Appeals, 216 SCRA 51 where the Supreme Court
held that a bank which allowed the pre-termination A. Briefly explain to your client what you
of a money market placement without making verifi- see as the legal advantages and disadvantages of
cation with the client and comparing the signature using a separate corporation, a single proprietor-
in the letter pre-terminating the money market ship, or a branch of an existing corporation for the
placement with the specimen signature of the client proposed restaurant business. {3%)
on file and without requiring the surrender of the
promissory note evidencing the money market Answer:
placement is considered negligent, more so in this
case, where the instruction was made by a swindler If Dianne will set up a separate corporation. her
who impersonated the client with a money market liability for its obligations will be liwited to the
placement in a bank The bank to whom the swin- amount of her subscription in the absence of bad
dler deposited the cashier's check representing the faith or gross negligence in conducting affairs of the
proceeds of the money market placement was also corporation showing that there is a ground to disre-
negligent when it approved the opening of the a.c- gard its separate juridical personality. If she were to
count with only a tax account number as means of operate a single proprietorship, her liability for its
identification. The drawee bank, however, whose obligations goes beyond the capital of the business.
negligence is greater and the proximate cause of the Her personal properties may be held answerable for
the liability of the single proprietorship since it has
46 BAR Q & A IN COMMERC!AL LAW
l010 BAR EXAMINATION 47
no separate legal personality from Dianne, as pro-

prietor, pino citizens unless the corporation is engaged in
nationalized industry.
The formation and the operation of a corpora-
tion require a great deal of paper work and record- IX
keeping and subJect to compliance with various SEC
rules and regulations. This is not the situation in the To secure a loan of P10 million, Mario mort-
case of a single proprietorship. gaged his building to Armando. In accordance
If she were to set-up the restaurant as a branch with the loan arrangements, Mario had the build-
office an existing corporation, it will allow her to ex- ing insured with First Insurance Company for P10
pand the business of the corporation without the million, designating Armando as the beneficiary,
cost of incorporation. However, all the assets of the Armando also took an insurance on the build-
existing corporation will be liable for all obligations ing upon his own interest with Second Insurance
of the restaurant business.
Company for P5 million.
B. If you advise your client to use a corpora- The building was totally destroyed by fire, a
tion, what officer positions must the corporation peril insured against under both insurance poli-
at least have? (2%) cies. It was subsequently determined that the fire
had been intentionally started by Mario and that
Answer: in violation of the loan agreement, he had been
storing inflammable materials in the building.
It must have a president, treasurer, and a secre-
tary. A. How much, if any, can Armando recover
from either or both insurance companies? (2%)
C. What particular qualifications, if any, are
these officers legally required to possess under Answer:
the Corporation Code? (2%)
Armando can receive P5 Million from Second
Answer: Insurance Company. As mortgagee, he had an in-
surable interest in the building to the extent of the
The President is required to be a director and a amourit of the mortgage debt.
shareholder of the corporation. The secretary must Armando cannot collect anything from First In-
be a resident and citizen· of the Philippines. The surance Company. First Insurance Company is not
treasurer must be a resident of the Philippines. The liable for the loss of the building because it was
President and treasurer are not required to be Fili- caused by the insured himself. In an insurance pol-
icy obtained by the mortgagor with the mortgagee
2010 BAR Ex,o..MINATION 49
48 BAR Q&A IN COlvllvlERCI.O.L LAW
as designated beneficiary, any act on the part of the Enrique thereupon claimed indemnity from
insured affects the beneficiary. the insurer. Is the insurer liable under the insur-
ance coverage? Why or why not? (3%)
B. What happens to the PlO million debt of
Mario to Armando? Explain. (3%) Answer:
Answer: The insurer is liable under the insurance policy.

By accepting a post-dated check, the msurer effec-
Since Armando would have collected P5 Million tively extended credit "for the payment of the insur-
from Second Insurance Company, this amount ance premium. Credit extension 1s one of the excep-
should be considered as partial payment of the loan. tions to the rule that an insurance is not efficacious
Armando can only collect the balance of P5 Million. with a valid insurance payment. In this case, the
Second Insurance Company can recover from Mario loss occurred within the credit period. It does not
the amount of P5 Million it paid, because it became matter that the check was eventually dishonored.
subrogated to the rights of Armando. (Capital Insurance & Surety Company vs. Plastic Era
Co,, Inc., G.R No. L-23375, July 18, 1975)
X
XI
Enrique obtained from Seguro Insurance
Company a comprehensive motor vehicle insur- Paolo, the owner of an ocean-going vessel, of-
ance to cover his top of the line Aston Martin. The fered to transport the logs of Constantino from
policy was issued on March 31, 20'10 and, on even Manila to Nagoya. Constantino accepted the offer,
date, Enrique paid the premium with a personal not knowing that the vessel was manned by an
check postdated April 6, 2010. irresponsible crew with deep-seated resentments
against Paolo, their employer.
On April 5, 2010, the car was involved in an
accident that resulted in its total loss. Constantino insured the cargo of logs against
both perils of the sea and barratry. The logs were
On April 10, 2010, the drawee bank returned improperly loaded on one side, thereby causing
Enrique's check with the notation "Insufficient
the vessel to tilt on one side. On the way to Na-
Funds." Upon notification, Enrique immediately
goya, the crew unbolted the sea valves of the ves-
deposited additional funds with the bank and sel causing water to flood the ship hold. The ves-
asked the insurer to redeposit the check.
sel sank.
Constantino tried to collect from the insur-

ful or fraudulent purpose without the consent of the
ance company which denied liability, given the
owner and to the prejudice of the interest of the
unworthiness of both the vessel and its crew.
owner.
Constantino countered that he was not the
owner of the vessel and he could therefore not be XII
responsible for conditions about which he was in-
nocent.
When OCCIDENT AL Bank folded up due to in-
A. Is the insurance company liable? Why or solvency, Manuel had the following separate de-
why not? (3%) posits in his name: P200,000 in savings deposit;
P250,000 in time deposit; P50,000 in a current ac-
Answer: count; Pl million in a trust account; and P3 million
in money market placement. Under the Philippine
No. The insurance compa11y is not liable be- Deposit Insurance Corporation Act, how much
cause the loss of the cargo was due to the perils of could Manuel recover? Explain. (2%)
the ship. that is, incompetence of the vessel's crew.
There is an also an implied warranty in every marine Answer:
insurance that the ship is seaworthy. A ship is un-
seaworthy if it is not manned by competent crew as Manuel can recover P500,000 because this is
in this case. There was a breach of warranty, be- the total of his savings deposit. time deposit and
cause the logs were improperly loaded and the crew current account. The trust account and the money
was irresponsible. It is the insured's responsibility, market placements are not considered insured de-
not the insurer, to look for a seaworthy vessel. It posits.
would have been different if the policy obtained is
an all risks marine insurance policy in which case XIII
the insurer is liable for the losses caused by the irre-
sponsible crew. (Roque vs. Intermediate Appellate While vacationing in Boracay, Valentino sur-
Court, G.R. No. L-66935, November 11, 1985). reptitiously took photographs of his girlfriend
Monaliza in her skimpy bikini. Two weeks later,
B. What is "barratry" in marine insurance? (2%) her photographs appeared in the Internet and in a
national celebrity magazine.
Answer:
Monaliza found out that Valentino had sold
Barratry is any willful misconduct on the part of the photographs to the magazine and, adding in-
the master or the crew in pursuance of some unlaw- sult to injury, uploaded them to his personal blog
on the Internet.
2010 BAR EXAM,NA!ION 53
A. Monaliza filed a complaint against Valen- Answer:

tino for damages based on, among other grounds,
violation of her intellectual property rights. Does Yes. Monaliza can also sue Francesco for viola-
she have any cause of action? Explain. (2%) tion of her right to privacy but not for infringement
Answer:
of any intellectual property right.
No. Monaliza cannot sue Valentino for violation XIV

of her intellectual property rights. While photo-
graphs are copyrightable works, the owner of the An importer of Christmas toys loaded 100
copyright is the photographer not the person sub- boxes of Santa Claus talking dolls aboard a ship in
ject of the photograph. She may sue Valentino in- Korea bound for Manila. With the intention of
stead for violation of her right to privacy for having smuggling one-half of his cargo, he took a bill of
surreptitiously taken her photographs and then sell- lading for only 50 boxes. On the voyage to Manila,
ing the same to a magazine and uploading them in 50 boxes were jettisoned to save the more pre-
the internet. cious cargo.
B. Valentino's friend Francesco stole the A. Is the importer entitled to receive any in-
photographs and duplicated them and sold them demnity for average? Explain. (2%)
to a magazine publication. Valentino sued Fran-
cesco for infringement and damages. Does Valen- Answer:
tino have any cause of action? Explain. (2%)
On the assumption that there 1s a common nsK
Answer: to the vessel and the cargo and that the vessel or
part of the cargoes must be deliberately sacrificed
No. Valentino cannot sue Francesco for in- to save the rest, the importer is entitled to receive
fringement, because he has already sold the photo- indemnity for general average but only for the value
graphs to a magazine publication company. of the cargoes which he declared in rhe bill of lad-
ing. Indemnity for general average is conditioned on
C. Does Monaliza have any cause of action the exis.tence on board of the cargoes which can be
against Francesco? Explain. (2%) proven by means of the bill of lading
B. What are the types of averages in marine

commerce? (3%)
2010 BAR EXAM,NATIO\! 55
Answer:
Transfield Philippines, Inc. v. Luzon Hydro Corpora-
The types of averages are particular and gen- tion, 443 SCRA 307 (2004) for the first time declared
eral average. Particular averages include all ex- that fraud is an exception to the independence prin-
penses and damages caused to the vessel or to the ciple. Under the fraud exception principle, the bene-
cargo which did not inure to the common benefit ficiary of the letter of credit may be enjoined from
and profit of all the persons interested in the vessel collecting on the letter of credit, if he committed
and the cargo. General averages include all dam- fraud not in relation to the performance of his obli-
ages and expenses which are deliberately caused to gation under the underlying contract but with re-
save the vessel, its cargo, or both at the same time, spect to the independent character of the credit, as
from real and known maritime risk. when he presents to the issuing or confirming bank
spurious or fraudulent documents that contain ma-
terial facts that, to his knowiedge, are untrue.
xv
The Supreme Court has held that fraud is an XVI
exception to the "independence principle" gov-
erning letters of credit. Explain this principle and For years, Y has been engaged in the parallel
give an example of how fraud can be an excep- importation of famous brands, including shoes
tion. (3%) carrying the foreign brand MAGIC. Exclusive dis-
tributor X demands that Y cease importation be-
Answer: cause of his appointment as exclusive distributor
of MAGIC shoes in the Philippines.
The "independence principle" provides that the
Y counters that the trademark MAGIC is not
rights and obligations of the parties to a letter of
registered with the Intellectual Property Office as
credit are independent of the right and obligations
of the parties to the underlying transaction. Thus,
a trademark and therefore no one has the right to
prevent its parallel importation.
the beneficiary of the letter of credit, which is able
to comply with the documentary requirements un-
A. Who is correct? Why? (2%)
der the letter of credit, must be paid by the issuing.
or confirming bank, notwithstanding any issue on Answer:
the fulfillment or non-fulfillment of main contract
underlying the letter of credit transaction, say a con- On the assumption that the manufacturer did
tract of sale of goods where the buyer is not satis- not authorize Y to import and seli the shoes carrying
fied with the quality and/or quantity of the goods the brand "Magic", X is correct. The importation and
which the seller delivered. The Supreme Court in sale by Y of MAGIC shoes constitute unfair competi-
2010 SAR EXAM INA T!ON 57
56 BAR Q & A IN Cm,1MERCIAL LAW
tion. Trademark registration is not necessary in an Can he legally protect his new method of di-
act1on for unfair competition. By selling the shoes agnosis, the new medicine, and the new method
despite the exclusive distributorship right of X, Y is of treatment? If no, why? If yes, how? (4%)
effectively passing off to its customers that the
shoes are manufactured by the manufacturer with Answer:
whom X has entered into a sole distributorship Dr. Nobel can be protected by a patent for the
agreement.
new medicine as it falls within the scope of Section
21 of the Intellectual Property Code. But, no patent
B. Suppose the shoes are covered by a Phil-
protection can be extended to the new method of
ippine patent issued to the brand owner, what
diagnosis and method of treatment. By express pro-
would your answer he? Explain. (2%)
vision of law, methods for treatment of the human
Answer: body by surgery or therapy and diagnostic methods
practiced on the human body are non-patentable
The patentee has the sole right to carry out, and inventions. (Section 22.2 of the IPC)
prevent the importation of the patented product. X
can thus prevent Y's parallel importation of the
shoes. The importation of the patented product
without authorization of the patent holder consti-
tutes patent infringement.
Shoes, however, are not patentable because
there lack of the elements of novelty and incentive
step.
XVII
Dr. Nobel discovered a new method of treat-

ing Alzheimer's involving a special method of di-.
agnosing the disease, treating it with a new medi-
cine that has been discovered after long experi-
mentation and field testing, and novel ment'a.l
isometric exercises. He comes to you for advice on
how he can have his discoveries protected.
2011 8AR EXAMINATiON 59
(2) A cargo ship of X Shipping, Co. ran

2011 BAR EXAMINATION aground off the coast of Cebu during a storm and
lost all its cargo amounting to Php50 Million. The
Set A ship itself suffered damages estimated at Php80
Million. The cargo owners filed a suit against X
(1) P rode a_ Sentinel Liner bus going. to Ba- Shipping but it invoked the doctrine of limited li-
guio from Manila. At a stop-over in Tarlac, the bus ability since its vessel suffered Php80 Million
driver, the conductor, and the passengers disem- damage, more than the collective value of all lost
barked for lunch. P decided, however, to remain in cargo. Is X Shipping correct?
the bus, the door of which was not locked. At this
point, V, a vendor, sneaked into the bus and of- (A) Yes, since under that doctrine, the value of
fered P some refreshments. When P rudely de- the lost cargo and the damage to the ship
clined, V. attacked him, resulting in P suffering can be set-off.
from bruises and contusions. Does he have cause (B) No, since each cargo owner has a separate
to sue Sentinel Liner? and individual claim for damages.
(A) Yes, since the carrier's crew did nothing to (C) Yes, since the extent of the ship's damage
protect a passenger who remained in the was greater than that of the value of the
bus during the stop-over. lost cargo.
(B) No, since the carrier's crew could not have (D) No, since X Shipping neither incurred a to-
foreseen the attack. tal loss nor abandoned its ship.
(C) Yes, since the bus is liable for anything that Answer:
goes wrong in the course of a trip.
(D) No, since X Shipping neither incurred a to-
(D) No, since the attack on P took place when tal loss nor abandoned its ship.
the bus was at a stop-over.
(3) A writes a promissory note in favor of his
Answer:
creditor, B. It says: "Subject to my option, I prom-
ise to pay B Phpl Million or his order or give Phpl
(A) Yes, since the carrier's crew did nothing to
Million worth of cement or to authorize him to sell
protect a passenger who remained in the
my house worth Php 1 Million. Signed, A." Is the
bus during the stopover.
note negotiable?
2011 8AR EXAMINATION 61
60 8AR Q &A IN COMMERCIAL LAW
(A) No, because the exercise of the option to (C) Yes, since the denial of the right under the
pay lies with A, the maker and debtor. By-laws is binding on T
(B) No, because it authorizes the sale of collat- (D) No, since pre-emptive rights are governed
eral securities in case the note is not paid by the articles of incorporation
at maturity.
Answer:
(C) Yes, because the note is really payable to B
or his order, the other provisions being (A) No, since the By-Laws cannot deny a share-
merely optional. holder his right of pre-emption.
{D) Yes, because an election to require some- (5) M makes a promissory note that states:
thing to be done in lieu of payment of "I, M, promise to pay Php5,000.00 to B or bearer.
money does not affect negotiability. Signed, M." M negotiated the note by delivery to
B, B to N, and N to 0. B had known that M was
Answer:
bankrupt when M issued the note. Who would be
(A) No, because the exercise of the option to liable to O?
pay lies with A, the maker and debtor. (A) M and N since they may be assumed to
know of M's bankruptcy
(4) ABC Corp. increased its capital stocks
(B) N, being O's immediate negotiator of a
from Php10 Million to Php15 Million and, irt the
process, issued 1,000 new shares divided into bearer note
Commori Shares "B" and Common Shares ''C." T, (C) B, M, a.nd N, being indorsers by delivery of
a stockholder owning 500 shares, insists on buy- a bearer note
ing the newly issued shares through a right of pre- (D) B, having known of M's bankruptcy
emption. The company claims, however, that its
By-laws deny T any right of pre-emption. Is the Answer:
corporation correct?
(B) N, being O's immediate negotiator of a
{A) No, since the By-Laws cannot deny a·share- bearer note
holder his right of pre-emption.
(6) S delivered 10 boxes of cellphones to Trek
(B) Yes, but the denial of his pre-emptive right
Bus Liner, for transport from Manila to Ilocos Sur
extends only to 500 shares.
on the following day, for which Spaid the freight-
age. Meanwhile, the boxes were stored in the bus
2011 BAR EXAMINATIO'- 63
62 BAR Q & A iN COMMERCIAL LAW
liner's bodega. That night, however, a robber (A) No, since the doctrine would apply, the two
broke into the bodega and stole S's boxes. S sues companies having the same set of corpo-
Trek Bus Liner for contractual breach but the lat- rate officers.
ter argues that S has no cause of action based on (B) No, the real employer is Y Corp., the pizza
such breach since the loss occurred while the company, with X Corp. serving as an arm
goods awaited transport. Who is correct? for receiving its outside orders for pizzas.
(A) The bus liner since the goods were not lost (C) Yes, it is not shown that one company com-
while being transported. pletely dominates the finances, policies,
(B) S since the goods were unconditionally and business practices of the other.
placed with T for transportation. (D) Yes, since the two companies perform two
(C) S since the freightage for the goods had distinct businesses.
been paid.
Answer:
(D) The bus liner since the loss was due to a
fortuitous event. (C) Yes, it is not shown that one company com-
pletely dominates the finances. policies,
Answer: and business practices of the other.
(B) S since the goods were unconditionally (8) A negotiable instrument can be indorsed
placed with T for transportation. by way of a restrictive indorsement, which pro-
hibits further negotiation and constitutes the in-
(7) X Corp. operates a call center that re- dorsee as agent of the indorser. As agent, the in-
ceived orders for pizzas on behalf of Y Corp. dorsee has the right, among others, to
which operates a chain of pizza restaurants. The
(A) demand payment of the instrument only.
two companies have the same set of corporate of-
ficers. After 2 years, X Corp. dismissed its call (B) notify the drawer of the payment of the in-
agents for no apparent reason. The agents filed a strument.
collective suit for illegal dismissal against both X (C) receive payment of the instrument.
Corp. and Y Corp. based on the doctrine of pierc-
ing the veil of corporate fiction. The latter set up (D) instruct that payment be made to the
the defense that the agents are in the employ of X drawee.
Corp. which is a separate juridical entity. Is this
defense appropriate?
2011 BAR EXAMINATION 6 ...,z:;;
Answer: (C) the lien in his favor.

(D) the amount indicated on the instrument's
(C) receive payment of the instrument. face.
(9) Under the Negotiable Instruments Law, a Answer:
signature by procuration operates as a notice that
the agent has but a limited authority to sign. (C) the lien in his favor.
Thus, a person who takes a bill that is drawn, ac-
cepted, or indorsed by procuration is duty-bound (11) The liability of a common carrier for the
to inquire into the extent of the agent's authority goods it transports begins from the time of
by: (A) conditional receipt.
(A) examining the agent's special power ·of at- (B) constructive receipt.
torney.
(C) actual receipt.
(B) examining the bill to determine the extent
of such authority. (D) either actual or constructive receipt.
(C) asking the agent about the extent of such Answer:

authority.
(D) either actual or constructive re::-.:eipt.
(D) asking the principal about the extent of
such authority. (12) On X's failure to pay his loan to ABC
Answer: Bank, the latter foreclosed the Real Estate Mort-
gage he executed in its favor. The auction sale
(B) examining the bill to determine the extent was set for Dec. 1, 2010 with the notices of sale
of such authority. published as the law required. The sale was, how-
ever, cancelled when Dec. 1, 2010 was declared a
(10) Under the Negotiable Instruments Law, holiday and re-scheduled to Jan. 10, 2011 without
if the holder has a lien on the instrument which republication of notice. The auction sale then pro-
arises either from a contract or by implication of ceeded on the _new date. Under the circumstances,
law, he would be a holder for value to the e}_'tent the auction sale is
of
(A) rescissible.
(A) his successor's interest.
(B) unenforceable.
(B) his predecessor's interest.
(C) void.
(D) voidable.
(C) the covered institution.
Answer:
(D) such clients.
(C) void
Answer:
{13) X executed a promissory note with a (D) such clients.
face value of Php50,000.00, payable to the order of
Y. Y indorsed the note to Z, to whom Y owed (15) It is settled that neither par value nor
Php30,000.00. If X has no defense at all against Y, book value is an accurate indicator of the fair
for how much may Z collect from X? value of a share of stock of a corporation. As to
unpaid subscriptions to its shares of stock, as they
(A) Php20,000.00, as he is a holder for value to
are regarded as corporate assets, they should be
the extent of the difference between Y's
debt and the value of the note. included in the
(A) capital value.
(B) Php30,000.00, as he is a holder for value to
the extent of his lien. (B) book value.
(C) Php50,000.00, but with the obligation to (C) par value,
hold Php20,000.00 for Y's benefit.
(D) market value.
(D) None, as Z's remedy is to run after• his
debtor, Y. Answer:
Answer: (B) book value.
(C) Php50,000.00, but with the obligation to {16) P sold to M 10 grams of shabu worth
hold Php20,000.00 for Y's benefit. Php5,000.00. As he had no money at the time of
the sale, M wrote a promissory note promising to
(14) Under the Anti-Money Laundering Law, pay P or his order Php5,000. P then indorsed the
a covered institution is required to maintain a sys-· note to X {who did not know about the shabu),
tern of verifying the true identity of their clients and X to Y. Unable to collect from P, Y then sued X
as well as persons purporting to act on behalf of on the note. X set up· the defense of illegality of
(A) those doing business with such clients. consideration. Is he correct?
(B) unknown principals. (A) No, since X, being a subsequent indorser,
warrants that the note is valid and subsist-
ing.
62 BAR Q & /l. !N COIV1MERC\fa.L LAW 2011 BAR EXA.M\NA.TIO!s: 69
(B) No, since X, a general indorser, warrants ties among themselves. An example of such a de-
that the note is valid and subsisting. fense is -
(C) Yes, since a void contract does not give rise (A) fraud in inducemem
to any right.
(B) duress amounting to forgery.
(D) Yes, since the note was born of an illegal
(C) fraud in esse contractus.
consideration which is a real defense.
(D) alteration.
Answer:
Answer:
(B) No, since X. a general indorser, warrants
that the note is valid and subsisting. (A) fraud in inducement.
(17) In a contract of carriage, the common (19) In elections for the Board of Trustees of
carrier is liable for the injury or death of a passen- non-stock corporations, members may cast as many
ger resulting from its employee's fault although votes as there are trustees to be elected but may not
the latter acted beyond the scope of his authority. cast more than one vote for one candidate. This is
This is based on the true-
(A) rule that the carrier hasan implied duty to (A) unless set aside by the members in plenary
transport the passenger safely. session.
(B) rule that the carrier has an express duty to (B) in every case even if the Board of Trustees
transport the passenger safely resolves otherwise.
(C) Doctrine of Respond eat Superior. (C) unless otherwise provided m the Articles of
Incorporation or in the By-laws.
(D) rule in culpa aquiliana.
(D) in every case even if the majority of the
Answer: members decide otherwise during the elec-
tions.
(A) rule that the carrier has an implied duty to
transport the passenger safely. Answer:
(18) A holder in due course holds the in- (C) unless otherwise provided in the Articles of
strument free from any defect of title of prior par- Incorporation or in the By-laws.
ties and free from defenses available to prior par-
2011 BA.R EXAMIW\TIQN 71
(A) Yes, because the insurance policy covered

(20) The rule is that the valuation of the
shares of a stockholder who exercises his . ap- any or all damage arising from perils of the
praisal rights is determined as of the day prior to sea.
the date on which the vote was taken. This is (B) Yes, since there appears to have been no
true- fault on the part of the ship-owner and ship
{A) regardless of any depreciation or apprecia- captain.
tion in the share's fair value. (C) No, since the proximate cause of the dam.-
age was the breach of warranty of seawor-
(B) regardless of any appreciation in the
share's fair value. thiness of the ship.
(C) regardless of any depreciation in the (D) No, since the proximate cause of the dam-
age was due to ordinary usage of the ship.
share's fair value.
and thus not due to a peril of the sea.
(D) only if there is no appreciation or deprecia-
tion in the share's fair value. Answer:
Answer: (D) No, since the proximate cause of the dam-
age was due to ordinary usage of the ship,
(A) regardless of any depreciation or apprecia- and thus not due to a peril of the sea.
tion in the share's fair value.
(22) X has been a long-time household
(21) T Shipping, Co. insured all of its vessels helper of Z. X's husband, Y, has also been Z's long-
with R Insurance, Co. The insurance policies time driver. May Z insure the lives of both X and Y
stated that the insurer shall answer for all dam- with Z as beneficiary?
ages due to perils of the sea. One of the insured's
ship, the MV Dona Priscilla, ran aground in the (A) Yes, since X and Y render services to Z.
Panama Canal when its engine pipes leaked and
(B) No, since X and Y have no pecuniary inter-
the oil seeped into the cargo compartment. The est on the life of Z arising from their em-
leakage was caused by the extensive mileage that ployment with him.
the ship had accumulated. May the insurer be
made to answer for the damage to the cargo and (Cl No, since Z has no pecuniary interest in the
lives of X and Y arising from their employ-
the ship?
ment with him.
(D) Yes, since X and Y are Z's employees.
2011 BAR EXAMINA•ION 73
Answer:
(C) No. because X made a qualified indorse-
(C) No, since Z has no pecuniary interest in the ment
lives of X and Y arising from their employ- (D) No, because a qualified indorsernent does
ment with him. not include the warranty of genuineness.
(23) X, Co., a partnership, is composed of A Answer:

(capitalist partner), B (capitalist partner} and C (in-
dustrial partner). If you wer~ partner A, who be- (B) Yes, because X, as a qualified in.dorser,
tween B and C would you have an insurable inter- warrants that the note is genuine.
est on, such that you may then insure him?
(25) A bill of exchange has T for its drawee.
(A) No one, as · there is merely a partnership U as drawer, and Fas holder. When F went to T
contract among A, Band C. for presentment, F learned that T is only 15 years
old. F wants to recover from U but the latter in-
(B) Both B and C, as they are your partners.
sists that a notice of dishonor must first be made,
(C) Only C, as he is an industrial partner. the instrument being a bill of exchange. Is he cor-
(D) Only B, as he is a capitalist partner. rect?
Answer: (A) Yes, since a notice of dishonor is essential

to charging the drawer.
(B) Both Band C, as they are your partners. (B) No, sinc:e T can waive the requirement of
notice of dishonor.
(24) X is the holder of an instrument payable
to him (X) or his order, with Y as maker. X then (C) No, since F can treat U as maker _due to the
indorsed it as follows: "Subject to no recourse, pay minority of T, the drawee.
to Z. Signed, X." When Z went to collect from Y, it (D) Yes, since in a bill of exchange, notice of
turned out that Y's signature was forged. Z now dishonor is. at all times required.
sues X for collection. Will it prosper?
Answer:
(A) Yes, because X, as a conditional indorser,
warrants that the note is genuine. (C) No, since F can treat U as maker due to the
minority of T, the drawee.
(B) Yes, because X, as a qualified indorser,
warrants that the note is genuine. (26) An insured, who gains knowledge of a
material fact already after the effectivity of the
74 BAR Q &A IN COMMERCIAL l.AW 2011 BAR EXAMINATION 75
insurance policy, is not obliged to divulge it. The (D) Yes, because the deviation took place
reason for this ts that the test of concealment of based on a reasonable belief of the captain.
material fact is determined
Answer:
(A) at the time of the issuance of the policy.
(B) No, because no reasonable ground for
(B) at any time before the payment of premium. avoiding a peril existed at the time of the
(C) at the time of the payment of the premium. deviation.
(D) at any time before the policy becomes ef- (28) X, drawee of a bill of exchange, wrote
fective. the words: "Accepted, with promise to make
payment within two days. Signed, X." The drawer
Answer: questioned the acceptance as invalid. Is the accep-
(D) at any time before the policy becomes ef- tance valid?
fective. (A) Yes, because the acceptance is in reality a
clear assent to the order of the drawer to
(27) T, the captain of MV Don Alan, while
pay.
asleep in his cabin, dreamt of an Intensity 8 earth-
quake along the path of his ship. On waking up, (B) Yes, because the form of the acceptance is
he immediately ordered the ship to return to port. really immaterial.
True enough, the earthquake and tsunami struck (C) No, because the acceptance must be a
three days later and his ship was saved. Was the clear assent to the order of the drawer to
deviation proper? pay
(A) Yes, because the deviation was made in (D) No, because the document 111.ust not ex-
good faith and on a reasonable ground for press that the drawee will perform his
believing that it was necessary to avoid a promise within two days.
peril.
Answer:
(B) No, because no reasonable ground for
avoiding a peril existed at the time of the (A) Yes, because the acceptance is in reality a
deviation. clear assent to the order of the drawer to
(C) No, because T relied merely on his sup- pay.
posed gift of prophecy.
76 8.AR Q&A IN COMMERCIAL l.AW 2011 BAR EXAMINAT!CN 77
(29) X came up with a new way of present- Answer:

ing a telephone directory in a mobile phone,
which he dubbed as the "iTel" and which uses (B) Yes, since only the forged signature is in-
lesser time for locating names and telephone operative and E is bound as indorser.
numbers. May X have his "iTel" copyrighted in his
(31) A material alteration of an instrument
name?
without the assent of all parties liable thereon re-
(A) No, because it is a mere system or method. sults in its avoidance, EXCEPT against a
(B) Yes, because it is an original creation. (A) prior indorsee.
(C) Yes, because it entailed the application of (B) subsequent acceptor.
X's intellect.
(C) subsequent indorser.
(D) No, because it did not entail any applica-
tion of X's intellect. (D) prior acceptor.
Answer: Answer:
(A) No, because it is a mere system or method. (C) subsequent indorser.
(32) X constituted a chattel mortgage on a

{30) D, debtor of C, wrote a promissory note
car (valued at Phpl Million pesos) to secure a
payable to the order of C. C's brother, M, misrep-
P500,000.00 loan. For the mortgage to be valid, X
resenting himself as C's agent, obtained the note
from D, then negotiated it to N after forging C's should have
signature. N indorsed it to E, who indorsed it to F, (A) the right to mortgage the car to the extent
a holder in due course. May F recover from E? of half its value.
(A) No, since the forgery of C's signature re- (B) ownership of the car.
sults in the discharge of E. (C) unqualified free disposal of his car.
(B) Yes, since only the forged signature is in- (D) registered the car in his name.
operative and Eis bound as indorser.
(C) No, since the signature of C, the payee, Answer:
was forged.
(C) unqualified free disposal of his car.
(D) Yes, since the signature of C is immaterial,
he being the payee.
78 BAR Q & A IN COMMERCIAL LAW 20"\ 1 BAR EXAM\NATION 79
(33) B borrowed Phpl million from Land of- {35) EFG Foundation, Inc., a non-profit or-
fered to him his BMW car worth Php 1 Million as ganization, scheduled an election for its six-
collateral. B then executed a promissory note that member Board of Trustees. X, Y and Z, who are
reads: "I, B, promise to pay L or bearer the amount minority members of the foundation, wish to ex-
of Phpl Million and to keep my BMW car (loan col- ercise cumulative voting in order to protect their
lateral) free from any other encumbrance. Signed, interest, although the Foundation's Articles and
B." Is this note negotiable? By-laws are silent on the matter. As to each of the
three, what is the maximum number of votes that
(A) Yes, since it is payable to bearer. he/she can cast?
(B) Yes, since it contains an unconditional
(A) 6
promise to pay a sum certain in money.
(B) 9
(C) No, since the promise to just pay a sum of
money is unclear. (C) 12
(D) No, since it contains a promise to do an act (D) 3
in addition to the payment of money.
Answer:
Answer:
(A) 6
(D) No, since it contains a promise to do an act
in addition to the payment of money. (36) If the drawer and the drawee are the
same person, the holder may present the instru-
(34) A bank can be placed under receiver- ment for payment without need of a previous pre-
ship when, if allowed to continue in business, its sentment for acceptance. In such a case, the
depositors or creditors would incur. holder treats it a.s a
(A) probable losses (A) non-negotiable instrument.
(B) inevitable losses (B) promissory note.
(C) possible losses (C) letter of credit.
(D) a slight chance of losses (D) check.
Answer: Answer:
(A) probable losses (B) promissory note.

80 SAR Q & A. /N COMMERCIA.L LAW 2011 BAR EXAMiNAT!ON 81
(37) D draws a bill of exchange that states: (C) The law office since T was an employee
"One month from date, pay to B or his order and he wrote it on the firm's letterhead
Phpl00,000.00. Signed, D." The drawee named in (D) The publisher to whom the ietter was sent.
the bill is E. B negotiated the bill to M, M to N, N
to 0, and Oto P. Due to non-acceptance and after Answer:
proceedings for dishonor were made, P asked O to
pay, which O did. From whom may O recover? (A) T, since he is the original creator of the con-
(A) B, being the payee tents of the letter.
(B) N. as indorser to 0 (39) E received goods from T for display and

(C) E, being the drawee sale in E's store. E was to turn over to T the pro-
ceeds of any sale and return the ones unsold. To
(D) D, being the drawer document their agreement, E executed a trust re-
ceipt in T's favor covering the goods. When E
Answer: failed to turn over the proceeds from his sale of
the goods or return the ones unsold despite de-
(D) D, being the drawer. 0 may recover from
mand, he was charged in court for estafa, E moved
any one of N, B and D because of their li-
to dismiss on the ground that his liability is only
ability as endorser and drawer, respec-
tively provided notice of .dishonor given to civil. Is he correct?
each of them (A) No, since he cornmitted fraud when he
promised to pay for the goods and did not.
(38) T, an associate attorney in XYZ Law Of-
fice, wrote a newspaper publisher a letter disput- (B) No, since his breach of the trust receipt
ing a columnist's claim about an incident in the agreement subjects him to both civil and
attorney's family. T used the law firm's letterhead criminal liability for estafa.
and its computer in preparing the letter. T also re-
(C) Yes, since E cannot be charged with estafa
quested the firm's messenger to deliver the letter over goods covered a trust receipt.
to the publisher. Who owns the copyright to the
(D) Yes, since it was merely a consignment
letter?
sale and the buyer could not pay.
(A) T, since he is the original creator of the con-
tents of the letter. Answer:
(B) Both T and the publisher, one wrote the let-
ter to the other who has possession of it.
82 BAR Q & P.. !N COMMERCIAL LAW
2011 BAR EXAMIN.A.TION 83
(BJ No, since his breach of the trust receipt

Answer:
agreement subjects him to both civil and
criminal liability for estafa. (A) principal debtor.
(40) The authorized alteration of a ware- (42) Upon execution of a trust receipt over
house receipt which does not change its tenor ren- goods, the party who is obliged to release such
ders the warehouseman liable according to the goods and who retains security interest on those
terms of the receipt
goods, is called the
(A) in its original tenor if the alteration is mate- (A) holder.
rial.
(B) shipper.
(B) in its original tenor.
(C) entrustee.
(C) as altered if there is fraud.
(D) entrustor.
(D) as altered.
Answer:
Answer:
(D) entrustor.
(B) in its original tenor.
(43) X, warehouseman, sent a text message
(41) Any agreement binding upon the holder to Y, to whom X had issued a warehouse receipt
to extend the time of payment or to postpone the for Y's 500 sacks of corn, notifying him of the due
holder's right to enforce the instrument results in date and time to settle the storage fees. The mes-
the discharge of the party secondarily liable sage stated also that if Y does not settle the ware-
unk~ss made with the latter's consent. This house charges within 10 days, he will advertise
agreement refers to one which the holder made the goods for sale at a public auction. When Y ig-
with the nored the demand, X sold 100 sacks of corn at a
public auction. For X's failure to comply with the
(A) principal debtor. statutory requirement of written notice to satisfy
(B) principal creditor. his lien, the sale of the 100 sacks of corn is
(C) secondary creditor. (A) voidable.

(D) secondary debtor. (B) rescissible.
(C) unenforceable.
84 BAR Q & A. IN COMMERCIAL LAW
(D) void.
(45) A bill of exchange has Das drawer, E as
Answer: drawee and F as payee. The bill was then indorsed
to G, G to H, and H to I. I, the current holder pre-
(D) void. sented the bill to E for acceptance. E accepted but,
as it later turned out, D is a fictitious person. Is E
(44) On June 1, 2011, X mailed to Y Insur- freed from liability?
ance, Co. his application for life insurance, with
payment for 5 years of premium enclosed in it. On (A) No, since by accepting, E admits the exis-
July 21, 2011, the insurance company accepted tence of the drawer.
the application and mailed, on the same day, its (B) No, since by accepting, E warrants that he
acceptance plus the cover note. It reached X's is solvent.
residence on August 11, 2011. But, as it happened,
(C) Yes, if E was not aware of that fact at the
on August 4, 2011, X figured in a car accident. He time of acceptance.
died a day later. May X's heirs recover on the in-
surance policy? · (D) Yes, since a bili of exchange with a ficti-
tious drawer is void and inexistent.
(A) Yes, since under the Cognition Theory, the
insurance contract was perfected upon ac- Answer:
ceptance by the insurer of X's application.
(B) No, since there is no privity of contract be- (A) No, since by accepting, E admits the exis-
tween the insurer and X's heirs. tence of the drawer.
(C) No, since X had no knowledge of the in- (46) Due to his debt to C, D wrote a promis-
surer's acceptance of his application before sory note which is payable to the order of C. C's
he died. brother, M, misrepresenting himself as agent of C,
(D) Yes, since under the Manifestation Theory, obtained the note from D. M then negotiated the
the insurance contract was perfected upon note to N after forging the signature of C. May N
acceptance of the insurer of X's application .. enforce the note against D7
Answer: (A) Yes, since D is the principal debtor.

(B) No, since the signature of C was forged.
(C) No, since X had no knowledge of the in-
surer's acceptance of his application before (C) No, since it is C who can enforce it, the
he died. note being payable to the order of C.
86 BAR Q & A IN COMMERCIAL LAW 2011 BAR EXAMINA:!ON 87
(D) Yes, since D, as maker, is primarily liable (D) Yes, the amendment to shorten corporate
on the note. term cannot be made earlier than 5 years
prior to the corporation's expiration date.
Answer:
Answer:
{B) No. since the signature of C was forged.
(A) No, since the 5-year rule on amendment of
(47) T Corp. has a corporate term of 20 years corporate term applies only to extension,
under its Articles of Incorporation or from June 1, not to shortening, of term.
1980 to June 1, 2000. On June 1, 1991 it amended
its Articles of Incorporation to extend its life by 15 (48) B, while drunk, accepted a passenger in
years from June 1, 1980 to June 1, 2015. The SEC his taxicab. B then drove the taxi recklessly, and
approved this amendment. On June 1, 2011, how- inevitably, it crashed into an electric post, result-
ever, T Corp decided to shorten its term by 1 year ing in serious physical injuries to the passengers.
or until June 1, 2014. Both the 1991 and 2011 The latter then filed a suit for tort against B's op-
amendments were approved by majority vote of erator, A, but A raised the defense of having exer-
its Board of Directors and ratified in a special cised extraordinary diligence in the safety of the
meeting by its stockholders representing at least passenger. Is his defense tenable?
2/3 of its outstanding capital stock. The SEC, how-
ever, disapproved the 2011 amendment on the (A) Yes, as a common carrier can rebut the pre-
sumption of negligence by raising such a
ground that it cannot be made earlier than 5 years
prior to the expiration date of the corporate term, defense.
which is June 1, 2014. Is this SEC disapproval cor- (B) No, as in tort actions, the proper defense is
rect? due diligence in the selection and supervi-
sion of the employee by the employer.
(A) No, since the 5-year rule on amendment of
corporate term applies only to extension, (C) No, as B, the common carrier's employee,
was obviously negligent due to his intoxi-
not to shortening, of term.
cation.
(B) Yes, any amendment affecting corporate
term cannot be made earlier than 5 years (D) Yes, as a common carrier can invoke ex-
traordinary diligence in the safety of pas-
prior to the corporation's expiration date.
sengers in tort cases.
(C) No, since a corporation can in fact have a
corporate life of 50 years.
2011 BAR EXAM:NA 7 iON 89
Answer:
(A) Php1 Million since it is the original tenor of
the note.
(B) No, as in tort actions, the proper defense is
due diligence in the selection and supervi- (B) Php1 Million since he warrants that the
sion of the employee by the employer. note is genuine and in all respects what it
purports to be.
(49) X is a director in T Corp. who was
(C) Php12 Million since he warrants his sol-
elected to a 1-year term on Feb. 1, 2010. On April
vency and that he has a good title to the
11, 2010, X resigned and was replaced by R, who
note.
assumed as director on May 17, 2010. On Nov. 21,
2010, R died. S was then elected in his place. Until (D) Php12 Million since he warrants that the
which time should S serve as director? note is genuine and in all respects what it
purports to be.
(A) April 11, 2011.
Answer:
(B) Feb. 1, 2011.
(C) May 17, 2011. (D) Php12 Million since he vvarra.nts that tbe
note is genuine and m all respects what 1t
(D) Nov. 21, 2011.
purports to be.
Answer:
(51) X Corp., whose business purpose is to
(B) Feb. 1. 2011. manufacture and sell .vehicles, invested its funds
in Y Corp., an investment firm, through a resolu-
(50) M, the maker, issued a promissory note tion of its Board of Directors. The investment grew
to P, the payee which states: "I, M, promise to pay tremendously on account of Y Corp.'s excellent
P or order the amount of Phpl Million. Signed, M." business judgment. But a minority stockholder in
P negotiated the note by indorsement to N, then N X Corp. assails the investment as ultra vires. Is he
to O also by indorsement, and O to 0, again by in- right and, if so, what is the status of the invest•
dorsement. But before O indorsed the note to Q; ment?
O's wife wrote the figure "2'' on the note after (A) Yes, it is an ultra vires act of the corpora-
"Phpl" without O's knowledge, making it. appear tion itseif but voidable only, subject to
that the note is for Php12 Million. For how much stockholders' ratification.
is O liable to Q?
(B) Yes, it is an ultra vires act of its Board of Di-
rectors and thus void.
2011 BAR EXAMiNA-:-!ON 91
(C) Yes, it is an ultra vires act of its Board of Di-

(53) "Eagleson Refillers, Co.," a firm that
rectors but voidable only, subject to stock-
sells water to the public, opposes the trade name
holders' ratification.
application of "Eagleson Laundry, Co.," on the
(D) Yes, it is an ultra vires act of the corpora- ground that such trade name tends to deceive
tion itself and, consequently, void. trade circles or confuse the public with respect to
the water firm's registered trade name. Will the
Answer:
opposition prosper?
(C) Yes, it is an ultra vires act of its Board of Di- (A) Yes, since such use is likeiy to deceive or
rectors but voidable only, subject to stock- confuse the public.
holders' ratification.
(B) Yes, since both companies use water m
(52)Notice of dishonor is not required to be conducting their business.
made in all cases. One instance where such notice (C) No, since the companies are not engaged in
is not necessary is when the indorser is the one to the same line of business.
whom the insfrument is suppose to be presented
(D) No, since the root word "Eagle" is a generic
for payment. The rationale here is that the in-
dorser name not subject to registration.
(A) already knows of the dishonor and it makes Answer:

no sense to notify him of it.
(C) No, since the companies are not engaged in
(B) is bound to make the acceptance in all
the same line of business.
cases.
(C) has no reason to expect the dishonor of the (54) For a constructive total loss to exist in
instrument. marine insurance, it is required that the person
insured relinquish his interest in the thing in-
(D) must be made to account for all his actions.
sured. This relinquishment must be
Answer:
(A) actual.
(A) already knows of the dishonor and it makes (B) constructive first and if it fails, then actual.
no sense to notify him of it.
(C) either actual or constructive.
(D) constructive.
92 BAR Q&A iN COMMERCIAL LAW
2011 BAR Ex.,vv1iNAT,ON 93
Answer:
tronomer, repeating exactly what X discovered
(A) actual. without any attribution to him. Has Y infringed on
X's copyright. if any?
(55)The Corporation Code sanctions a con-
(A) No, since X did not reduce his lecture in
tract between two or more corporations which
writing or other material form.
have interlocking directors, provided there is no
fraud that attends it and it is fair and reasonable (B) Yes, since the lecture is considered X's
under the circumstances. The interest of an inter- original work
locking director in one corporation may be either (C) No, since no protection extends to any dis-
substantial or nominal. It is nominal if his interest: covery, even if expressed, explained, illus-
trated, or embodied in a work
(A) does not exceed 25% of the outstanding
capital stock. (D) Yes, since Y's article failed to make any at-
tribution to X.
(B) exceeds 25% of the outstanding capital
stock Answer:
(C) exceeds 20% o1 the outstanding capital
stock. (C) No, since no protection extends to any dis-
covery. even if expressed, explained, illus-
(D) does not exceed 20% of the outstanding trated, or embodied in a work.
capital stock
(57) In case of disagreement between the
Answer: corporation and a withdrawing stockholder who
exercises his appraisal right regarding the fair
(D) does not exceed 20% of the outstanding value of his shares, a three-member group shall by
capital stock.
majority vote resolve the issue with finality. May
the wife of the withdrawing stockholder be
(56) X, an amateur astronomer, stumbled
named to the three-member group?
upon what appeared to be a massive volcanic
eruption in Jupiter while peering at the planet (A) No, the wife of the withdrawing share-
through his telescope. The following week, X, holder is not a disinterested person.
without notes, presented a lecture on his findings
before the Association of Astronomers of the Phil- (B) Yes, since she could best protect her hus-
ippines. To his dismay, he later read an article in a band's shareholdings.
science journal written by Y, a professional as-
94 BAR Q &A IN COMMERCIAL LAW
(C) Yes, since the rules do not discriminate

(A) The irregular indorser.
against wives.
(B) The regular indorser
(D) No, since the stockholder himself should sit
in the three-member group. (C) The general indorser.
(D) The qualified indorser.
Answer:
Answer:
(A) No, the wife of the withdrawing share-
holder is not a disinterested person. (C) The general indorser.
(58) Apart from economic rights, the author {60) Where the insurer was made to pay the
of a copyright also has moral rights which he may insured for a loss covered by the insurance con-
transfer by way of assignment. The term of these tract, such insurer can run after the third person
moral rights shall last who caused the loss through subrogation. What is
the basis for conferring the right of subrogation to
(A) during the author's lifetime and for qO years
the insurer?
after his death.
(B) forever. (A) Their express stipulation in the contract of
insurance.
(C) 50 years from the time the author created
his work. (B) The equitable assignment that results from
the insurer's payment of the insured.
(D) during the author's lifetime.
(C) The insured's formal assignment of his
Answer: right to indemnification to the insurer.
(D) The insured's endorsement of its claim to
(A) during the author's lifetime and for 50 years
the insurer.
after his death.
Answer:
(59) Which of the following indorsers ex-
pressly warrants in negotiating an instrument (B) The equitable assignment that results from
that 1) it is genuine and true; 2) he has a good title the insurer's payment of the insured.
to it; 3) all prior parties have capacity to negotiate;
and 4) it is valid and subsisting at the time of his (61) X invented _a device which, through the
indorsement? use of noise, can recharge a cellphone battery. He
applied for and was granted a patent on his de-
96 BAR Q & A !N Cm,1MERCIAL L,,w
vice, effective within the Philippines. As it turns

(A) No, since the incident took place, not in an
out, a year before the grant of X's patent, Y, also MRT train coach, but at the MRT station.
an inventor, invented a similar device which he
used in his cellphone business in Manila. But X (B) No, since P had no intention to board an
files an injunctive suit against Y to stop him from MRT train coach when the incident. oc-
using the device on the ground of patent incurred.
fringement. Will the suit prosper? (C) Yes, since she already had a ticket for her
ride home and was in the MRTs premises
(A) No, since the correct remedy for X is a civil at the time of the incident.
action for damages.
(D) Yes, since she bought a round trip ticket
(B) No, since Y is a prior user in good faith. and MRT had a duty whiie she was at 1ts
(C) Yes, since X is the first to register his de- station to keep her safe for her return trip.
vice for patent registration.
Answer:
(D) Yes, since Y unwittingly used X's patented
invention. (B) No, since P had no intention to board an
MRT train coach when the incident oc-
Answer: curred.
(B) No, since Y is a prior user in good faith. (63) Forgery of bills of exchange may be sub-
divided into, a) forgery of an indorsement on the
(62) P, a sales girl in a flower shop at the bill and b) forgery of the drawer's signature,
Ayala Station of the Metro Rail Transit (MRT) which may either be with acceptance by the
bought two tokens or tickets, one for her ride to drawee, or
work and another for her ride home. She got to
her flower shop where she usually worked from 8 (A) with acceptance but the bill is paid by the
a.m. to 5 p.m. At about 3 p.m., while P was attend- drawee.
ing to her duties at the flower shop, two crews of (B) without acceptance but the bill is paid by
the MRT got into a fight near the flower shop, the drawer.
causing injuries to P in the process. Can P sue the
MRT for contractual breach as she was within the (G) without acceptance but the bill is paid by
MRT premises where she would shortly take her the drawee.
ride home? (D) with acceptance but the bill is paid by the
drawer.
2011 BAR ExA~/JNAT!m, 99
Answer:
(C) Yes, since forgery is only a personal de-
(C) without acceptance but the bill is paid by fense.
the drawee. (D) Yes, since ABC Bank is bound to know the
signature of Y, its client.
(64) If an insurance policy prohibits addi-
tional insurance on the property insured without Answer:
the insurer's consent, such provision being valid
and reasonable, a violation by the insured (D) Yes, since ABC Bank is bound to know the
signature of Y, its client.
(A) reduces the value of the policy.
(B) avoids the policy. (66) The rule is that no stock dividend shall
be issued without the approval of stockholders
(C) offsets the value of the policy with the ad- representing at least 2/3 of the outstanding capital
ditional insurances's value. stock at a regular or special meeting called for the
(D) forfeits premiums already paid. purpose. As to other forms of dividends:
Answer: (A) a mere majority of the entire Board of Direc-

tors applies.
(B) avoids the policy. (B) a mere majority of the quorum of the Board
of Directors applies.
(65) · X found a check on the street, drawn by
Y against ABC Bank, with Z as payee. X forged Z's (C) a mere majority of the votes of stockholders
signature as an indorser, then indorsed it person- representing the outstanding capital stock
ally and delivered it to DEF Bank. The latter, in applies.
turn, indorsed it to ABC Bank which charged it to (D) the same rule of 2/3 votes applies.
the Y's account. Y later sued ABC Bank but it set
up the forgery as its defense. Will it prosper? Answer:
(A) No, since the payee's signature has been (B) a mere majority of the quorum of the Board
forged. of Directors applies.
(B} No, since Y's remedy is to run after the (67) X, at Y's request, executed a Real Estate
forger, X.
Mortgage (REM) on his {X's) land to secure Y's
loan from Z. Z successfully foreclosed the REM
when Y defaulted on the loan but half of Y's obli-
gation remained unpaid. May Z sue X to enforce

his right to the deficiency? (69) Perils of the ship, under marine insur-
ance law, refer to loss which in the ordinary
(A) Yes, but solidarily with Y. course of events results from
(B) Yes, since X's is deemed to warrant that his (A) natural and inevitable actions of the sea.
land would cover the whole obligation.
(B) natural and ordinary actions of the sea.
(C) No, since it is the buyer at the auction sale
(C) unnatural and inevitable actions of the sea.
who should answer for the deficiency.
(D) unnatural and ordinary actions of the sea.
(D) No, because Xis not Z's debtor.
Answer: Answer:
(D) No. because Xis not Z's debtor. (A) natural and inevitable actions of the sea.
(70) Under the Intellectual Property Code,

(68) May a publicly listed universal bank
own 100% of the voting stocks in another univer- lectures, sermons, addresses or dissertations pre-
sal bank and in a commercial bank? pared for oral delivery, whether or not reduced in
writing or other material forms, are regarded as
(A) Yes. if with the permission of the Bangko
(A) non-original works.
Sentral ng Pilipinas
(B) original works.
(B) No, since it has no power to invest in equi-
ties. (C) derivative works.
(C) Yes, as there is no prohibition on it. (D) not sµbject to protection

(D) No, since under the law, the 100% owner-
Answer:
ship on voting stocks must be in either
bank only. (B) original works.
Answer: (71) Can a drawee who accepts a materially

altered check recover from the holder and the
(D) No, since under the law, the 100% owner-
drawer?
ship on voting stocks must be in either
bank only. (A) No, he cannot recover from either of them.
(B) Yes from both of them.
102 BAR Q&A IN COMMERCIAL l.AW 2011 BAR EXAMINATION 103
(C) Yes but only from the drawer. it in the application form. Would this constitute
concealment?
(D) Yes but only from the holder.
(A) Yes, sfnce the previous hospitalizatioL
Answer: would influence the insurer in deciding
whether to grant X's application.
(A) No, he cannot recover from either of them.
(B) No, since Y may be regarded as ABC's
(72)The rule is that the intentional cancella- agent and he already knew of X's previous
tion of a person secondarily liable results in the hospitalization.
discharge of the latter. With respect to an in-
(C). Yes, it would constitute concealment that
dorser, the holder's right to cancel his signature is:
amounts to misrepresentation on X's part.
(A) without limitation.
(D) No, since the previous illness i.s not a mate-
(B) not limited to the case where the indorse- rial fact to the insurance coverage.
ment is necessary to his title.
(C) limited to the case where the indorsement Answer:
is not necessary to his title. (A) Yes, since the previous hospitalization
(D) limited to the case where the indorsement would influence the insurer in deciding
is necessary to his title. whether to grant X's application.
Answer: (74} Several American doctors wanted to set

up a group clinic in the Philippines so they could
(C) iimited to the case where the indorsement render modem medical services. If the clinic is to
is not necessary to his title. be incorporated under our laws, what is the re-
quired foreign equity participation in such a cor-
(73) X, in the hospital for kidney dysfunc-
poration?
tion, was about to be discharged when he met his
friend Y. X told Y the reason for his hospitaliza- (A) 40%
tion. A month later, X applied for an insurance
(B) 0%
covering serious illnesses from ABC Insurance,
Co., where Y was working as Corporate Secretary. (C) 60%
Since X had already told Y about his hospitaliza- (D) 70%
tion, he no longer answered a question regarding
2011 BAR EM1,1INA TION 105
Answer:
taking of steps that in reality amounted to willful
(B) 0% tax evasion. On discovering this, the government
filed tax evasion charges against all the com-
(75) X executed a promissory note in favor of pany's members of the board of directors. The di-
Y by way of accommodation. It says: "Pay to Y or rectors invoked the defense that they have no
order the amount of Php50,000.00. Signed, X." Y personal liability, being mere directors of a fic-
then indorsed the note to Z, and Z to T. When T tional being. Are they correct?
sought collection from Y, the latter countered as (A) No, since as a rule only natural persons like
indotser that there should have been a present- the members cif the board of directors can
ment first to the maker who dishonors it. Is Y cor- commit corporate crimes.
rect?
(B) Yes, since it is the corporation that did not
(A) No, since Y is the real debtor and thus. pay the tax and it has a personality distinct
there is no need for presentment for pay- from its directors.
ment and dishonor by the maker. (C) Yes, since the directors officially and collec-
(B) Yes, since as an indorser who is secondar- tively performed acts that are imputable
ily liable, there must first be presentment only to the corporation.
for payment and dishonor by the maker. (D) No, since the law makes directors of the
(C) No, since the absolute rule is that there is corporation solidarily liable for gross negli-
no need for presentment for payment and gence and bad faith in the discharge of
dishonor to hold an indorser liable. their duties.
(D) Yes, since the secondary liability of Y and Z Answer:

would only arise after presentment for pay-
ment and dishonor by the maker. (D) No, since the law makes directors of the
corporation solidarily liable for gross negli-
Answer: gence and bad faith in the discharge of
their duties.
(A) No, since Y is the real debtor and thus,
there is no need for presentment for pay- (77) T is the registered trademark owner of
ment and dishonor by the maker. "CROCOS" which he uses on his ready-to-wear
clothes. Banking on the popularity of T's trade
(76) The Board of Directors of XYZ Corp. mark, B came up with his own "CROCOS" mark,
unanimously passed a Resolution approving the which he then used for his "CROCOS" burgers. T
2011 BAR EXAM!NAT!ON 107
now sues B for trademark infringement but B ar- (D) Yes, since such name would give his busi-
gues that his product is a burger, hence, there is ness a corporate identity.
no infringement. Is B correct?
Answer:
(A) No, since the owner of a well-known mark
registered in the Philippines has rights that (A) No, it would be deceptive since he is a pro-
extends even to dissimilar kinds of goods. prietor, not a corporation.
(B) Yes, since the right of the owner of a well-
known mark registered in the Philippines
(79} T delivers two refrigerators to the ware-
does not extend to goods which are not of house of W who then issues a negotiable receipt
the same kind. undertaking the delivery of the refrigerators to "T
or bearer." T entrusted the receipt to B for safe-
(C) Yes, as B was in bad faith in coming up keeping only. B negotiated it, however, to F who
with his own "CROCOS" mark. bought it in good faith and for value. Who is enti-
(D) No, since unlike T, he did not register his tled to the delivery of the refrigerators?.
own "CROCOS" mark for his product.
(A) T, since he is the real owner of the refrig-
Answer: erators.
(B) F, since he is a purchaser in good faith and
(A) No, since the owner of a weli-known mark
for value.
registered in the Philippines has rights that
extends even to dissimilar kinds of goods. (C) B, since T entrusted the receipt to him.
(D) W, since he has as a warehouseman a lien
(78)A, the proprietor of a fleet of ten taxi- on the goods.
cabs, decides to adopt, as his business name, "A
Transport Co., Inc." May this be allowed? Answer:
(A) No, it would be deceptive since he is a pro- (B) F, since he is a purchaser in good faith and
prietor, not a corporation. for value.
(B) No, since "A" is a generic name, not suit-
able for registration. (80} The Articles· of Incorporation must be
accompanied by a Treasurer's Affidavit certifying
(C) Yes, since his line of business is public under oath, among others, that the total subscrip-
transportation. tion paid is:
(A) not less than P25,000.00.

NB. The majority votes in the board was suffi-
(B) not more than PS,000:00. cient because of the vaiid delegation of au-
(C) not less than P5,000.00. thority by the stockholders.
(D) not more than P25,000.00. (82) A group of Malaysians wanted to invest
in the Philippines' insurance business. After nego-
Answer:
tiations, they agreed to organize "FIMA Insurance
Corp." with a group of Filipino businessmen.
(C) not less than PS,000.00.
FIMA would have a PhP50 Million paid up capital,
Note that the Revised Corporation eliminated PhP40 Million of which would come from the Fili-
the minimum subscription requirement pino group. All corporate officers would be Filipi-
upon incorporation nos and 8 out of its 10-memher Board of Directors
would be Filipinos. Can FIMA operate an insur-
(81) In a special meeting called for the pur- ance business in the Philippines?
pose, 2/3 of the stockholders representing the out-
standing capital stock in X. Co. authorized the (A) No, since an insurance company must have
company's Board of Directors to amend its By- at lea.st PhP75 Million paid-up capital.
laws. By majority vote, the Board then approved (B) Yes, since there is substantial compliance
the amendment. Is this amendment valid? with our nationalization laws respecting
(A) No since the stockholders cannot delegate
paid-up capital and Filipino dominated
their right to amend the By-laws to the Board of Directors.
Board. (C) Yes, since FIMA's paid up capital more
(B) Yes since the majority votes in the Board
than meets the country's nationalization
was sufficient to amend the By-laws. laws.
(D) No, since an insurance company should be
(C) No, because the voting in the Board should
have been by majority of a quorum. 100% owned by Filipinos.
(D) Yes since the votes of 2/3 of the stockhold- Answer:

ers and majority of the Board were secured.
(D) No, since an insurance company should be
Answer: 100% owned by Filipinos.
(B) Yes since the majority votes in the Board NB: As of this writing, insurance business is
was sufficient to amend the By-laws. not reserved for Filipinos. Foreigners may
2011 BAR EX,"-MINATION 111
own shares of stock and the capital re- (D) Y, being the owner of the goods
quirement is Php900 million by end 2019
and PHP1.3 Billion by 2022 Answer:
(83) Under the Public Service Act, an admin- (B) Z, being a purchaser for value of the ware-
istrative agency has the power to approve provi- house receipt
sionally the rates of public utilities without a hear-
ing in case of urgent public needs. The exercise of (85) A promissory note states, on its face: "I,
this power is X, promise to pay Y the amount of Php5,000.00
(A) supervisory. five days after completion of the on-going con-
struction of my house. Signed, X." Is the note ne-
(B) absolute.
gotiable?
(C) discretionary.
(A) Yes, since it is payable at a fixed period af-
(D) mandatory.
ter the occurrence of a specified event.
Answer: (B) No, since it is payable at a fixed period af-
ter the occurrence of an event which may
(C) discretionary. not happen.
(C) Yes, since it is payable at a fixed period or
(84) X, creditor of Y, obtained a judgment in
determinable future time.
his favor in connection with Y's unpaid loan to
him. The court's sheriff then levied on the goods (D) No, since it should be payable at a fixed pe-
that Y stored in T's warehouse, for which the lat- riod before the occurrence of a specified
ter issued a warehouse receipt. A month before event.
the levy, however, Z bought the warehouse re-
ceipt for value. Who has a better right over the Answer:
goods?
(B) No, since it is payable at a fixed period af-
(A) T, being the warehouseman with a lien on ter the occurrence of an event which may
the goods not happen.
(B) Z, being a purchaser for value of the ware- (86) P sold to M a pair of gecko (tuko) for
house receipt Php50,000.00. M then issued a promissory note to
(C) X, being Y's judgment creditor P promising to pay the money within 90 days. Un-
known to P and M, a law was passed a month be-
2011 BAR EXAMiNATION 113
fore the sale that prohibits and declares void any

(G) No, because the instrument is a bill of ex-
agreement to sell gecko in the country. If X ac- change.
quired the note in good faith and for value, may
he enforce payment on it? (D) Yes, because A was only an agent of P.
(A) No, since the law declared void the con- Answer:
tract on which the promissory note was
founded. (B) Yes, because the drawer and drawee are
one and the same person.
(B) No, since it was not X who bought the
gecko. (88) Z wrote out an instrument that states:
(C) Yes, since he is a holder in due course of a "Pay to X the amount of Php1 Million for collec-
note which is distinct from the sale of tion only. Signed, Z." X indorsed it to his creditor.
gecko. Y, to whom he owed Phpl million. Y now wants to
collect and satisfy X's debt through the Php1 mil-
(D) Yes, since he is a holder in due course and
lion on the check. May he validly do so?
P and M were not aware of the law that
prohibited the sale of gecko. (A) Yes. since the indorsement to Y is for Php1
Million.
Answer:
(B) No, since Z is not a party to the loan be-
(A) No, since the law declared void the con- tween X and Y
tract on which the promissory note was (C) No, since Xis merely an agent of Z, his only
founded. right being to collect.
(87) P authorized A to sign a bill of exchange (D) Yes. since X owed Y Php1 Million.
in his (P's) name. The bill reads: "Pay to B or order
the sum of Phpl million. Signed, A (for and in be- Answer:
11
half of P). The bill was drawn on P. B indorsed
(C) No, since Xis merely an agent of Z. his only
the bill to C, C to D, and D to E. May E treat the
right being to collect.
bill as a promissory note?
(89) X Shipping, Co., insured its vessel MV
(A) No, because the instrument is payable to
Don Teodoro for Php100 Million with ABC Insur-
order and has been indorsed several times.
ance, Co. through T, an agent of X Shipping. Dur-
(B) Yes, because the drawer and drawee are ing a voyage, the vessel accidentally caught fire
one and the same person. and suffered damages estimated at Php80 Million.
114 BAR Q & A IN COMMERCiAL LAW 2011 BAR EXAMINATION 115
T personally informed ABC Insurance that X Ship- stock in a regular or special meeting called for
ping was abandoning the ship. Later, ABC insur- that purpose. Is C correct?
ance denied X Shipping's claim for loss on the
ground that a notice of abandonment through its (A) Yes, since the new law cannot be applied
agent was improper. Is ABC Insurance right? to members of the board of directors al-
ready elected prior to its passage.
(A) Yes, since X Shipping should have ratified
(B) No, since the disqualificatiOn takes effect
its agent's action.
by operation of law, it is sufficient that he
(B) No, since T, as agent of X Shipping who was declared no longer a member of the
procured the insurance. can also give no- board.
tice of abandonment for his principal.
(C) Yes, since the provisions of the Corporation
(C) Yes, since only the agent of X Shipping re- Code applies as well to government-owned
layed the fact of abandonment. and controlled corporations.
(D) No, since in the first place, the damage was (D) No, since the board has the power to oust
more than 3/4 of the ship's value. him even without the new law.
Answer: Answer:
(B) No, since T, as agent of X Shipping who (B) No, since the disqualification takes effect
procured the insurance, can also give no- by operation of law, it is sufficient that he
tice of abandonment for his principal. was declared no longer a member of the
board.
(90) A law was passed disqualifying former
members of Congress from sitting in the Board of (91) 002-38-0001 G, a grocery goods supplier,
Directors of government-owned or controlled cor- sold 100 sacks of rice to H who promised to pay
porations. Because of this, the Board of Directors once he has sold all the rice. H meantime deliv-
of ABC Corp., a government-owned and controlled ered the goods to W, a warehouseman, who issued
corporation, disqualified C, a former Congress- a warehouse receipt. Without the knowledge of G
man, from continuing to sit as one of its members. and W, H negotiated the receipt to P who acquired
C objected, however, insisting that under the Cor- it in good faith and for value. P then claimed the
poration Code members of the board of directors goods from W, who released them. After the rice
of corporations may only be removed by vote of was loaded on a ship bound for Manila, G invokes
stockholders holding 2/3 of its outstanding capital his right to stop the goods in transit due to his un-
paid lien. Who has a better right to the rice?
116 BAR Q & A !N COMMERCIAL l.AW
2011 BAR EXAMINAT!CN i 17
(A) P, since he has superior rights as a pur- in an accident by fire. X agreed. Is this an insur-
chaser for value and in good faith. ance contract?
(B) P, regardless of whether or not he is a pur-
chaser for value and in good faith. (A) Yes, since all the elements of an insurance
contract are present.
(C) G, since as an unpaid seller, he has the
right of stoppage in transitu. (B) Yes, since X' services may be regarded as
the consideration.
(D) W, since it appears that the warehouse
charges have not been paid. (C) No, since Y actually made a conditional do-
nation in X's favor.
Answer:
(D) No, since it is in fact an innominate con-
tract between X and Y.
(A) P, since he has superior rights as a pur-
chaser for value and in good faith. Answer:
(92) In a signature by procuration, the prin- (C) No, since Y actually made a conditional do-
cipal is bound only in case the agent acted within nation in X's favor.
the actual limits of his authority. The signature of
the agent in such a case operates as notice that he (94) A bill of exchange states on its face:
has "One (1) month after sight, pay to the order of Mr.
(A) a qualified authority to sign. R the amount of Php50,000.00, chargeable to the
account of Mr. S. Signed, Mr. T." Mr. S, the
(B) a limited authority to sign. drawee, accepted the bill upon presentment by
(C) a special authority to sign. writing on it the words "I shall pay Php30,000.00
three (3) months after sight." May he accept under
(D) full authority to sign.
such terms, which varies the command in the bill
Answer: of exchange?
(B) a limited authority to sign. (A) Yes, since a drawee accepts according to
the tenor of his acceptance.
(93) In return for the 20 years of faithful ser- (B) No, since, once he accepts, a drawee is li-
vice of X as a househelper to Y, the latter prom- able according to the tenor of the bill.
ised to pay Phpl00,000.00 to X's heirs if he (X) dies
(C) Yes, provided the drawer and payee agree
to the acceptance.
2011 BAR EXAMiNAT!ON 1i 9
(D) No, since he is bound as drawee to accept

(C) Php7,000.00.
the bill according to its tenor.
(D) Php700, 100.00.
Answer:
Answer:
(A) Yes, since a drawee accepts according to
the tenor of his acceptance. (A) Php700,000.00.
(95)May the indorsee of a promissory note (97) Shipowner X, in applying for a marine
indorsed to him "for deposit" file a suit against insurance policy from ABC, Co., stated that his
the indorser? vessel usually sails middle of August and ,with
normally 100 tons of cargo. It turned out later that
(A) Yes, as long as the indorser received value the vessel departed on the first week of Septem-
for the restrictive indorsement. ber and with only 10 tons of cargo. Will this avoid
(B) Yes, as long as the indorser received value the policy that was issued?
for the conditional indorsement.
(A) Yes, because there was breach of implied
(C) Yes, whether or not the indorser received warranty.
value for the conditional indorsement.
(B) No, because there was no intent to breach
(D) Yes, whether or not the indorser received an implied warranty.
value for the restrictive indorsement.
(C) Yes, because it relates to a material repre-
Answer: sentation.
(D) No, because there was only representation
(A) Yes, as long as the indorser received value of intention.
for the restrictive indorsement.
Answer:
(96) X issued a check in favor of his creditor,
Y. It reads: "Pay to Y the amount of Seven Thou- (D) No, because there was only representation
sand Hundred Pesos (Php700,000.00). Signed, X". of intention.
What amount should be construed as true in such
a case? (98) The Articles of Incorporation of ABC
Transport Co., a public· utility, provides for ten (10)
(A) Php700,000.00. members in its Board of Directors. What is the pre-
(B) Php700.00. scribed minimum number of Filipino citizens in
its Board?
2011 BAR EXAlv1iNAT!ON 12i
(A) 10
poration. It may be extended or shortened by an
(B) 6 amendment of the Articles when approved by ma-
(C) 7 jority of its Board of Directors and:
(D) 5 (A) approved and ratified by at least 2/3 of all

stockholders.
Answer: (B) approved by at least 2/3 of the stockholders
representing the outstanding capital stock.
(B) 6
(C) ratified by at least 2/3 of all stockholders.
(99) ~p authorized A to sign a negotiable in- (D) ratified by at least 2/3 of the stockholders
strument in his (P's) name. It reads: "Pay to B or representing the outstanding capital stock.
order the sum of Phpl million. Signed, A (for and
in behalf of P)." The instrument shows that it was Answer:
drawn on P. B then indorsed to C, C to D, and D to
E. E then treated it as a bill of exchange. Is pre- (D) ratified by at least 2/3 of the stockholders
sentment for acceptance neces$ary in this case? representing the outstanding capital stock.
(A) No, since the drawer and draw~e are the

same person. NB: Under the RCC, the term of the corporation
is perpetual unless otherwise set forth in
(B) No, since the bill is non-negotiable, the the articles of incorporation.
drawer and drawee being the same person.
(C) Yes, since the bill is payable to order, pre-
sentment is required for acceptance.
(D) Yes, in order to hold all persons liable on
the bill.
Answer:
(A) No, since the drawer and drawee are the

same person.
(100) The corporate term of a stock corpora-

tion is that which is stated in its Articles of Incor-
c) confirmed letter of credit:

2012 BAR EXAMINATION d) none of the above.
Answer:
MULTIPLE CHOICE QUESTIONS (MCOs)
b) standby letter of credit;
1. Letters of Credit are financial devices in
commercial transactions which will ensure that 3. At the instance of CCC Corporation, AAA
the seller of the goods is sure to be paid when he Bank issued an irrevocable Letter of Credit in fa-
parts with the goods and the buyer of the goods vor of BBB Corporation. The terms of the irrevoca-
gets control of the goods upon payment. Which ble Letter of Credit state that the beneficiary must
statement is most accurate?
present certain documents .including a copy of the
Bill of Lading of the importation for the bank to
a) The use of the Letter of Credit serves to re-
release the funds. BBB Corporation could not find
duce the risk of non-payment of the pur-
the original copy of the Bill of Lading so it instead
chase price in a sale transaction.
presented to the bank a xerox copy of the Bill of
b) The Letters of Credit can only be used ex- Lading. Would you advise the bank to allow the
clusively in a sales transaction. drawdown on the Letter of Credit?
c) The Letters of Credit are issued for the
benefit of the seller only. a) No, because the rule of strict compliance in
commercial transactions involving letters of
d) (a), (b) and (c) are all correct. credit, requiring documents set as condi-
tions for the release of the fund, has to be
Answer:
strictly complied with or else funds will not
be released.
a) The use of the Letter of Credit serves to re-
duce the risk of non-payment of the pur- b) Yes, because an irrevocable letter of credit
chase price in a sale transaction. means that the issuing bank undertakes to
release the fund anytime when claimed by
2. Letter of Credit which is used in non-sale the beneficiary, regardless of the kind of
transaction, where it serves to reduce the risk of document presented.
non-performance is called - c) Yes, because the issuing bank can always
justify to CCC Corporation that xerox cop-
a) irrevocable letter bf credit;
ies are considered as faithful reproduction
b) standby letter of credit; of the original copies.
d) Yes, because the issuing bank really

c) Yes, because under the "Independence
has no discretion to determine whether- Principle", the seller or the beneficiary is
the documents presented by the bene- always assured of prompt payment if there
ficiary are sufficient or not.
is no breach in the contract between the
Answer: seller and the buyer.
a) No, because the rule of strict compliance in d) No, because what was opened was an ir-
revocable letter of credit and not a con-
commercial transactions involving letters of
credit, requiring documents set as condi- firmed letter of credit.
tions for the release of the fund, has to be
Answer:
strictly complied with or else funds wiiI not
be released. a) No, because under the "Independence
Principle", conditions for the dra·wdown on
4. AAA Carmakers opened an irrevocable the Letters of Credit are based only on
Letter of Credit with BBB Banking Corporation documents, like shipping documents, and
with CCC Cars Corporation as beneficiary. The, not with the condition of the goods subject
irrevocable Letter of Credit was opened to pay for of the importation.
the importation of ten (10) units of Mercedes Benz
S class. Upon arrival of the cars, AAA Carmakers 5. For a fee, X deposited 1,000 sacks of corn
found out that the cars were all not in running in the warehouse owned by Y. Y is in the business
condition and some parts were missing. As a con- of warehousing. Y issued a warehouse receipt as
sequence, AAA Carmakers instructed BBB Bank- proof of the possession of the 1,000 sacks of corn.
ing Corporation not to allow drawdown on the The warehouse receipt states as follows: "Deliver
Letter of Credit. Is this legally possible? to X or bearer 1,000 sacks of corn." X wanted to
a) No, because under the "Independence use the warehouse receipt as payment of his debt
Principle", conditions for the drawdown on in favor of Z. How can the ownership of the goods
the Letters of Credit are based only on covered by the warehouse receipt be transferred?
documents, like shipping documents, and
a) Negotiate the warehouse receipt by just
not with the condition of the goods subject
of the importation. delivering the warehouse receipt to Z.
b) Assign the WG1-rehouse receipt to Z to trans-
b) Yes, because the acceptance by the im-
fer ownership of the goods.
porter of the goods subject of importation is
material for the drawdown of the Letter of c) Negotiate the warehouse receipt by spe-
Credit. cifically indorsing it to Z.
. 2012 BAR EXAMINATION i27
d) The warehouse receipt in this case is non-

d) keep the goods and appropriate them to
negotiable.
himselt
Answer:
Answer:
a) Negotiate the warehouse receipt by just
a) file an action for interpleader.
delivering the warehouse receipt to Z.
8. BBB Banking Corporation issued a Letter
6.The warehouseman, by issuing the ware-
of Credit in the amount of P5Million, for the pur-
house receipt, acknowledges that the goods are in
chase of five (5) tons of corn by X. Upon arrival of
his possession, but he can refuse to deliver the
the goods, the goods were delivered to the ware-
goods to the holder of the warehouse receipt cov-
house of X. Thereafter he was asked to sign a
ering the goods if -
Trust Receipt covering the goods. When the goods
a) the warehouse receipt covering the goods were sold, X did not deliver the proceeds to BBB
is not presented. Banking Corporation, arguing that he will need
the fund for the subsequent importation. Is there
b) the lien of the warehouseman is not satis- sufficient basis to sue for criminal action?
fied.
c) the said holder presents a materially al- a) Yes, because X's failure to turn over the
tered warehouse .receipt."" proceeds to the bank is a violation of the
Trust Receipt Law.
d) All of the above.
b) No, because the trust receipt was signed
Answer: only after the delivery of the goods. When
the trust receipt was signed, the ownership
d) All of the above. of the goods was already with X.
c) Yes, because violation of Trust Receipt Law
7. The legal remedy of the warehouseman in
is mala prohibita, intention is irrelevant.
case of conflicting claims is to -
d) No, because X has a valid reason not to de-
a) file an action for interpleader. liver the proceeds to BBB Banking Corpora-
b) give the goods to the first one who first pre- tion.
sented the warehouse receipt.
c) use his discretion as to who he believes
has the prior right.
128 8AR Q &A IN COMMERCIAL LAW 2012 BAR EX.AMINA,iON '\29
Answer: Answer:
a) Yes, because X's failure to turn over the c) X can be held criminally liable under the
proceeds to the bank is a violation of the Trust Receipts Law regardless of the pur-
Trust Receipt Law. pose or intention for the use of the pro-
c) Yes, because violation of Trust Receipt Law ceeds.
is mala prohibita, intention is irrelevant.
10. X is the President of AAA Products Cor-
9. X secured a loan from BBB Bank to pay for poration. X signs all the Trust Receipts documents
the importation of some dried fruits. Upon arrival for certain importations of the company. In the
of the goods consisting of dried fruits imported by event of failure to deliver the proceeds of the sale
X but before delivery to him, a· trust receipt was of the goods to the bank, which statement is most
executed by X to cover the transfer of the dried accurate?
fruits to his possession. The dried fruits were so
a) The criminal liability will not attach to X as
saleable but instead of turning over the proceeds
President because of separate juridical per-
of the sale, X used the funds to pay for the medical
sonality.
expenses of his mother who was sick of cancer of
the bone. Which statement is most accurate? b) For violation of Trust Receipts Law, the law
specifically provides for the imposition of
a) X cannot be held criminally liable because penalty upon directors and officers of the
although he did not pay the bank he used corporation.
the proceeds for a good reason. c) The officer will not be held criminally ac-
b) Fraud or deceit is a necessary element to countable because he is just signing the
hold X criminally liable for non-payment trust receipt for and in behalf of the corpo-
under the Trust Receipts Law. ration.
c) X can be held criminally liable under the d) The officer of the corporation will be held
Trust Receipts Law regardless of the pur- liable provided it is clear that the officer
pose or intention for the use of the pro- concerned participated in the decision not
ceeds. to pay.
d) X cannot be held criminally liable because
Answer:
the underlying obligation is one of simple
loan. b) For violation of Trust Receipts Law, the law
specifically provides for the imposition of
penalty upon directors and officers of the

corporation. phrase best completes the sentence - This means
that X is liable on the instrument to any holder for
11. Who is the Entrustee in a Trust Receipt value:
arrangement?
a) for as long as the holder does not know that
a) the owner of the goods; X is only an accom..rnodation party
b) the one who holds the goods and receives b) even though the holder-knew all along that
the proceeds from the sale of the goods; Xis only an accommodation party.
c) the person to whom goods are delivered for c) for as long as X did not receive any consid-
sale and who bears the risk of the loss; eration for acting as accommodation party.
d) the party who acquires security interest in d) provided X received consideration for act-
the goods. ing as accommodation party.
Answer: Answer:
c) the person to whom goods are delivered for b) even though the holder knew all along that
sale and who bears the risk of the loss; Xis only an accommodation party.
12.Which phrase best completes the state- 14. X issued a promissory note which states,
ment - In accordance with the Trust Receipt Law, "I promise to pay Y or order Phpl00,000.00 or one
purchasers of the goods from the Entrustee will: (1) unit Volvo Sedan." Which statement is most
accurate?
a) get the goods only as a collateral;
a) The promissory note is negotiable because
b) not get good title to the goods; the forms of payment are clearly stated.
c) only get security interest over the goods; b) The promissory note is non-negotiable be-
d) get good title to the goods. cause the option as to which form of pay-
ment is with the maker.
Answer:
c) The promissory note is an invalid instru-
d) get good title to the goods. ment because .there is more than one form
of payment.
13. X acted as an accommodation party in
d) The promissory note can be negotiated by
signing as a maker of a promissory note. Which
way of delivery.
2012 BAR EXAM:NATiON 133
Answer:
a) Z can encash the check even though Y did
b) The promissory note is non-negotiable not indorse the check.
because the option as to which form of b) Z cannot encash the check for lacking in
payment is with the maker. proper endorsement.
15. X issued a promissory note which states c) Y is the only one liable because he was the
"I promise to pay Y or bearer the amount of one who delivered the check to Z.
HK$5O,OO0 on or before December 30, 2013." Is the d) The negotiation is not valid because the
promissory note negotiable? check is an instrument payable to order.
a) No, the promissory note becomes invalid Answer:
because the amount is in foreign currency.
b) Yes, the promissory note is negotiable even a) Z can encash the check even though Y did
though the amount is stated in foreign cur- not indorse the check
rency.
17. A stale check is a check -
c) No, the promissory note is not negotiable
because the amount is in foreign currency. a) that cannot anymore be paid although the
d) Yes, the promissory note is negotiable be- underlying obligation still exists.
cause the Hong Kong dollar is a known for- b) that cannot anymore be paid and the un-
eign currency in the Philippines. derlying obligation under the check is also
extinguished.
Answer:
c) that can still be negotiated or indorsed so
b) Yes, the promissory note is negotiable even that whoever is the holder can
though the amount is stated in foreign cur- d) which has not been presented for payment
rency. within a period of thirty (30) days.
16. X delivered a check issued by him and Answer:

payable to the order of CASH to Y in payment for
certain obligations incurred by X in favor of Y. Y a) that cannot anymore be paid although the
then delivered the check to Z in payment for cer- underlying obligation still exists.
tain obligations. Which statement is most accu-
rate? 18. In payment for his debt in favor of X, Y
gave X a Manager's Check in the amount of
134 BAR Q&A !N COMMERCIAL LAW
Phpl00,000 dated May 30, 2012. Which phrase Answer:

best completes the statement - A Manager's
Check: a) negotiation can be made by delivery oniy;
a) is a check issued by a manager of a bank 20. As payment for a debt, X issued a prom-
for his own account. issory note in favor of Y but the promissory note
b) is a check issued by a manager of a bank in on its face was marked non-negotiable. Then Y in-
the name of the bank against the bank it- stead of indorsing the promissory note, assigned
self for the account of the bank. the same in favor of Z to whom he owed some
debt also. Which statement is most accurate?
c) is like any ordinary check that needs to be
presented for payment also. a) Z cannot claim payment from X on the basis
d) is better than a cashier's check in terms of of the promissory note because it is marked
use and effect. non-negotiable.
b) Z can claim paymt::nt from X even though it
Answer:
is marked non-negotiable.
b) is a check issued by a manager of a bank in c) Z can claim payment from Y because under
the name of the bank against the bank it- the Negotiable Instrument Law. negotia-
self for the account of the bank. tion and assignment is one and the s arne.
d) Z can claim payment from Y oniy because
19. Which phrase best completes the state-
he was the endorser of the promissory note.
ment - A check which is payable to bearer is a
bearer instrument and: Answer:
a) negotiation can be made by delivery only; b) Z can claim payment from X even though it
b) negotiation must be by written indorse- is marked non-negotiable.
ment;
21. Negotiable instruments are used as sub-
c) negotiation must be by specific indorse- stitutes for money, which means -
ment;
d) negotiation must be by indorsement and a) that they can be considered legal tender.
delivery. b) that when negotiated, they can be used to
pay indebtedness.
136 BARO & A iN COMMERCIAL LAW
2012 BAR EXAMINAilON 137
c) that at all times the delivery of the instru- 23. A issued a check in the amount of
ment is equivalent to delivery of the cash.
Php20,000 payable to B. B endorsed the check but
d) that at all times negotiation of the instru- only to the extent of Phpl0,000. Which statement
ments requires proper indorsement. is most accurate? ·
Answer: a) The partial indorsement is not a valid in-
dorsement, although will result in the as-
b) that when negotiated, they can be used to
signment of that part.
pay indebtedness.
b) The partial indorsement will invalidate the
22 The signature of X was forged as drawer whole instrument.
of a check. The check was deposited in the ac-
c) The endorsee will be considered as a
count of Y and when deposited was accepted by
holder in due course.
AAA Bank, the drawee bank. Subsequently, AAA
Bank found out that the signature of X was actu- d) The partial indorsement is valid indorse-
ally forged. Which statelt'j.ent is most accurate? ment up to the extent of the Php10.000.
a) The drawee bank can recover from Y, be- Answer:

cause the check was deposited in his ac-
count. a) The partial indorsernent is not a valid in-
dorsement, although will result in the as-
b) The drawee bank can recover from X, be-
signment of that part.
cause he is. the drawer even though his
signature was forged. 24. A promissory note which does not have
c) The drawee bank is estopped from denying the words "or order" or "or bearer" will render
the genuineness of the signature of the X, the promissory note non-negotiable, and there-
the drawer of the check. fore -
d) The drawee bank can recover from Y be- a) it will render the maker not liabie:
cause as endorser he warrants the genu- b) the note can still be assigned and the
ineness of the signature.
maker made liable;
Answer: c) the holder can become holder iri due
course;
c) The drawee bank is estopped from denying
the genuineness of the signature of the X, d) the promissory note can just be delivered
the drawer of the check. and the maker will still be liable.
2012 BAR EXAMINATION !39
Answer:
a) it is an ultra vires act.
b) the note can still be assigned and the b) it is a valid indorsement.
maker made liable;
c) the corporation will be held liable to any
25. A check is - holder in due course.
d) it is an invalid indorsement.
a) a bill of exchange;
b) the same as a promissory note: Answer:
c) is drawn by a maker; a) it is an ultra vires act.

d) a non-negotiable instrument. b) it is a valid indorsement.
Answer: 28. In a negotiable instrument, when the
a) a bill of exchange; sum is expressed both in numbers and in words
and there is discrepancy between the words and
26. A check was issued to Tiger Woods. But the numbers -
what was written as payee is the word "Tiger
Woods". To validly endorse the check - a) the sum expressed in words will prevail
over the one expressed in numbers.
a) Tiger Woods must sign his real name. b) the sum expressed in numbers will prevail
b) Tiger Woods must sign both his real name over the one expressed in words.
and assumed name. c) the instrument becomes void because of
c) Tiger Woods can sign his assumed name. the discrepancy.
d) the check has become non-negotiable. d) this will render the instrument invalid.
Answer: Answer:
c) Tiger Woods can sign his assumed name. a) the sum expressed in_ words will prevail
over the one expressed in numbers.
27. Y, as President of and in behalf of AAA
Corporation, as a way to accommodate X, one of 29. A promissory note which is undated is
its stockholders, endorsed the check issued by X. presumed to be -
Which statement is most accurate?
a) dated as of the date of issue;
b) dated as of the date of the first indorse-

ment; 31. An Insurance Contract is a contract of
adhesion, which means that in resolving ambigui-
c) promissory note is invalid because there is ties in the provision of the insurance contract, -
no date;
d) dated on due date. a) the general rule is that, the insurance con-
tract is to be interpreted strictly in accor-
Answer: dance with what is written in the contract.
a) dated as of the date of issue; b) are to be construed liberally in favor of the

insured and strictly against the insurer who
30. An insurance contract is an aleatory con- drafted the insurance policy.
tract, which means that - c) are to be construed strictly against the in-
sured and liberally in favor of the insurer.
a) the insurer will pay the insured equivalent
to the amount of the premium paid. d) if there is an ambiguity in the insurance
contract, this will invalidate the contract.
b) the obligation of the insurer is to pay de-
pending upon the happening of an uncer- Answer:
tain future event.
c) the insured pays a fixed premium for the b) are to be construed liberally in favor of the
insured and strictly against the insurer who
duration of the policy period and the
drafted the insurance policy.
amount of the premiums paid to the insurer
is not necessarily the same amount as what 32. X is the common law wife of Y. Y loves X
the insured will get upon the happening of
so much that he took out a life insurance on his
an uncertain future event.
own life and made her the sole beneficiary, Y did
d) the obligation of the insurer is to pay de- this to ensure that X will be financially comfort-
pending upon the happening of an event able when he is gone. Upon the death of Y, -
that is certain to happen.
a) X as sole beneficiary under the life insur-
Answer: ance policy on the life cf Y will be entitled
to the proceeds of the life insurance.
b) the obligation of the insurer is to pay de-
pending upon the happening of an uncer- b) despite the designation of X as the sole
tain future event. beneficiary, the proceeds of the life insur-
ance will go to the estate of Y.
2012 BAI< EXAMINATION 1.1 '<
•V
142 BAR Q & A IN CoMMEf<CIAL LAW
c) the proceeds of the life insurance will go to a) the life insurance policy is void ab initio.
the compulsory heirs of Y. b) the life insurance is valid provided it is with
d) the proceeds of the life insurance will be the consent of the beneficiary.
divided equally amongst X and the com- c) the life insurance policy is valid provided
pulsory heirs of Y. the benefi_ciary is his estate or his parents.
or spouse or child.
Answer:
d) the life insurance is valid provided the dis-
b) despite the designation of X as the sole position of the proceeds will be subject to
beneficiary, the proceeds of the life insur- the approval of the legal guardian of the
ance will go to the estate of Y. minor.
33. X, in January 30, 2009, or two (2) years Answer:

before reaching the age of 65, insured his Hf e for
Ph:p20 Million. For reason unknown to his family, c) the life insurance policy is valid provided
the beneficiary is his estate or his parents,
he took his own life two (2) days after his 65th
birthday. The policy contains no excepted risk. or spouse or child.
Which statement is most accurate? 35. The "incontestability clause" in a Life In-
a) the insurer will be liable. surance Policy means -
b) the insurer will not be liable. a) that life insurance proceeds cannot be
claimed two (2) years after the death of the
c) the state of sanity of the insured is relevant
in cases of suicide in order to hold the in- insured.
surer liable. b) that two (2) years after date of issuance or
reinstatement of the life insurance policy,
d) the state of sanity of the insured is irrele-
the insurer cannot anymore prove that the
vant in cases of suicide in order to hold the
policy is void ab initio or rescindable by
insurer liable.
reason of fraudulent concealment or mis-
Answer: representation of the insured.
c) that the insured can still claim from the in-
a) the insurer will be liable. surance policy after two (2) years even
though premium is not paid.
34. X, a minor, contracted an insurance on
his own life. Which statement is most accurate?
2012 BAR EXAMINAT!ON 145
d) that the insured can only claim proceeds in

37. A house and lot is covered by a real es-
a life insurance· policy two (2) years after
death. tate mortgage (REM) in favor of ZZZ Bank. The
bank required that the house be insured. The
Answer: owner of the policy failed to endorse nor assign
the policy to the bank. However, the Deed of Real
b) that two (2) years after date of issuance or Estate Mortgage has· an express provision which
reinstatement of the life insurance policy, says that the insurance policy is also endorsed
the insurer cannot anymore prove that the with the signing of the REM. Will this be suffi.
policy is void ab initio or rescindable by cient?
reason of fraudulent concealment or mis-
representation of the insured. a) No, insurance policy must be expressly en-
dorsed to the bank so that the bank will
36. For both the Life Insurance and Property have a right in the proceeds of such insur-
Insurance, the insurable interest is required to be- ance in the event of loss.
a) existing at the time of perfection of the con-

b) The express provision contained in the
tract and at the time of loss. Deed of Real Estate Mortgage to the effect
that the policy is also endorsed is sufficient.
b) e:Misting at the time of perfection and at the
c) Endorsement of Insurance Policy in any
time of loss for property insurance but only
form is not legally aliowed.
at the time of perfection for life insurance.
d) Endorsement of the Insurance Policy must
c) existing at the time of perfection for prop-
be in a formal document to be valid.
erty insurance but for life insurance both at
the time of perfection and at the time of Answer:
loss.
d) existing at the time of perfection only. a) No, insurance policy must be expressly en-
dorsed to the bank so that the bank vvill
Answer: have a right in the proceeds of such insur-
ance in the event of loss.
b) existing at the time of perfection and at the
time of loss for property insurance but only 38. X is a passenger of a jeepney for hire be-
at the time of perfection for life insurance. ing driven by Y. The jeepney collided with another
passenger jeepney being driven by Z who was
driving recklessly. As a result of the collision, X
suffered injuries. Both passenger jeepneys are
2012 BAR EXAMINATION '147
146 BARO & A IN COMMERCIAL LAW
covered by Comprehensive Motor Vehicular In- Answer:

surance Coverage. If X wants to claim under the
d) X can choose who he wants to claim
"no fault indemnity clause", his claim will lie•
against.
a) against the insurer of the jeepney being
40. When X insured his building, X indicated
driven by Z who was the one at fault.
in the application that it is a residential building,
b) the claim shall lie against the insurer of the but actually the building was being used as a
passenger jeepney driven by Y because X warehouse for some hazardous materials. What is
was his passenger. the effect on the insurance policy, if any?
c) X has a choice against whom he wants to
make his claim. a) The insurance policy can be cancelled be-
cause of the change in the use.
d) None of the above.
b) The insurance policy will automatically be
Answer: changed.
c) The insurance policy need not be changed.
b) the claim shall lie against the insurer of the
passenger jeepney driven by Y because X d) The insurance policy is fixed regardless of
was his passenger. the change in the use.
39. X insured the building she owns with Answer:

two (2) insurance companies for the same amount.
In case of damage, Any of the above.
a) X can not claim from any of the two (-2) in- 41. X owned a house and lot. X insured the
surers because with the double insurance, house. The house got burned. Then he sold the
the insurance coverage becomes automati- partially burnt house and the lot to Y. Which
cally void. statement is most accurate?
b) the two (2) insurers will be solidarily liable a) X is not anymore entitled to the proceeds of
to the extent of the loss. the insurance policy because he already
c) the two (2) insurers will be proportionately sold the partially burnt house and lot.
liable. b) Xis still entitled to the proceeds of the in-
surance pdlicy because what is matenal is
d) X can choose who he wants to claim
against.
2012 BAR EXAMiNATiON
149
148 BAR Q & A !N COMMERCIAL LAW
b)
PNR is liable because Railroad companies
that at the time of the loss, X is the owner owe to the public a duty of exercising a
of the house and lot. reasonable degree of care to avoid injury to
c) No one is entitled to the proceeds because person and property at railroad crossings
ownership over the house and lot was al- which means a flagman or a watchman
ready transferred. should have been posted to warn the pub-
d) Y will be the one entitled to the proceeds lic at all times.
because he now owns the partially burnt c)
PNR is not liable because it blev i its horn
1
house and lot. when it ·was about to cross the rail•Nay

along Blumentritt-Avenida Ext
Answer:
PNR is not liable because X was negligent.
d)
b) Xis still entitled to the proceeds of the for listening to his Ipod touch vJhile driving
insurance policy because what is ma-
terial is that at the time of the loss, Xis Answer:
the owner of the house and lot.
a)
PNR is not liable because X should have
42. X, while driving his Toyota Altis, tried to known that he was crossing a place desig-
cross the railway tract of Philippine National nated as crossing for train, and therefore
Railway. As the train approached Blumentritt should have been more careful.
Avenida Ext., the driver applied its horn as a
warning to all the vehicles that might be crossing 43. The AAA Bus Company picks up passen-
the railway tract, but there was really nobody gers along EDSA. X, the conductor, while on board
manning the crossing. X was listening to his !pod the bus, drew his gun and randomly shot the pas-
touch, hence, he did not hear the sound of the sengers inside. As a result, Y, a passenger, was
horn of the train and so his car was hit by the shot and died instantly. Is AAA Bus Company li-
train. As a result of the accident, X suffered some able? ,
injuries and his car was totally destroyed as a re-
The qus company is not liable for as long as
sult of the impact. Is PNR liable? a)
the bus company can show that when they
a) PNR is not liable because X should have bired X, they did the right selection proc-
known that he was crossing a place desig- ess.
nated as crossing for train, and therefore
b) The bus company cannot be held liable be-
should have been more careful. cause what X did is not part of his respon-
sibility.
2012 BAR EXMJINAl'l()N
151
15C BAR Q & A IN COMMERCIAL LAW
c) The bus company is liable because com- b) It is possible to have a contract of carriage
mon carriers are liable for the negligence or of cargo even without a bill of lading. and
willful act of its employees even though the "shipping receipt" would be sufficient.
they acted beyond the scope of their re- c) The only acceptable document of title is a
sponsibility. Bill of Lading.
d) The bus company is not liable because d) None of the above.
there is no way that the bus company can
anticipate the act of X. Answer:
Answer: b) lt is possible to have a contract of carriage
of cargo even without a bill of lading, and
c) The bus company is liable because com- the "shipping receipt" would be sufficient.
mon carriers are liable for the negligence or
willful act of its employees even though 45. X took Philippine Airlines Flight PR
they acted beyond the scope of their re- 102 to Los Angeles, USA. She had two (2) luggage
sponsibility. checked-in and was issued two (2) baggage
checks. When X reached Los Angeles one (1) of the
44. X is a trader of school supplies in Cala- two (2) checked in luggage could not be found.
pan, Oriental Mindoro. To bring the school sup- Which statement is most accurate?
plies to Calapan, it has to be transported by a ves-
sel. Because there were so many passengers, the a) PAL is liable for the loss of the checked-in
two (2) boxes of school supplies were loaded but luggage under the provisions of the War-
the shipping company was not able to issue the saw Convention on Air Transport
Bill of Lading. So, on board, the Ship Captain is- b) PAL is liable for the loss only if the bag-
sued instead a "shipping receipt" to X indicating gage check expressly states tl1at :he airline
the two (2) boxes of school supplies being part of
shall be liable in case of loss.
the cargo of the vessel. Which phrase therefore, is
the most accurate? c) PAL cannot be held liable because that is
the risk that a passenger takes when she
a) The owner of the vessel is not liable be- checks- in her baggage.
cause no bill of lading was issued to X d) PAL can only be held liable if it can be
hence, no contract of carriage was per- proven that PAL was negligent.
fected.
·152 BAR Q & A IN COMMERCIAL LAW
2012 BAR EX.t,MINATIOt\ 153
Answer:
Answer:
a) PAL is liable for the loss of the checked- in
b) X will be the one liable to the injured party
luggage under the provisions of the War-
despite the fact that it is Y who is actually
saw Convention on Air Transport.
operating the jeepney, because while the
NB Warsaw Convention has been sup- Kabit System is tolerated, the public should
planted by the Montreal Convention but not be inconvenienced by the arrangement.
the answer is still the same.
47. X owns a fleet of taxicabs. He operates it
46. X owns a passenger-jeepney covered through what is known as boundary system. Y
by Certificate of Public Convenience. He allowed drives one of such taxicabs and pays X a fixed
Y to use its Certificate of Convenience for a con- amount of Phpl,000 daily under the boundary sys-
sideration. Y therefore was operating the passen- tem. This means that anything above Phpl,000
ger jeepney under the same Certificate of Public would be the earnings of Y. Y, driving recklessly,
Convenience (Kabit System) under the name of X. hit an old lady crossing the street. Which state-
The passenger jeepney met an accident. Who will ment is most accurate?
be liable?
a) X as the owner is exempt from iiability be-
a) Y, the one actually operating the jeepney, cause he was not the one driving.
will be liable to the injured party.
b) X as the owner is exempt from liability be-
b) X will be the one liable to the injured party cause precisely the arrangernent is one un-
despite the fact that it is Y who is actually der the "boundary system".
operating the jeepney, because while the
c) X will not be exempt from liabiiity because
Kabit System is tolerated. the public should he remains to be the registered owner and
not be inconvenienced by the arrangement. the boundary system will not allow the cir-
c) X will not be held liable if he can prove that cumvention of the law to avoid liability.
he is not the owner anymore.
d) Y is the only one liable because he drove
d) Public Policy dictates that the real owner, recklessly.
even not the registered one, will be held li-
able. Answer:
c) X will not be exempt from liability because

he remains to be the registered owner and
2012 BAR EXAMINA. T\ON 155
the boundary system will not allow the cir- a) Because X was personally acting in behalf
cumvention of the law to avoid liability. of the Corporation, he can be held person•
ally liable.
48. The Articles of Incorporation of AAA Cor- b) X, as President, cannot be personally held
poration was approved by the Securities and Ex- liable for the obligation of the corporation
change Commission (SEC). After the receipt of the even though he signed all the loan docu-
Certificate of Approval from the SEC, AAA Corpo- ments, because the loan was authorized by
ration decided to immediately start the operation the Board.
of its business despite the fact that it has no ap-
c) YYY Bank can choose as to who it wants to
proved By-Laws. What is the legal status of the
AAA Corporation? hold liable for the loan.
d) If ZZZ Corporation cannot pay, X can be
a) A de jure corporation; held subsidiarily liable.
b) A de facto corporation;
Answer:
c) A corporation by estoppel:
b) X, as President, cannot be personally held
d) An unregistered corporation.
liable for the obligation of the corporation
Answer: even though he signed all the loan docu-
ments, because the ioan was authorized by
a) A de Jure corporation; the Board.
b) De facto corporation {as held in Sawadjaan 50. X owns 99% of the capital stock of SSS
vs. Court of Appeals, G.R. No. 141735, June Corporation. X also owns 99% of TTT Corporation.
8, 2005) SSS Corporation obtained a loan from VW Bank.
On due date, SSS Corporation defaulted. TTT Cor-
49. X, the President of ZZZ Corporation, was
poration is financially healthy. Which statement is
authorized by the Board of Directors of ZZZ Cor~
most accurate?
poration to obtain a loan from YYY Bank and to
sign documents in behalf of the corporation. X a) X being a controlling owner of SSS Corpora-
personally negotiated for the loan and got the loan tion can automatically be held personally
at very low interest rates. Upon maturity of the liable for the loan of SSS Corporation.
loan, ZZZ Corporation was unable to pay. Which
b) TTT Corporation, owned 99% by X, can
statement is most accurate?
automatically be held liable.
156 BAR Q&A IN COMMERCLA.L LAW
c) SSS Corporation and TTT Corporation, al-

52. Father X, an.American priest who came
though both are owned by X, are two (2)
from New York, registered the Diocese of Bacolod
distinct corporations with separate juridical
personalities hence, the TTT Corporation of the Roman Catholic Church which was incorpo-
rated as a corporation sole. There were years
cannot automatically be held liable for the
loan of SSS Corporation. when the head of the Diocese was a Filipino, 1?ut
there were more years when the heads were for-
d) The principle of piercing the veil of corpo- eigners. Today, the head is an American again. Y
rate fiction can be applied in this case. donated a piece of land located in Bacolod City for
Answer: use as a school. Which statement is most accu-
rate?
c) SSS Corporation and ITT Corporation, al-
a) The Register of Deeds of Bacolod City can
though both are owned by X, are two (2)
refuse to register and transfer the title be-
distinct corporations with separate juridical
cause the present head of the corporation
personalities hence, the TTT Corporation
sole is not a Filipino.
cannot automatically be held liable for the
loan of SSS Corporation. b) The nationality of a corporation sole de-
pends upon the nationality of the head at
51. A corporation generally can issue both any given time.
par value stock and no par value stock. These are
c) A corporation sole, regardless of the na-
all fixed in the Articles of Incorporation of the
tionality of the head, can acquire real prop-
corporation. Which of the following corporations
erty either by sale or donation.
may not be allowed to issue no par value shares?
d) A corporation sole is not legally allowed to
a) Insurance companies; own real property.
b) Banks;
Answer:
c) Trust companies:
a) A corporation sole, regardless of the na-
tionality of the head, can acquire real prop-
Answer: erty either by sale or donation.
NB This should be on the condition that at
d) all of the above least 60% of the members of the church are
Filipino citizens
158 BAR Q&A IN COMMERCIAL !..Aw
2012 BAR EXAMINATION ~a
1o...,
53. The number of the Board of Trustees of a

responding to the percentage of shares
non-stock, non-profit educational institution
should be --- which were paid.
c) The Corporate Secretary cannot refuse be-
a) five (5) only cause a Certificate of Stock can be issued
provided it is indicated in the Certificate
b) any number for as long as it is not less than
the actual percentage of what has been
five (5) and no more than eleven (11)
paid.
c) any number in multiples of five (5), for as
d) The Corporate Secretary cannot refuse be-
long as it is not less than five (5) and no
more than fifteen (15). cause it is his legal duty to issue a stock
certificate corresponding to the number of
d) not less than five (5) nor more than ten (1 0) shares actually subscribed regardless of
in multiples of five (5). the actual payment.
Answer: Answer:
c) any number in multiples of five (5), for as a) The Corporate Secretary is correct because
long as it is not less than five (5) and no the Corporation Code provides that no cer-
more than fifteen (15). tificate of stock shall be issued to a sub-
scriber until the shares as subscnbed have
54. X subscribed 10,000 shares in the capital been fully paid.
stocks of AAA Corporation. He paid 50% of the
10,000 shares. X asked the Corporate Secretary to 55. XXX Corporation and YYY Corporation
issue him the corresponding stock certificate rep- have agreed to be merged into one corporation. To
resenting the 50% of what he already paid. The facilitate the merger, both corporations agreed
Corporate Secretary of the corporation refused. that the merger be made effective on May 31,
Was the Corporate Secretary correct? 2012. The Securities and Exchange Commission
(SEC) approved the Articles of Merger on June 30,
a) The Corporate Secretary is correct because 2012. Which statement is most accurate?
the Corporation Code provides that no cer-
tificate of stock shall be issued to a sub- a) The effective date of the merger is May 31,
scriber until the shares as subscribed have 2012, the date stipulated by the parties as
been fully paid. the effective date.
b) The Corporate Secretary cannot refuse be-
cause a Stock Certificate can be issued cor-
160 BAR Q&A IN COMMERCIAL l.AW
b) The effective date of the merger is always

the date of the approval of the Articles of
b) The Articles of Incorporation must provide
Merger by the SEC. such power and be approved by the Board
of Directors.
c) The effective date of the merger would be
c) Providing corporate guarantee tc another
the date approved by the Board of Directors
and the stockholders. corporation is a necessary exercise of
power of a corporation.
d) The stockholders and the Board of Directors
can set the effective date of the merger
d) It would require both the approval of the
anytime after the approval of the SEC. Board of Directors and the stockholders on
record.
Answer:
Answer:
b) The effective date of the h1erger is always
a) It only requires the approval of the Board of
the date of the approval of the Articles of
Merger by the SEC. Directors of BBB Corporation.
NB. While B is the correct answer, there is 57. The capital stock of ABC Corporation is
a an SEC Opinion (08-19, March 13, 2019) divided into common shares and preferred shares.
the parties may fix the effectivity date of Preferred shares are preferred as to dividends and
the merger as long as it would not -ad- common shares are those shares which have the
versely affect third parties nor would it regular and ordinary attributes of a share of a cor•
cause decrease in tax dues of the corpora- poration. Which statement is most accurate?
tions involved.
a) This kind of classification may not be al-
56.AAA Corporation is a wholly owned sub- lowed or else it will violate the Doctrine of
sidiary of BBB Corporation. To support the busi- Equality of shares.
ness of AAA Corporation, BBB Corporation agreed
b) Classifications of shares may be allowed for
to give its corporate guarantee to the loan of AAA
as long as it is clearly stated as such in the
Corporation. What is required so that the corpo- Articles of Incorporation of the Corporation.
rate guarantee will be valid?
c) Classifications of shares is mainly for busi-
a) It only requires the approval of the Board of ness purpose to attract investors.
Directors of BBB Corporation.
d) Classifications of shares may be allowed
with the approval of the stockholders and
the Board of Directors.
2012 BAR EXAM!NATION 163
Answer:
and therefore existing employees can not
automatically be considered separated
b) Classifications of shares may be al-
lowed for as long as it is clearly stated 59. South China Airlines is a foreign airline
as such in the Articles of Incorporation company. South China Airlines tickets are sold in
of the Corporation. the Philippines though Philippine Airlines as
their
general agent. South China Airlines is not regis-
58. X sold all his shares in AAA Hotel Corpo- tered to do business as such with the Philippine
ration to Y. X owns 99% o f ~ Hotel Corporation. Securities and Exchange Commission. Which
As the new owner, Y wanted a reorganization of statement is most accurate?
the hotel which is to include primarily the separa-
tion of all existing employees and the hiring of- a) Although unlicensed to do business in the
new employees. Which statement is most accu- Phi~ppines, South China Airlines can sue
rate? before the Philippine Courts and can also
be sued.
a) With the change in ownership, in effect
there is a new juridical entity and therefore b) South China Airlines can sue but cannot be
all employees are considered separated. sued.
c) South China Airlines cannot sue and cannot
b) Despite the change in shareholder, there is
actually no change in the juridical entity be sued also.
and therefore existing employees can not d) South China Airlines can be sued in Philip-
automatically be considered separated. pine Courts but cannot sue.
c) Y, as the new shareholder, has the right to
Answer:
retain only those employees who in his
judgment are qualified. d) South China Airlines can be sued in Philip-
d) For as long as the existing employees are pine Courts but cannot sue.
given their separation pay, they can be
terminated. 60. So that ABC Corporation could venture
into more projects, it needed to raise funds by is·
Answer: suing new shares to increase its capitalization. X,
Y, Z, J and Gare the five existing shareholders of
b) Despite the change in shareholder, there is the company. They hold 20% each. How will the
actually no change in the juridical entity additional shares be divided among the existing
shareholders?
164 BAR Q&A IN COMMERCIAL. LAW 2012 BAR EXAMINATION :65
a) The existing shareholders can subscribe to b) A derivative suit must be instituted in be-
the new shares equivalent to their existing half of the corporation.
shareholdings because the Corporation c) Derivative suit is an exclusive remedy that
Code provides that each of the existing
X can institute.
stockholders will have preemptive rights to
the extent of their existing shareholdings. d) Derivative suit is not the remedy in this
situation.
b) The existing shareholders' preemptive
rights is equivalent to the percentage that
Answer:
they want.
c) Each of the existing shareholder can exer- b) A derivative suit must be instituted in be-
cise their right of first refusal against each half of the corporation.
other.
62. The term GGG Corporation in accordance
d) Preemptive rights and right of first refusal with its Articles of Incorporation ended last Janu-
are one and the same. ary 30, 2012. The term was not extended. What
will happen to the corporation?
Answer:
a) The corporation is dissolved ipso facto.
a) The existing shareholders can subscribe to
the new shares equivalent to their existing b) There is a need to pass a board resolution
shareholdings because the Corporation to formally dissolve the corporation.
Code provides that each of the existing c) The Board of Directors must pass a resolu-
stockholders will have preemptive rights to tion for the corporation to formally go into
the extent of their existing shareholdings. liquidation.
61.X is a minority stockholder of CCC Cor- d) The stockholders must pass a resolution to
poration. Y is a member of the Board of Directors dissolve the corporation.
of CCC Corporation and at the same time he is the
President. X believes that Y is mismanaging CCC Answer:
Corporation hence, as a stockholder and in behalf a) The corporation is dissolved ipso facto.
of the other stockholders, he wanted to sue Y.
NB. Under the RCC, this should now be
construed to mean without prejudice to
a) X can institute a derivative suit in behalf of remedy of petition for revival of corporate
himself as a stockholder. existence.
BAR Q & A IN COMMERCIAL LAW 2012 BAR EXAMINATION 167
166
63. The term of one (1) year of the Board of a) This can be a ground for revocation or sus-
Directors of AAA Corporation expired last Febru- pension of its license to do business.
ary 15, 2012. No new election of the Board of Di- b) There is no more effect in the license be-
rectors was called, hence 1 the existing members of cause anyway at the time of registration, a
Board continue as Directors in hold over capacity. resident agent was appointed.
c) This can be a ground for suspension only.
a) This is allowed provided there is a valid d) This will result in automatic revocation of
and justifiable reason for not calling for an its license to do business in the Philippines.
election of the new members of the Board.
b) This is not allowed because the term of the Answer:
directors must only be for one ( 1) year. This can be a ground for revocation or sus-
a)
c) The positions of the members of the Board pension of its license to do business.
of Directors will be automatically declared
vacant. 65. The By-laws of ABC Corporation is silent
as to when a stockholder can be qualified to at-
d) Acting as members of the Board of Direc-
tend the meeting of the stockholders. The Corpo-
tors in a hold over capacity must be ratified
rate Secretary sent out the notice of the stock-
by the stockholders,
holders meeting two (2) days before the meeting
Answer: and at that time X was not yet a stockholder. On
the day of the meeting, however, X became a
a) This is allowed provided there is a valid shareholder which was duly recorded in the stock
and justifiable reason for not calling for an and transfer book. Which statement is most accu-
election of the new members of the Board. rate?
64. AAA Corporation is a foreign corporation a) X is a stockholder of ABC Corporation as of

that wants to operate a representative office here the time of meeting of the stockholders for
in the Philippines. As required by the Corporation the purpose of electing the members of the
Code, there is a need to appoint a Resident Agent board.
as a condition precedent to the issuance of a li- b) X is not qualified to elect members of the
cense to transact business in the Philippines. After board because at the time the notice of the
two (2) years, AAA Corporation removed its Resi- meeting was sent, she was not yet a stock-
dent Agent and did not appoint anyone anymore. holder.
Which statement is the most accurate?
168 BAR Q & A IN COMMERC;Al U.W
2012 8AR EX.",MINAT!O', 169
c) Qualifications as to who are considered as

Answer:
stockholders on record for purposes of be-
ing able to elect members of the board are All of the above.
to be determined by the By-laws alone.
d) None of tbe above. 67. The purpose of the "Tender Offer" Rule
is to-
Answer:
a) Ensure an even playing field for all share-
a) X is a stockholder of ABC Corporation as of holders of a company in terms of opportu-
the time of meeting of the stockholders for nity to sell their shareholdings.
the purpose of electing the members of the b) Ensure that minority shareholders in a pub-
board.
licly listed company are protected in the
sense that they will equally have the same
66. X, who is the Executive Vice President of
opportunity as the majority shareholders in
ABC Corporation, a listed company, can be held
terms of selling their shares.
liable or guilty of insider trading if, he -
c) Ensure that the shareholders who would
a) Bought shares of ABC Corporation when it also want to sell their shareholdings will
was planning to acquire another company have the opportunity for a better price.
to improve its asset base, the news of d) All of the above.
which increased the price of the shares in
the Stock Exchange. Answer:
b) Bought shares of XYC Corporation, a sister
company of ABC Corporation when he All of the above.
learned that XYC Corporation was about to
68. Section 38 of The Securities Regulation
also list its share in the Philippine Stock
Exchange. Code defines an independent director as a person
who must not have a relation with the corporation
c) Bought shares of ZZZ Corporation when he which would interfere with his exercise of inde-
learned that ABC Corporation would ac- pendent judgment in carrying out the responsi-
quire ZZZ Corporation. bilities of a director. To ensure independence
d) All of the above. therefore, he must be -
a) Nominated and elected by the entire

shareholders;
170 BAR Q &A !N COMMERCIAL LAW 2012 BAR EXAMINATION 171
b) Nominated and elected by the minority b) The Bangko Sentral ng Pilipinas:

shareholders;
c) The Anti-Money Laundering Council;
c) Nominated and elected by the majority d) The Securities and Exchange Commission.
shareholders;
d) Appointed by the Board. Answer:
Answer: b) The Bangko Sentral ng Pilipinas:
c) Nominated and elected by the majority 71. X maintains a savings deposit in the
shareholders; amount of Php·l Million with ABC Bank Corpora-
tion. X also has obtained a loan from ABC Bank
69. "Securities" issued to the public are re- Corporation in the amount of Phpl Million. In case
quired by law to be registered with - of default,
a) The Bangko Sentral ng Pilipinas; a) ABC Bank can set-off the loan from the sav-
ings account being maintained by X with
b) The Philippine Stock Exchange;
ABC Bank.
c) The Securities and Exchange Commission;
b) Set-off is not possible because legal com-
d) The Securities and Exchange Commission pensation is not ailowed in banking trans-
and the Philippine Stock Exchange. action.
Answer: c) Deposit accounts are usually earmarked for
specific purpose hence offsetting is not le-
c) The Securities and Exchange Commission; gally possible.
d) Off -setting is not possible because the ob-
70. The government agency granted with ligation of Xis a "simple loan".
the power of supervision and examination over
banks and non-bank financial institutions per- Answer:
forming quasi-banking functions, to ensure that
the conduct of its business is on a sound financial a) ABC Bank can set-off the loan from the sav-
basis that will provide continued solvency and li- ings account being maintained by X with
quidity is- ABC Bank.
a) The Philippine Deposit Insurance Corpora-

tion:
72. XYZ Corporation is e.ngaged in lending

Answer:
funds to small vendors in various public markets.
To fund the lending, XYZ Corporation raised funds c) 21;
through borrowings from friends and investors.
Which statement is 'most accurate? 74. All senior officers of ABC Bank are enti-
tled to obtain a housing loan. X is an Executive
a) XYZ Corporation is a bank.
Vice President for Operations of ABC Bank. She
b) XYZ Corporation is a quasi-bank obtained a housing loan with the ABC Bank.
c) XYZ Corporation is an Investment Com- Which statement is most accurate?
pany,
a) The housing loan of X requires a guarantor
d) XYZ is none of the above. from somebody who is not connected with
the bank.
Answer:
b) The housing loan of X requires the approval
a) XYZ Corporation is a quasi-bank. of the Board of Directors of the bank.
NB The premise here is that the number of c) The housing loan of X, being a benefit for
Friends and investors is at least 20. employees, does not require (a) but will re-
quire (b).
73. XXX Bank Corporation and ZZZ Corpora- d) The housing loan of X, being a benefit for
tion were merged into XX ZZ Bank Corporation. So employees, will not require (a) and (b).
as not to create any unnecessary conflict, all the
former directors of both banks wanted to be ap- Answer:
pointed /elected as members of the Board of Di-
rectors of the merged bank. Each bank used to d) The housing loan of X, being a benefit for
have eleven (11) members of the board. The employees, will not require (ai and (b).
maximum number of directors of the merged
bank is - 75. ABC Holdings Company, a Hong Kong
company, owns 10% of XYZ Bank. Because of the
a) 15; peace and order situation in the Philippines, ABC
b) 22; Holding Company wanted to sell its shareholdings
in XYZ Bank. Unfortunately, nobody is interested
c) 21; to buy a 10% shareholdings in a bank. The board
d) 11. of directors of XYZ Bank thought that it would be
a good idea to buy back the shares owned by ABC
2012 SAR EXAMINATION 175
Holding Company. Which statement is most accu- a) Yes, because there is already a pending
rate? case and provided the subpoena must be
specific as to which account
a) Buying back the shares by XYZ Bank is ab- Yes, it is enough that the specific bank is
b)
solutely not allowed. identified.
b) Buying back the shares may be allowed
c) No, because the issuance of the subpoena
provided it is with the approval of the has no real legal basis.
Monetary Board and disposed of within six
(6) months. d) Even without a subpoena, information
about the deposit accounts of X can be
c) Buying back the shares may be allowed submitted to the Sandiganbayan because it
provided such shares 'will be disposed of will be used in a pending case
within ten (1 b) years.
d) Buying back the shares may be done any- Answer:
time provided the Board of Directors will
a) Yes, because there is already a pending
approve the same.
case and provided the subpoena must be
Answer: specific as to which account.
b) Buying back the shares may be allowed 77. X, a private individual, maintains a dollar
provided it is with the approval of the deposit with ABC Bank. X is suspected to be the
Monetary Board and disposed of within six leader of a Kidnap for Ransom Gang and he is sus-
(6) months. pected of depositing all ransom money in said de-
posit account which are all in US Dollars. The po-
76. X is being charged for violation of Anti- lice want to open said account to know if there are
Graft and Corrupt Practices because he is sus- really deposits in big amounts. Which statement is
pected of having accumulated unexplained most accurate?
wealth. X maintains deposit accounts with ABC
a) The same rules under Secrecy of. Bank De-
Bank. The Ombudsman filed criminal cases
against X before the Sandiganbayan. Can the posit Act will apply.
Court issue subpoenas against ABC Bank to pro- b) An approval from the Monetary Board is.
duce all documents pertaining to all the deposit necessary to open the account.
accounts of X? Because the deposit is in US Dollars, it is
c)
covered by the Foreign Currency Deposit
176 BAR Q & A IN CrnAMERCIAL LAW
Act which allows disclosure only upon the c) X can claim a total of Php750.000 from all
written permission of the depositor. the three (3) accounts.
d) Approval from the Court is necessary to or- d) X cannot claim anything from any of the
der disclosure of the account. deposit accounts,
Answer: Answer:
a) The same rules under Secrecy of Bank De- a) X can claim a total of Php500 ,000 for all the
posit Act will apply. three (3) accounts.
NB: (A) is the correct answer only because 79. The Bank Secrecy Law (RA 1405) prohib-
it is the b_est answer. B, C, and D are all
its disclosing any information about deposit re-
wrong answers. But "A" is not completely
cords of an individual without court order except -
accurate because there are different rules
for foreign currency and Philippine currency In an examination to determine gross es-
a)
deposit. "A" is correct in the context of the
tate of a decedent.
question that the general rule on confiden-
tiality of bank deposits under RA 1405 also b) In an investigation for violation of Anti-
applies to foreign currency deposits. Graft and Corrupt Practices.
78. X is a depositor of AAA Bank. She has c) In an investigation by the Ombudsman.

three (3) deposit accounts all under her name.
d) In an impeachment proceeding.
One, in checking account, one in saving account
and another one in time deposit account. Each ac-
count has a balance of Php250,000. AAA Bank be- Answer:
came insolvent. Philippine Deposit Insurance Cor- a) In an examination to detern1ine gross es-
poration closed the Bank. X therefore is unable to tate of a decedent.
withdraw from all of the accounts. She then filed
her claims with the Philippine Deposit Insurance
Corporation. Which statement is most accurate?
a) X can claim a total of Php500,000 for all the

three (3) accounts.
b) X can only claim from one (1) account of
Php250,000.
2012 BAR EXAMIN.ATION 479
80. X works as a research computer engineer

with the Institute of Computer Technology, a gov- d) looking at the mark whether there is one
ernment agency. When not busy with his work,
specific feature that is dominant.
but during office hours, he developed a software
Answer:
program for law firms that will allow efficient
monitoring of the cases, which software program b) focusing on the similarity of the prevalent
is not at all related to his work. Assuming the pro- features of the competing rnarl<s 'Nhich
gram is patentable, who has the right over the might create confusion.
patent?
82. X's painting of Madonna and Child was
a) X:
used by her mother to print spme personalized
b) Institute of Computer Technology; gift wrapper. As part of her mother's efforts to
raise funds for Bantay Bata, the mother of X sold
c) Neither X nor the Institute of Computer the wrap.per to friends. Y, an entrepreneur, liked
Technology can claim patent right over the the painting in the wrapper and made many cop-
invention;
ies and sold the same through National Bookstore.
d) X and the employer of X will jointly have Which statement is most accurate?
the rights over the patent.
a) Y can use the painting for his use because
Answer: this is not a copyrightable mate1ial.
a) X; b) X can sue Y for infringement because artis-
tic works are protected from moment of
81. The "test of dominancy" in the Law on creation.
Trademarks, is a way to determine whether there c) Works of art need to be copyrighted also to
exists an infringement of a trademark by - get protection under the law.
a) determining if the use of the mark has been d) Y can use the drawing even though not
dominant in the market. copyrighted because it is already a public
property having been published already.
b) focusing on the similarity of the prevalent
features of the competing marks which Answer:
might create confusion.
c) b) X can sue Y for infringement because artis-
looking at the mark whether they are simi-
lar in size, form or color. tic works are protected from moment of
creation.
180
BAR Q& A IN COMMERCIAL l.Aw
83. Compulsory Licensing of Inventions

which are duly patented may be dispensed with or d) effect of the use upon the class in which
will be allowed exploitation even without agree- the creator belongs.
ment of the patent owner under certain circum-
stances, like national emergency, for reason of Answer:
public interest, like national security, etc. The per-
b) effect of the use upon the potential market
son who can grant such authority is -
of the work.
a) the Director General of the Intellectual
Property Office; 85. XYZ Corporation bought ten (10) units of
Honda Civic from CCC Corporation. ABC Bank
b) the Director of Legal Affairs of the Intellec- granted a loan to XYC Corporation which exe-
tual Property Office; cuted a financing agreement which provided for
c) the owner of the Patent right; the principal amount, the installment payments,
d) the interest rates and the due dates. On due dates
any agent of the owner of the Patent right. of the installment payments, XYZ Corporation was
Answer: asked to pay for some handling charges and other
fees which were not mentioned in the Financing
b) the Director of Legal Affairs of the In- Agreement. Can XYC Corporation refuse to pay
tellectual Property Office; the same?
84. The Fair Use Doctrine allows others to a)

"No, because handling charges and other
utilize copyrighted works under certain condi- fees are usual in certain banking transac-
tions. The factors to consider whether use is fair tions.
or not would be the purpose and character of the b) Yes, because ABC Bank is required to pro-
use, nature of the copyrighted work, amount and vide. XYZ Corporation not only the amount
substantiality of the portions used, and what else? of th(3 monthly installments but also the de-
tails of the finance charges as required by
a) effect of the use upon the creator of the the Truth in Lending Act.
work.
c) No, because the Finance Agreement is a
b) effect of the use upon the potential market valid document to establish the existence
of the work.
of the obligation.
c) effect of the use upon the public in general. d) Yes, because legally, finance charges are
never allowed in any banking transaction.
2012 BAR EXAMINATION '183
Answer:
87. The Anti-Money Laundering Law is a law
b) Yes, because ABC Bank is required to pro- that seeks to prevent money laundering activities
vide XYZ Corporation not only the amount by providing for more transparency in the Philip-
of the monthly installments but also the de- pine Financial System, hence the following insti-
tails of the finance charges as required by tutions are covered by the law, except:
the Truth in Lending Act.
a) bank and any financial institutions;
86. Which of the following is an exception to b) pawnshops;
the secrecy of bank deposits which are in Philip-
pine Pesos, but NOT an exception to the secrecy of c) casino operators;
foreign currency deposits? d) All of the above.
a) Upon Bangko Sentral ng Pilipinas (ESP) in- Answer:

quiry into or examination of deposits or in-
vestments with any bank, when the inquiry a) casino operators;
or examination is made in the course of the NB Casino operators were made covered
BSP's periodic special examination of said institution in July 2017 under RA 10927
bank to ensure compliance with the Anti-
Money Laundering Act (AMLA); 88. For purposes of determining violation of
b) Upon Philippine Deposit Insurance Corpo- the provisions of Anti-Money Laundering Law, a
ration (PDIG) and SSP inquiry into and ex- transaction is considered as a "Suspicious Trans-
amination of deposit accounts in case there action" with "Covered Institutions" regardless of
is a finding of unsafe or unsound banking the amount involved, where which the following
practice; circumstances exists?
c) Upon inquiry in cases of impeachment; a) the amount involved is not commensurate
d) Upon inquiry by the Commissioner of Inter- with the client's business or financial ca-
nal Revenue in the event a taxpayer files an pacity;
application to compromise his tax liabilities b) there is no underlying legal or trade obliga-
on the ground of financial incapacity. tion, purpose or economic justification;
Answer: c) client is not properly identified;
c) Upon inquiry in cases of impeachment;
184 BAR Q & A IN COMMERC!A~ LAW
2012 BAR EX.O.MINAT!ON 185
Answer:

ESSAY-TYPE QUESTIONS
89. The main feature of the Foreign Invest-
ment Act of 1991 is to introduce the concept of I
"Negative Lists". Under the said law, what i~ a
"Negative List"? ABC Company filed a Petition for Rehabilita-
tion with the Court. An Order was issued by the
a) It is a list of business activities or enter- Court, (1) staying enforcement of all claims,
prises in the Philippines that foreigners are whether money or otherwise against ABC Com-
disqualified to engage in. pany, its guarantors and sureties not solidarily li-
b) It is a list of business activities or enter- able with the company; and (2) prohibiting ABC
prises in the Philippines that foreigners are Company from making payments of its liabilities,
qualified to engage in. outstanding as of the date of the filing of the Peti-
tion. XYC Company is a holder of an irrevocable
c) It is a list of business activities or enter- Standby Letter of Credit which was previously
prises that are open to foreign investments
procured by ABC Company in favor of XYC Com-
provided it is with the approval of the
pany to secure performance of certain obligations.
Board of Investment.
In the light of the Order issued by the Court.
d) It is a list of business activities or enter-
a) Can XYC Company still be able to draw
prises that are open to foreign investments
on their irrevocable Standby Letter of
provided it is with the approval of the Secu-
Credit when due? Explain your answer,
rities and Exchange Commission.
(5%);
Answer:
Answer:
a) It is a list of business activities or enter-
Yes, this is on all fours with the case of Metro-
prises in the Philippines that foreigners are
politan Waterc,vorks and Sewerage System v. Hon.
disqualified to engage in.
Reynaldo B. Daway, et al., GR No. 160732, June 21,
2004 where the Supreme Court held that the stay
order in corporate rehabilitation only covers the
principal debtor, it guarantors and sureties not li-
able solidarily with the principal debtor.
2012 Bil.R EXAMINA TiON 187
Here, the liability of the bank is direct, primary

and solidary. Hence XYC Company can draw on se~ted for the payment, but ordinarily they are
their irrevocable Standby Letter of Credit. documents of title evidencing or attesting to the
shipment of the goods to the buyer. Once the credit
NB The MWSS ruling became part of the Fi- is established, the seller ships the goods to the
nancial Rehabilitation and Insolvency Act buyer and in the process secures the required ship-
("FRIA"). Under Section 18(c) of FRIA, a Stay or ping documents or documents of title. To get paid,
Suspension Order (which is included in a Com- the seller executes a draft and presents it together
mencement Order) shall not apply "to the ~n- with the required documents to the issuing bank
forcement of claims against sureties and other The issuing bank redeems the draft and pays cash
persons solidarily liable with the debtor, and third to the seller if it finds that the documents submitted
party or accommodation mortgagors as well as is- by the seller conform with what the letter of credit
suers of letters of credit. requires. The bank then obtains possession of the
documents upon paying the seller. The transaction
FRIA, however, was excluded from the cover-
age of the 2012 Bar Examinations is completed when the buyer reimburses the issuing
bank and acquires the documents entitling him to
b) Explain the nature of Letters of Credit as the goods, while the buyer acquired the said docu-
a financial devise. (5%). ments and control over the goods only after reim-
bursing the bank.
Answer: However, letters of credit are also used in non-
sale settings where they serve to reduce the risk of
A letter of credit is a financial device developed nonperformance. Generally, letters of credit in non-
by merchants as a convenient and relatively safe sale settings have come to be known as standby let-
mode of dealing with sale of goods to satisfy the ters of credit. (Bank of America vs. Court of Appeals,
seemingly irreconcilable interest of the seller, who 228 SCRA 357; Transfield Philippines vs. Luzon Hy-
refuses to part with his goods before he is paid, and dro Corporation, 443 SCRA 307)
a buyer, who wants to have control of the goods be-
fore paying. To break the impasse, the buyer may be
II
required to contract a bank to issue a letter of credit
in favor of the seller so that, by virtue of the letter of
CCC Car, Inc. obtained a loan from BBB Bank,
credit, the issuing bank can authorize the seller to
which fund was used to import ten (10) units of
draw drafts and engage to pay them upon their pre-
Mercedes Benz S class vehicles. Upon arrival of
sentment simultaneously with the tender of docu-
the vehicles and before release of said vehicles to
ments required by the letter of credit. The buyer and
CCC Car, Inc., X and Y, the President and Treas•
the seller agree on what documents are to be pre-
urer, respec:tively, of CCC Car, Inc. signed the
Q&A 2012 BAR EXAMINATION 189
188 BAR IN COMMERCIAL LAW
Trust Receipt to cover the value of the ten (10) persons therein responsible for the offense, without
units of Mercedes Benz S class vehicles after prejudice to the civil liabilities arising from the
which, the vehicles were all delivered to the Car criminal offense. In this case, only the president and
display room of CCC Car, Inc. Sale of the vehicles the treasurer were responsible for the offense.
were slow, and it took a month to dispose of the
ten (10) units. CCC Car, Inc. wanted to be in busi- III
ness and to save· on various documentations re-
quired by the bank, decided that instead of turn- X borrowed money from Yin the amount of
ing over the proceeds of the sales, CCC Car, Inc. Php1Million and as payment, issued a check. Y
used the proceeds to buy another ten (10) units of then indorsed the check to his sister Z for no con-
BMW 3 series. sideration. When Z deposited the check to her ac•
count, the check was dishonored for insufficiency
a) Is the action of CCC Car, Inc. legally justi-
of funds.
fied? Explain your answer. (5%);
a) Is Z a holder in due course? Explain your
Answer:
answer. (5%)
No. As entrustee, it is the obligation of CCC to
hold, receive in trust and turn over to BBB Bank the Answer:
proceeds of the sale of the Mercedes Benz S class Z is not a holder in due course. She did not give
vehicles to the extent of the amount owing to the any valuable consideration for the check. She lacks
latter or as appears in the trust receipt. one of the essential conditions to be considered a
holder in due course, that is, she must have ac-
a) Will the corporate officers of CCC Car, quired the instrument in good faith and for value.
Inc. be held liable under the circum-
stances? Explain your answer. (5%) Who is liable on the check? The drawer
a)
or the indorser? Explain your answer.
Answer:
(5%)
Yes, both only the president and the treasurer
of CCC who both signed the trust receipts agree- Answer:
ment. Section 13 of the Trust Receipts Law provides X, the drawer, will be liable. As drawer, X en-
that if the violation or offense is committed by a cor- gaged that on due presentment the check would be
poration, partnership, association, or other juridical paid according to its tenor and that if it is dishon-
entity, criminal liability shall be imposed upon the ored and the necessary proceedings on dishonor be
directors, officers, employees or other officials or
19.0 BAR Q &A IN COMMERCIAL LAW
duly taken, he will pay the amount to the holder or Answer:

to any subsequent indorser, wh9 may be compelled
to pay (Section 61 of NIL). X need not be given a no- a) Not negotiable. There is no unconditional
tice of dishonor if he is aware that he has insuffi- promise to pay a sum certain in money as
cient funds in his account, for in this case, he has no the promise is to pay is taken out of par-
right to expect that the drawee will pay the instru- ticular funds, i.e., the inheritance from the
ment (Section 114(d) of NIL) father of the promisor, which may or may
Z, not being a holder in due course, cannot hold not exist.
Y, the endorser, liable as the latter can raise the de- b) Not negotiable. There is no unconditional
fense that there was no valuable consideration for promise to pay a sum certain in money. The
the endorsement of the check. promise to pay "the interest rate of 90-day
treasury bills" is vague because, first, there
IV are no 90-day treasury bills; second, the
interest is not determined or determinable.
Indicate and explain whether the promissory
c) Not negotiable. The promise to pay is sub-
note is negotiable or non-negotiable.
ject to a condition, i.e., that A will pass the
2012 bar exams.
a) I promise to pay A or bearer Phpl00,000.00
from my inheritance which I will get after d) Negotiable. It· conforms fully with the re-
the death of my father. (2%); quirements of negotiability under Section 1
of Negotiable Instruments Law.
b) I promise to pay A or bearer Phpl00,000
plus the interest rate of ninety (90) - day e) Negotiable. The instrument is payable on
treasury bills. (2%); demand because the note does not express
a time for its payment.
c) I promise to pay A or bearer the sum of
Phpl00,000 if A passes the 2012 bar exams. NB. The answers that the instrument is nego-
(2%);
tiable are obviously premised on the assumption
d) I promise to pay A or bearer the sum of that the instrument is signed.
Phpl00.000 on or before December 30, 2012.
(2%):
V
e) I promise to pay A or bearer the sum of
Phpl00,000. (2%) ~ borrowed from CCC Bank. She mortgag~d
her house and lot in favor of the bank. X insured
her house. The bank also got the house insured.
i92 BAR Q & A IN COMMERCIAL LAW
2012 8.AR EX."'.MINATiON 193
a) Is this double insurance? Explain your

answer. (3%); the extent of the damage, but not to ex-
ceed the face value of the insurance pol-
b) Is this legally valid? Explain your an- icy; however, if she obtained a valued pol-
swer. (3%); icy then she could claim an amount based
on the agreed upon valuation of the house.
c) In case of damage, can X and CCC Bank As for CCC Bank. it could claim an
separately claim for the insurance pro- amount corresponding to the extent of the
ceeds? (4%). damage but not to exceed the amount of
the loan it extended to X or so much
Answer:
thereof as may remain unpaid.
a) No, there is no double insurance. Double
insurance exists where the same person is VI
insured by two or more insurers sepa-
X is a Filipino immigrant residing in Sacra-
rately with resp~ct to the same, risk, sub-
ject and interest. Not only are the insured mento, California. Y is a Filipino residing in Que-
two, the insurable interest of the mortga- zon City, Philippines. Z is a resident alien residing
gor is his property ownership, for the in Makati City. GGG Corporation is a domestic
mortgagee, it is the non-payment of the corporation - 40% owned by foreigners and 60%
mortgage debt. owned by Filipinos, with T as authorized repre-
sentative. CCC Corporation is a foreign corpora-
b) Yes, X and CCC Bank C9-n both insure the tion registered with the Philippine Securities and
house as they have different insurable in- Exchange Commission. KKK Corporation is a do-
terests therein. X, the borrower-mort- mestic corporation (100%) Filipino owned. S is a
gagor, has an insurable interest in the Filipino, 16 years of age, and the daughter of Y.
house being the owner thereof while CCC a) Who can be incorporators? Who can be
Bank, the lender, also has an insurable in- subscribers? (2%);
terest in the house as mortgagee th~reof
to the extent of the mortgage debt. b) What are the differences between an in-
corporator and a subscriber, if there are
c) Yes, since they have separate insurable any? (2%);
interest both covered by insurance policy c) Who are qualified to become members of
If X obtained an open policy then she the board of directors of the corporation?
could claim an amount corresponding to
(2%);
d) Who are qualified to act as Treasurer of Corporation Code, hence, excluded in the
the company? (2%); distinction.
e) Who can be appointed Corporate Secre- c) X, Y, Z 8:nd T could be directors (subject to
tary? (2%). any nationality requirement under relevant
laws governing the business of the corpo-
Answer:
ration) but not GGG Corporation. CCC Cor-
poration, and KKK Corporation as they are
a) X, Y, Zand T could all be incorporators and not natural persons. However, the afore-
subscribers. Note, however, that Section 10
mentioned corporations could have their
of the Corporation Code requires that there respective representatives nominated and
must be at least 5 but not more than 15 in- possibly elected as directors by the stock-
corporators (who must all be natural per-
holders provided they are shareholders.
sons) and that a majority of the incorpora-
tors must be residents of the Philippines. S, d) The Corporation Code does not impose any
being a minor, could neither be an incorpo- nationality in respect of the Treasurer ex-
rator nor a subscriber. GGG Corporation, cept if the corporation is engaged m na-
CCC Corporation, and KKK Corporation tionalized economic activities Thus, any
could not be incorporators as they are not one may be a treasurer provided he meets
natural persons. However, they could be the qualifications under the by laws of the
subscribers. corporation. However. the Treasurer could
not be President at the same time.
NB Under the Revised Corporation Code,
both natural and juridical persons may be NB: Under the Revised Corporation Code,
incorporators. the treasurer is required to be a Philippine
resident.
b) Some of the differences are as follows: first,
all the incorporators are required to sign e) The Secretary is required to be both a resi-
and acknowledge the Articles of Incorpora- dent and a citizen of the Philippines.
tion while the subscribers, as such, are not
subject to the same requirement; second, VII
the number of incorporators for stock corpo-
ration cannot exceed 15 while the number A, B, C, D, E are all duly elected members of
of subscribers could be more than 15; the Board of Directors· of XYZ Corporation. F, the
NB The residency requirement for incorpo- general manager, entered into a supply contract
rators no longer exists under the Revised with an American firm. The contract was duly ap-
proved by the Board of Directors. However, with
196 SAR Q & A iN COMMERCIAL LAW
2012 SAR EXAMINATiON 197
the knowledge and consent of F, no deliveries

were made to the American firm. As a result of c) Yes, F could be sued m his personal ca-
the non-delivery of the promised supplies, the pacity because he was guilty of bad faith
in knowingly consenting to the non-
American firm incurred damages. The American
delivery of the promised supplies contrary
firm would like to file a suit for damages. Can the
American firm sue: to the contract that was duly approved by
(
the Board of Directors.
a) The members of the Board of Directors
individually, because they approved the d) A corporation would be liable for the acts
transaction? (2%); of its officers if the said acts were per-
formed by them in accordance with the
b) The corporation? (2%);
powers granted to them under the Corpo-
c) F, the general manager, personally, be- ration Code, the articles of incorporation
cause the non-delivery was with his and by-laws of the corporation, or if they
knowledge and consent? {2%); have been authorized by the Board of Di-
rectors or even though not authorized un-
d) Explain the rules on liabilities of a corpo-
der theby-laws and/or by the Board of Di-
ration for the act of its corporate officers rectors, if their acts are ratified by the cor-
and the liabilities of the corporate officers poration.
and Board of Directors of a corporation
acting in behalf of the corporation. (4%). Directors and officers have no personal li-
ability for actions· taken on behalf of the corpo-
Answer: ration they represent. Personal liability, how-
ever, will attach tn the foliowmg cases: a) vot-
a) No, because they approved the transac- ing for or assenting to a patently unlawful act
tion not in their personal capacities but on of the corporation; b) when they acted with
behalf of XYZ Corporation. The facts do gross negligence orin bad faith in directing
not contain any instance where, by law the affairs of the corporation; c) when they ac-
and jurisprudence, they can be held liable quire any personal or pecuniary interest in
with the corporation. conflict with their duty as directors, which
acts result in damages to the corporation, its
b) Yes, because the transaction was duly stockholders or other persons: d) when they
approved by the Board of Directors. It is consented to the issuance of watered stocks or
the Board that exercises corporate powers who, having knowledge thereof, did not forth-
and conducts business for the corporation. with file their written objection with the corpo-
rate secretary; e) when they contractually
agreed to hold themselves personally and soli-
2012 BAR EXNvliNA,;Ori 199
darily liable with the corporation; and, f) or

modes of dissolution under the Corpora-
when they are made, by a specific provision of
tion Code. Moreover, having assets is not
law, to personally liable for the corporate ac-
a condition for the continuation of juridical
tion. (Heirs of Fe Tan Uy vs. International Ex-
existence.
change Bank, G.R. Nos. 166282, February 13,
2013)
b) A corporation may be dissolved voluntar-
ily under Section 118 (where no creditors
VIII are affected) or under Section 119 (where
creditors are affected) or by shortening of
AAA Corporation is a bank. The operations of the corporate term under Section 120, or
AAA Corporation as a bank were not doing well. involuntarily by the SEC under Section
So, to avert any bank run, AAA Corporation, with 122. all of the Corporation Code. Voluntary
the approval of the Monetary Board, sold all its as- dissolution under Sections 118, 119. and
sets and liabilities to BBB Banking Corporation 120 require the approval by at least major-
which includes all deposit accounts. In effect then, ity of the Board of Directors of AAA Corpo-
BBB Corporation will service all deposits of all de- ration and its stockholders representing at
positors of AAA Corporation. least 2/3 of the total outstanding capital
stock.
a) Will the sale of all assets and liabilities of
AAA Corporation to BBB Banking Corpo- In voluntary dissolution by banks, like
in this case, the favorable endorsement of
ration automatically dissolve or termi-
nate the corporate existence of AAA
the Bangko Sentral ng Pilipinas must be
Corporation? Explain your answer. (5%);
obtained, and the dissolution becomes ef-
fective upon approval by the Securities
b) What are the legal requirements in order and Exchange Comrmssion.
that a corporation may be dissolved?
(5%).
Answer:
a) No, the sale of all the assets and liabilities

of AAA Corporation to BB!3 Banking Cor-
poration will not result in the automatic
dissolution or termination of the existence
of the former. Such sale is not one of the
200 BAR Q & A IN COMMERCiAL LAW
2013 BAR EXAIVINATiON 20,
tain it is payable out of a particular fund (from BPI

2013 BAR EXAMINATIONS account).
It is payable at a fixed or determinable future
ESSAY QUESTIONS time 60 days after August 10, 2013 and because the
sun is sure to set in the west and rise in the east.
I. It is not,_however, payable to order or bearer.
Antonio issued the following instrument: II.
August 10, 2013 Benny applied for life insurance for Phpl.5
Makati City Million. The insurance company approved his ap-
Pl00,000.00 plication and issued an insurance policy effective
Nov. 6, 2008. Benny named his children as his
Sixty days after date, I promise to pay Bobby beneficiaries. On April 6, 2010, Benny died of
or his designated representative the sum of ONE hepatoma, a liver ailment.
HUNDRED THOUSAND PESOS(P 100,000.00) from The insurance company denied the children's
my BPI Acct. No. 1234 if, by this due date, the sun claim for the proceeds of the insurance policy on
still sets in the west to usher in the evening and the ground that Benny failed to disclose in his ap-
rises in the east the following morning to welcome plication two previous consultations with his doc-
the day. tors for diabetes and hypertension, and that he
had b~en diagnosed to be suffering from hepa-
(Sgd.) Antonio Reyes toma. The insurance company also rescinded the
policy and refunded the premiums paid.
Explain each requirement of negotiability pre-
sent or absent in the instrument. (8%) Was the insurance company correct? (8%)
Answer: Answer:
The requirement that the instrument is in writ- The insurance company correctly rescinded the
ing, signed by the maker is present. policy because of concealment. Benny did not dis-
close that he was suffering from diabetes, hyperten-
It does not, however, contain an unconditional sion, and hepatoma. The concealment is material
promise or order to pay sum certain in money be- because these are serious ailments. These have rea-
cause even though the amount payable is sum cer- sonable and probable influence on the decision of
203
the insurance company to provide coverage and for As counsel for BDP, would you advise the
what amount of premium. bank to comply with the order? (8%)
Also, Benny died less than 2 years from the date
Answer:
of the issuance of the policy. Therefore, the incon-
testability clause has not set in. I shall advise BDP not to comply with the order
of the AMLC. Without a bank inquiry order from a
III. competent court, AMLC cannot inquire bank depos-
its, regardless of currency, unless there is probable
From his first term in 2007, Congressman Ab- cause that· the predicate crime involved is any of hi-
ner has been endorsing his pork barrel allocations jacking, kidnapping for ransom, violations of the
to Twin Rivers in exchange for a commission of Dangerous Drugs act, hijacking or other violations of
40% of the face value of the allocation. Twin Riv- R.A. No. 6235, destructive arson, murder or terror-
ers is a non-governmental organization whose ism.
supporting papers, after audit, were found by the Further, the AMLC cannot order BDP to hold all
Commission on Audit to be fictitious. Other than withdrawals and other transactions involving the
to prepare and submit falsified papers to support accounts of Congressman Abner. The power to is-
the encashment of the pork barrel checks, Twin sue free.ze order is lodged with the Court of Appeals
Rivers does not appear to have done anything on which may issue it upon after AMLC establishes
the endorsed projects and Congressman Abner and the Court of Appeals independently determines
likewise does not appear to have bothered to that the account relates to unlawful activities under
monitor the progress of the projects he endorsed. theAMLA
The congressman converted most of the commis-
sions he generated into US dollars, and deposited IV.
these in a foreign currency account with Banco de
Plata (BDP). Rudy is a fine arts student in a university. He
Based on amply-supported tips given by a stays in a boarding house with Bernie as his
congressman from another political party, the roommate. During his free time, Rudy would paint
Anti-Money Laundering Council (AMLC) sent BDP and leave his finished works lying around the
an order: (1) to confirm Cong. Abner's deposits boarding house. One day, Rudy saw one of his
with the bank and to provide details of the.se de- works -an abstract painting entitled Manila Traffic
posits; and (2) to hold all withdrawals and other Jam - on display at the university cafeteria. The
transactions involving the congressman's bank cafeteria operator said he purchased the painting
accounts.
from Bernie who represented himself as its While working with Atty. Buenexito on an-
painter and owner.
other file, he accidentally gave you the Coco
Rudy and the cafeteria operator immediately Products file containing the company's planned
confronted Bernie. While admitting that he did not corporate financial rehabilitation. While you knew
do the painting, Bernie claimed ownership of its you had the wrong file, your curiosity prevailed
copyright since he had already registered it in his and you browsed through the file before returning
name with the National Library as provided in the it. Thus, you learned that a petition for financial
Intellectual Property Code. rehabilitation is imminent, as the company could
no longer meet its obligations as they fell due.
Who owns the copyright to the painting? Ex-
plain. (8%) Soon after, your mother is rushed to the hos-
pital for an emergency operation, and you have to
Answer: raise money for her hospital bills. An immediate
option for you is to sell your Coco Products shares.
Rudy owns the copyright to the painting be- The sale would be very timely because the prices
cause he was the one who created it. His rights ex- of the company's stocks are still high.
isted and are protected from the moment of its crea-
tion. Bernie did not have a copyright to the painting. Would you sell the shares to raise the needed
His registration of the paintirrg with the National Li- funds for your mother's hospitalization? Take into
brary did not confer copyright upon him. The regis- account legal (5%) and ethical (3%) considerations.
tration is merely for the administrative purpose of (8% total points)
the National Library.
Answer:
V. The sale of the shares does not constitute in-
sider trading. Although Atty. Buenixto. as corporate
You are a member of the legal staff of a law secretary of Coco products. Inc. was an insider be-
firm doing corporate an~ securities work for Coco cause his position gave him access to material non-
Products Inc., a company with unique products public information of the company. I did not learn
derived from coconuts and whose shares are the information regarding the planned corporate re-
traded in the Philippine Stock Exchange. A part- habilitation by a communication from him. He just
ner in the law firm, Atty. Buenexito, to whom you accidentally gave the wrong file.
report, is the Corporate Secretary of Coco Prod-
It would be unethical to sell the shares. Rule
ucts. You have long been investing in Coco Prod-
ucts stocks even before you became a lawyer. 1.01 of the Code of Professional Responsibility pro-
2013 8P..R EXAMINATION 207
vides, "A lawyer shall not engage in unlawful, dis-

honest, immoral or deceitful conduct." Would you, as bank counsel and as an officer
of the court, advise the bank to proceed with its
A lawyer should not only refrain from perform- contemplated action? (8%)
ing unlawful acts. He should also desist fri;,m engag-
ing in unfair deceitful conduct. I could not disclose Answer:
the material information to the buyer because it
would mean a breach of my lawyer's duty of confi- I will not advise BDP Bank to file a criminal case
dentiality. I will then be at an advantage because I for estafa against Delano. Delano received the iron
could technically conceal from the buyer of the pellets he imported one year before the trnst receipt
shares the planned corporate rehabilitation. was executed. As held by the Supreme Court in
Colinares vs. Court of Appeals, 339 SCRA 609, where
VI. the execution of a trust receipt agreement was
made after the entrustee has already acquired own-
Delano Cruz is in default in the payment of ership of the goods covered by it, the transaction
his existing loan from BDP Bank. To extend and does not involve a trust receipt but a simple loan
restructure this loan, Delano agreed to execute a even though the parties denominated the transac-
trust receipt in the bank's favor covering the iron tion as one of trust receipt.
pellets Delano imported from China one year ear-
lier. Delano subsequently succeeded in selling the VII.
iron pellets to a smelting plant, but_ the proceeds
went to the payment of the separ~tion benefits of Stable Insurance Co. (SIC) and St. Peter Manu-
his employees who were laid off as he reduced his facturing Co. (SPMC) have had a long-standing in-
operations. surance relationship with each other; SPMC se-
cures the comprehensive fire insurance on its
When the extended loan period expired with- plant and facilities from SIC. The standing busi-
out any significant payment from Delano (not
ness practice between them has been to allow
even to the extent of the proceeds of the sale of
SPMC a credit period of 90 days from the renewal
the iron pellets), BDP Bank consulted you on how
of the policy within which to pay the premium.
to proceed against Delano. The bank is contem-
plating the filing of estafa pursuant to the provi- Soon after the new policy was issued and be-
sions of Pres. Decree No. 115 (Trust Receipts Law) fore premium payments could be made, a fire gut-
to force Delano to tum in at least the proceeds of ted the covered plant and facilities to the ground.
the sale of the iron pellets. The day after the fire, SPMC issued a manager's
check to SIC for the fire insurance premium, for
208 BAR Q&A IN COMMERCIAL l.Avv
2013 BAR EXAMINAT•ON 209
which it was issued a receipt; a week later SPMC

issued its notice of loss. rectors served in a holdover capacity and thus
continued discharging their powers.
SIC responded by issuing its own manager's
In June 2012, two (2) of Greenville Corpora-
check for the amount of the premiums SPMC had
tion's directors - Director A and Director B - re-
paid, and denied SPMC's claim on the ground that
signed from the board. Relying on Section 29 of
under the "cash and carry" principle governing
the Corporation Code, the remaining six (6) direc-
fire insurance, no coverage existed at the time the
tors elected two (2) new directors to fill in the va-
fire occurred because the insurance premium had
not been paid. cancy caused by the resignation of Directors A
andB.
Is SPMC entitled to recover for the loss from
SIC? (8%) Stockholder X questioned the election of the
new directors, initially, through a letter-complaint
Answer: addressed to the board, and later (when his letter-
complaint went unheeded}, through a derivative
SPMC is entitled to recover for the loss from suit filed with the court. He claimed that the va-
SIC. SIC granted a credit term for the payment of the cancy in the board should be filled up by the vote
premiums and loss occurred during the credit pe- of the stockholders of Greenville Corporation.
riod. Recovery on the policy should be allowed even Greenville Corporation's directors defended the
though the premium was paid after the loss. Also, legality of their action, claiming as well that
the long- standing business practice of allowing Stockholder X's derivative suit was improper.
SPMC to pay the premiums after 60 or 90 days, was Rule on the issues raised. (8%)
relied upon in good faith by SPMC. SIC is already in
estoppel (UCPB General Insurance Co. Inc. vs. Ma- Answer:
sagana Telamart, Inc., G.R. No. 137172, April 4,
2001.) The remaining directors cannot elect new direc-
tors to fill in the two vacancies. The board of direc-
-VIII. tors may fill up vacancy only if the ground is not due
to expiration of term, removal or increase in the
In the November 2010 stockholders meeting number of board seats. In this case, the term of the
of Greenville Corporation, eight (8) directors were two directors expired after 1 year. While they re-
elected to the board. The directors assumed their mained in office in a hold-over capacity, the hold-
po:sts in January 2011. Since no stockholders' over period is not part of their term. The resignation
meeting was held in November 2011, the eight di- of a hold-over director is one of expiration of term.
Therefore, the vacancies should be filled up by elec-
210 BAR Q &A iN COMMERCIAL LAW
2013 BAR EXAM!f,JATiON 2~1
tion of the stockholders in a meeting called for the

purpose (Valle Verde Country Club vs. Africa, G.R. scarcity of pilots - Philippine pilots have been re-
No. 151969, September 4, 2009). cruited by foreign airlines under vastly improved
flying terms and wages so that newer and less
The derivative suit was improper. In a deriva- trained pilots are being locally deployed. The main
tive suit, the corporation, not the individual stock- pilot, on the other hand, had a very high level of
holder, must be the aggrieved party and that the blood alcohol at the time of the crash.
stockholder is suing on behalf of the corporation to
enforce a corporate right or cause of action. What You are part of the team that the victims
stockholder X is asserting is his individual right as a hired to handle the case for them as a group. In
stockholder to elect the two directors. The case par- your case conference, the following questions
takes more of an election contest under the rules on came up:
intra-corporate controversy.
(A) Explain the causes of action legally possi-
ble under the given facts against the air-
IX. line and the pilots; whom will you specifi-
cally implead in these causes of action?
Fil-Asia Air Flight 916 was on a scheduled
(5%)
passenger flight from Manila when it crashed as it
landed at the Cagayan de Oro airport; the pilot (B) How will you handle the cases of the pas-
miscalculated the plane's approach and undershot senger run over by the ambulance and
the runway. Of the 150 people on board, ten (10) the airline employee allowed to hitch a
passengers died at the crash scene. free ride to Cagayan de Oro? (3%)
Of the ten who died, one was a passenger who Answer:
managed to leave the plane but was run over by
an ambulance coming to the rescue. Another was (A) A complaint for breach of contract of car-
an airline employee who hitched a free ride to Ca- riage can be filed against Fil-Asia air for
gayan de Oro and who was not in the passenger failure to exercise extraordinary diligence
manifest. in transporting the passengers safely from
It appears from the Civil Aeronautics Author- their point of embarkation to their destina-
ity investigation that the co-pilot who had control tion.
of the plane's landing had less than the reqt;tired A complaint based on a quasi-delict
flying and landing time experience, and should can be filed against Fil-Asia Air and the
not have been in control of the plane at the time. pilots because of their fault and '·negli-
He was allowed to fly as a co-pilot because of the gence. The carrier and the pilots are
2013 BAR EX.AMINAT!ON 213
jointly and severally liable unless Fil-Asia

X.
Air can prove that it exercised due dili-
gence in the selection and supervision of Bell Philippines, Inc. (BelPhil) is a public util-
the pilots.
ity company, duly incorporated and registered
A third cause of action may be a with the Securities and Exchange Commission. Its
criminal prosecution for reckless impru- authorized capital stock consists of voting com-
dence resulting in homicide against two mon shares and non-voting preferred shares, with
pilots. The airline ·wm be subsidiarily li- equal par values of P100.00/share. Currently, the
able for the civil liability only after the pi- issued and outstanding capital stock of BelPhil
lots are convicted and found to be insol- consists only of common shares shared between
vent. Bayani Cruz, a Filipino with 60% of the issued
common shares, and Bernard Fleet, a Canadian,
(B) It is the driver of the ambulance and his with 40%.
employer who should be held liable for
damages, because a passenger was run To secure additional working fund, BelPhil is-
over. This is in accordance with Articles sued preferred shares to Bernard Fleet equivalent
2176 and 2180 of the Civil Code. There to the currently outstanding common shares. A
could also be a criminal prosecution for suit was filed questioning the corporate action on
reckless imprudence resulting in homicide the. ground that the foreign equity holdings in the
against the ambulance driver and the con- company would now exceed the 40% foreign eq-
sequent civil liability. uity limit allowed under the Constitution for pub-
lic utilities.
The airline employee may also sue Fil-
Rule on the legality of Bernard Fleet's current
Asia Air for breach of contract of carriage
holdings. (8%)
even though he was carried gratuitously,
there is no stipulation limiting the liability
Answer:
of Fil-Asias. As such, the air carrier is still
required to exercise extraordinary dili- The Foreign equity holdings of Bernard Fleet
gence for his safety and only ordinary exceeded the allowable 40% foreign equity limit for
care. Such obligation does not end after he public utility. Even though the preferred shares is-
has disembarked but from the lapse of sued to Bernard Fleet are non-voting, the Supreme
reasonable time to leave the premises. Court ruled in Heirs of Wilson Gamboa vs. Teves (682
SCRA 397) that if a corporation engaged in partially
nationalized industry, like a public utility corpora-
tion, issues a mixture of common and preferred
214 BAR Q&A IN COMMERCIAL LAW 2013 BAR EXAMINATION 215
shares, the 60-40 ownership requirement in favor of MULTIPLE CHOICE QUESTIONS

Filipinos must apply separately to each class of
shares, whether corn:m:on, preferred, non-voting, I. Claude, the registered stockholder of 1 000
preferred voting or any other class of shares. Thus, shares in ABC Corp., pledged the shares to
in the present case, 60% of the preferred shares Conrad by endorsement in blank of the cov-
should have been issued to the Filipinos. This is be- ering stock certificates and, execution of a
cause under the Constitution, the State is required Deed of Assignment of Shares of Stock, in-
to adopt a self-reliant economy effectively controlled tended as c.ollateral for a loan of P 1.0 Million
by Filipinos. Such control is not possible unless Fili- that was also supported by a separate prom-
pinos have at least 60% of the corporation's voting issory note.
shares and outstanding capital stock. Under these facts, is there a valid pledge
NB. In the case of Roy III vs. Herbosa (G.R. No. of the shares of stock to Conrad? (1 %)
207246, November 22, 2016), the Supreme Court up-
held the validity of SEC-MC No. 8 entitled "Guide- (A) No, because shares of stock are intangible
lines on Compliance with the Filipino-Foreign Own- personal properties whose possession
ership Requirements Prescribed in the Constitution cannot be delivered and, hence, cannot be
and/or Existing Laws by Corporations Engaged in the subject of a pledge;
Nationalized and Partly Nationalized Activities." (B) No, because the pledge of shares of stock
Section 2 of SEC-MC No, 8 provides that the re- requires double registration with the Reg-
quired percentage of Filipino ownership shall be ister of Deeds of the principal place of
applied to BOTH (a) the total number of outstanding business of the corporation and of the
shares of stock entitled to vote in the election of di- residence of the pledgor:
rectors; AND (b) the total number of outstanding
shares of stock, whether or not entitled to vote in (C) Yes, because endorsement and delivery of
the election of directors. the certificates of stock 1s equivalent to
the transfer of possession of the covered
In other words, the 60-40% ownership require- shares to the pledge;
ment in favor of Filipinos need not be applied for
each class of shares. It is enough that at least 60% of (D) Yes, because the execution of the Deed of
the voting shares and 60% of the total number of Assignment of Shares of Stock is equiva-
outstanding shares of are owned by Filipinos. lent to a lawful pledge of the shares of
stock.
Tested against the Roy case, the foreign equity
limit of Bernard Holdings still exceeded the foreign
ownership limit.
Answer: II. (2) The delegation asked: aside from Filipino

citizens, what entities would fall under
(D) Yes, because the execution of the Deed of the definition of "Philippine National"
Assignment of Shares of Stock is equivalent under FIA '91?
to a lawful pledge of the shares of stock.
You replied that the definition of "Philippine
II. (1) A foreign delegation of businessmen and National' under FIA '91 covers - - - -
investment bankers called on your law (1%)
firm to discuss the possibilities of invest- (A) domestic partnerships wholly com-
ing in various projects in the Philippines, posed of Filipino citizens;
and wanted your thoughts on certain is-
sues regarding foreign investments in (B) domestic corporations 60% of whose
capital stock, outsta.."1ding and enti-
the Philippines. The delegation has been
tled to vote, are owned and held by
told about the Foreign Investments Act
Filipino citizens:
of 1991, as amended (FIA '91), and they
asked what exactly is the law's essential (C) foreign corporations considered as
thrust regarding foreign investments in doing business in the Philippines un-
Philippine business and industries. der the Corporation Code. 100% of
whose capital stock. outstanding and
You replied that FIA '91 essentially reflects entitled to vote, are wholly-owned by
- - - · (1 %) Filipino citizens·,
(A) the "Filipino First Policy";
(D) All of the above, because the law
(B) the "Foreign Investments Positive considers the juridical personality.
Lists" concept; whether domestic or foreign, as a
mere medium: the test of nationality
(C) the "Foreign Investments Negative
is on the individuals who control the
Lists" concept;
medium:
(D) the "Control Test" concept;
(E) None of the above, because the term
(E) All of the above. Philippine national can only cover in-
dividuals and not juridical entities.
Answer:
Answer:
(C) the "Foreign Investments Negative Lists"
concept; All of the above.
218 BAR Q & A IN COMMERCIAL LAW 2013 BAR EXAMiNATION 219
II. (3) The delegation heard that foreigners can -~K pines may it invest in and up to what ex-
invest up to 100% of the equity in "export tent? (1 %)
oriented enterprises" and you were asked (A) A lifestyle magazme pl:tblicat1on cor-
exactly what the term covers. poration, up to 40% equity;
You replied that an. "export oriented enter- (B) An advertising corporation. up to
prise" under FIA '91 is an enterprise that 100% equity;
_ _ _ _ .(1%).·
(C) A commercial bank. up to 60% equity:
(A) only engages in the export of goods
(D) A jeepney manufacturing corpora-
and services, and does not sell goods
or services to the domestic market: tion, up to 100% equity;
(E) A real estate development corpora-
(B) exports consistently at least 40% of
its goods or services, and sells at tion. up to 60% equity
least 60% of the rest to the domestic
market: Answer:
(C) exports consistently at least 60% of (D) A jeepney manufacturing corporation, up to

the goods or services produced, and 100% equity;
sells at least 40% of the rest to the
domestic market; III. Dennis subscribed to 10,000 shares of XYZ
Corporation with a par value of PlOO per
{D) exports consistently at least 60% of share. However, he paid only 25% of the sub-
its goods or services produced, and scription or P250,000.00. No call has been
can sell goods or services to the do-
made on the unpaid subscription.
mestic market;
How many shares is Dennis entitled to
(E) None of the above.
vote at the annual meeting of the stockhold-
Answer: ers of XYZ? (1 %)
(A) 10,000 shares;
(B) 2,500 shares;.
II. (4) As a last question and by way of a con- (C) 100 shares;
crete example, ·a delegation member fi-
nally inquired - which of the following (D) 0 shares;
corporations or businesses in the Philip- (E) None of the above.
220 BAR Q &A IN COMMERCIAL l.AW
Answer:
V. Arnold, representing himself as an agent of
Brian for the sale of Brian's car, approached
(A) 10,000 shares;
Dennis who appeared interested in buying
IV. ABC Corp. issued redeemable shares. Under the car. At Arnold's prodding, Dennis issued
the terms of the issuance, the shares shall be a crossed check payable to Brian for
redeemed at the end of 10 years from date of P25,000.00 on the understanding that the
issuance, at par value plus a premium of check would only be shown to Brian as evi-
10%. dence of Dennis' good faith and interest in
buying the car. Instead, Arnold used the
Choose the correct statement relating to check to pay for the medical expenses of his
these redeemable shares. (1 %} wife in Brian's clinic after Brian, a doctor,
(A) ABC Corp. would need unrestricted re- treated her.
tained earnings to be able tore deem the Is Brian a holder in due course (HI DC)?
shares; (1%)
(B) Corporations are not allowed to issue re-
deemable shares; thus, the issuance by (A) Yes, Brian is a HIDC because he was the
ABC Corp. is ultra vires; payee of 'the check and he received it for
services rendered:
(C) Holders of redeemable shares .enjoy a
preference over creditors; (B) Yes, Brian is a HIDC because he did not
need to go behind the check that was
(D) ABC Corp. may redeem the shares at the payable to him;
end of 10 years without need for unre-
stricted retained earnings provided that, (C) No, Brian is not a HIDC because Dennis
after the redemption, there are sufficient issued the check only as evidence of
assets to cover its debts; good faith and interest in buying the car;
(E) All of the above are incorrect. (D) No, Brian is not a HIDC because Brian
should have been placed on notice: the
Answer: check was crossed in his favor and Ar-
nold was not the drawer:
(D) ABC Corp. may redeem the shares at the (E) No, Brian isnot·a HIDC because the req-
end of 10 years without need for unre- uisite consideration to Dennis was not
stricted retained earnings provided that, af- present.
ter the redemption, there are sufficient as-
sets to cover its debts;
Answer: Answer:
(D) No, Brian is not a HIDC because Brian (B) Gawsengsit Corp. is not doing business in
should have been placed on notice: the the Philippines by its mere investment in a
check was crossed in his favor and Arnold Philippine corporation and does not need a
was not the drawer; license from the SEC;
VI. Gawsengsit Corp. is a corporation incorpo- VII. The BIR assessed ABC Corp. for deficiency
rated in Singapore. It invested in Bumblebee income tax for taxable year2010 in the
Corp., a Philippine corporation, by acquiring amount of P26,731,208.00, inclusive of sur-
30% of its shares. As a result, Gawsengsit charge and penalties.
Corp. nominated 300/0 of the directors of
Bumblebee Corp., all of whom are Singapor- The BIR can _ _ _ _ . (1 %)
eans and officers of Gawsengsit Corp.
(A) run after the directors and officers of ABC
Choose the correct statement relating to Corp. to collect the deficiency tax and
Gawsengsit Corp. (1 %) their liability will be solidary;
(A) Gawsengsit Corp. is doing business in

(B) run after the stockholders of ABC Corp.
and their liability will be joint:
the Philippines and requires a license
from the Securities and Exchange Com- (C) run after the stockholders of ABC Corp.
mission (SEC); and.their liability will be solidary;
(B) Gawsengsit Corp. is not doing business (D) run after the unpaid subscriptions still due
in the Philippines by its mere invest- to ABC Corp., if any;
ment in a Philippine corporation and (E) None of the above choices is correct.
does not need a license from the SEC;
(C) Gawsengsit Corp. has to appoint a resi- Answer:
dent agent in the Philippines;
(D) run after the unpaid subscriptions still due
(D) Gawsengsit Corp. cannot elect directors to ABC Corp., if any;
in Bumblebee Corp.;
(E) All the above choices are incorrect. VIII. Anton imported perfumes from Taiwan and
these were released to him by the bank un-
der a trust receipt. While the perfumes were
224 BAR Q & A IN COMMERCIA.L LAW
2013 BAR EXAMit-lATION 225
in Anton's warehouse, thieves broke in and

stole all of them. (E) All of the above:
(F) None of the above.
Who will shoulder the loss of the stolen
perfumes? ( 1 % )
Answer:
(A) The loss of the perfumes will be borne by (B) by purchase from a real estate corpora-
the bank in whose behalf the perfumes tion in the ordinary course of the bacvik's
were held in trust;
business;
(B) Anton will bear the loss;
(C) through dacion en pago in satisfaction of
(C) The exporter can hold both the bank and a debt in favor of the bank;
Anton liable for the loss;
Letter C is a correct answer if the debt is
(D) The exporter from whom Anton bought made in the ordinary course of business.
the perfumes will bear the loss;
X. Under the Anti-Money Laundering Act, a de-
(E) No one bears the loss for an unforeseen
event. positor's bank account may be frozen
_ _ _ .(1%)
Answer: (A) by the bank when the account is the
subject of a suspicious or covered trans-
(B) Anton will bear the loss; action report;
IX. A bank may acquire real property (B) by the Anti-Money Laundering Council
(1%) --- (AMLC) when the account belongs to a
person already convicted of money laun-
(A) by purchase at a public sale of proper- dering;
ties levied to satisfy tax delinquencies;
(C) by the Regional Trial Court, upon ex
(B) by purchase from a real estate corpora- parte motion by the AMLC, in a criminal
tion in the ordinary course of the bank's prosecution for money laundering pend-
business; ing before it;
(C) through <;iacion en pago in satisfaction of (D) by the Court of Appeals motu proprio in
a debt in favor of the bank; an appeal from a judgment of conviction
(D) in exchange for the purchase of shares of of a qiminal charge for money launder-
stocks of the bank; ing;
(E) In none of the above.
2013 BAR EXAM,NATION 227
Answer:
when they are not legally authorized for
(E) In none of the above. s'-'.ch purpose
XI. XII. Preferred shares cannot vote on the proposal

Unknown to the other four proponents, En-
rico (who had been given the task of attend- - - · (1%)
ing to the Articles of Incorporation of the (A) to include other corporate officers in the
proposed corporation, (Auto Mo, Ayos Ko) corporation's by-laws:
misappropriated the filing fees and never (B) to issue corporate bonds;
filed the Articles of Incorporation with the
Securities and Exchange Commission (SEC). (C) to shorten the corporate term;
Instead, he prepare.cl and presented to the (D) All of the above;
proposed incorporators a falsified SEC cer-
tificate approving the Articles. Relying on
the falsified SEC certificate, the latter began Answer:
assuming and discharging corporate powers.
Auto Mo, Ayos Ko is a _ _ _ _ _ . (1 %) B. Corporate bonds (because corporate bonds
are not the same as bonded indebtedness).
(A) de Jure corporation;
If the examiner meant bonded indebted-
(B) de facto corporation; ness, then the answer will be none of the
above
(C) corporation by estoppel;
(D) general partnership; XIII. In 2010, the Philippine National Police de-
clared Kaddafy Benjelani "Public Enemy No.
1" because of his terrorist activities in the
Answer: country that have resulted in the death of
thousands of Filipinos. A ransom of P15 mil-
(C) corporation by estoppel if the term "latter" lion was placed on Kaddafy Benjelani's head.
refers to the incorporators.
Worried about the future of their family,
(E) None of the above if the term "latter" re- Kaddafy Benjelani's estranged wife, Aurelia,
fers to Enrico because corporation by es- secured in December 2010 a life insurance
toppel assumes that there should be at policy on his life and designated herself as
least two persons claiming themselves to the beneficiary.
third persons that they are a corporation
Is the policy valid and binding? ( 1 % )
228 BAR Q & A IN COMMERCIAL Lt\W
2013 8.-«R EXAMiNAT!ON 229
(A) Yes, the policy is valid and binding be-

bilitation court issued a Stay Order to stay
cause Aurelia has an insurable interest
the enforcement of all claims against MC.
on the life of Kaddafy Benjelani;
(B) No, the policy is not valid and binding After shipping the lumber, STJ went to
because Kaddafy Benjelani has been of- BDP, presented the shipping documents, and
ficially declared a public enemy; demanded payment of the letter of credit
opened in its favor. MC, on the other hand,
(C) Yes, the policy is valid and binding be- informed the bank of the Stay Order and in-
cause it has been in force for more than struct~d it to deny payment to STI because of
two years; the Stay Order. BDP comes to you for advice.
(D} No, the policy is not valid and binding Your best advice is to _____ . (1 %)
since the spouses' estrangement re- (A) grant STI's claim. Under the "Independ-
moved Aurelia's insurable interest in ence Principle," the bank deals only
Benjelani's life: with the documents and not the under-
(E} None of the above. lying circumstances; hence, the presen-
tation of the letter of credit is sufficient:
Answer:
(B) deny STI' s claim. The Stay Order covers
all claims agai.nst the debtor and binds
(A) Yes, the policy is valid and binding be-
all its creditors. The letter of credit is a
cause Aurelia has an insurable interest on
the life of Kaddafy Benjelani; claim against the debtor that is covered
by the Stay Order;
XIV. Muebles Classico, Inc. (MC), a Manila-based (C) grant STI's claim. The letter of credit is
furniture shop, purchased hardwood lumber not a claim against the debtor under re-
from Surigao Timber, Inc. (STI), a Mindanao- habilitation, but against the bank which
based logging company. MC was to pay STI has assumed a solidary obligation;
the amount of P5.0 million for 50 tons of lum-
(D) deny STI's claim. If the bank disregards
ber. To pay STI, MC opened a letter of credit
the Stay Order, it may be subject to con-
with Banco de Plata (BDP}. BOP duly in-
tempt by the rehabilitation co-qrt. STI
formed STI of the opening of a letter of credit should file its claim with the rehabilita-
in its favor.
tion court;
In the meantime, MC- which had been (E) file an action for inter pleader to resolve
undergoing financial reverses- filed a peti- the parties' competing claims.
tion for corporate rehabilitation. The reha-
Answer: (A) No, the failure to file a claim with

the carrier is a condition precedent
(C) grant STI's claim. The letter of credit is not for recovery:
a claim against the debtor under rehabili- Yes, provided he files the complaint
(B)
tation, but against the bank which has as- witliJn 10 years from delivery;
sumed a solidary obligation;
(C) Yes, provided he files --che complaint
XV. Akiro of Tokyo, Japaa sent various goods to within 10 years from discovery of
his friend Juan in Cebu City, Philippines, the damage;
through one of the vessels of Worth well (D) Yes, provided he files the complaint
Shippers, Inc., an American corporation. En within 1 year from delivery;
route to Cebu City, the vessel had two stops,
(E) Yes, provided he files the complaint
first in Hong Kong, and second, in Manila.
within 1 year from discovery of the
XV. (1) While travelling from Tokyo to Hong Kong, damage.
the goods were damaged. What law will gov-
ern? (1%) Answer:
(A) Japanese law; (D) Yes, provided he files the complaint within
(B) Hong Kong law; · 1 year from delivery;
(C) Chinese law:

(D) Philippine law;
(E) American law.
Answer:
(D) Philippine law;
XV. (2) Assuming Philippine law to be applica-

ble and Juan fails to file a claim with the
carrier, may he still commence an action
to recover damages with the court? (1 % )
2014 BAR EXAMiN,".T'CN 233
port. Also, the insurable interest in the life of the

person insured must exist when the insurance takes
2014 BAR EXAMINATION effect but need not exist when the loss occurs. Thus,
the subsequent knowledge of Carlo, upon the death
I. of Bianca, that the latter is a transgender does not
destroy his insurable interest on the life of the in-
Carlo and Bianca met in the La Boracay fes- sured.
tivities. Immediately, they fell in love with each
other and got married soon after. They have been
II.
cohabiting blissfully as husband and wife, but
they did not have any offspring. As the years
Bong bought 300 bags of rice from Ben
passed by, Carlo decided to take out an insurance
for P300,000.00. As payment, Bong indorsed to
on Bianca's life for Pl,000,000.00 with him (Carlo)
Bena Bank of the Philippine Islands (BPI) check
as sole beneficiary, given that he did not have a
issued by Baby in the amount of P300,000.00.
steady source of income and he always depended
Upon presentment for payment, the BPI check
on Bianca both emotionally and financially. Dur-
was dishonored because Baby's account from
ing the term of the insurance, Bianca died of what
which it was drawn has been closed. To replace
appeared to be a mysterious cause so that Carlo
the dishonored check, Bong indorsed a crossed
immediately requested for an autopsy to be con-
Development Bank of the Philippines (DBP) check
ducted. It was established that Bianca died of a
issued also by Baby for P300,000.00. Again, the
natural cause. More than that, it was also estab-
check was dishonored because of insufficient
lished that Bianca was a transgender all along - a funds. Ben sued Bong and Baby on the dishonored
fact unknown to Carlo.
BPI check. Bong interposed the defense that the
Can Carlo claim the insurance benefit? (5%) BPI check was discharged by novation when Ben
accepted the crossed DBP check as replacement
Answer: for the BPI check. Bong cited Section 119 of the
Negotiable Instruments Law which provides that
Yes. Carlo can claim the insurance benefit. If a a negotiable instrument is discharged "by any
person insures the life or health of another person other act which will discharge a simple contract
·vvith himself as beneficiary, all his rights, title and for the payment of money."
interests in the policy shall automatically vest in the
person insured. Carlo, as the husband of Bianca, has Is Bong correct? (4 %}
an insurable interest in the life of the latter because
he depended upon Bianca wholly or in part for sup-
2014 BAR EXAMIN.AT!ON 235
Answer:
(A) a majority vote of the Board of Directors
No. Bong is not correct. While Section 119 of the and authorized by the vote of the stock-
Negotiable Instruments Law in relation to Article holders representing at least a majority of
1231 of the Civil Code provides that one of the
the outstanding capital stock
modes of discharging a negotiable instrument is by (B) a majority vote of the Board of Directors
any other act which will discharge a simple contract and authorized by the vote of the stock-
for the payment of money, such as novation, the ac- holders representing at least two-thirds of
ceptance by the holder of another check which re- the outstanding capital stock
placed the dishonored bank check did not result to
novation. (C) two-thirds vote of the Board of Directors
and authorized by the vote of the stock-
There are only 2 ways which indicate the pres- holders representing at least a majority of
ence of novation and thereby produce the effect of the outstanding capital stock
extinguishing an obligation by another which sub-
(D) two-thirds vote of the Board of Directors
stitutes the same. First, novation must be explicitly
and authorized by the vote of the stock-
stated and declared in unequivocal terms as nova-
holders representing at least two-thirds of
tion is never presumed. Secondly, the old and the
the outstanding capital stock
new obligation must be incompatible on every
point.
Answer:
In the instant case, there was no express
agreement that the holder's acceptance of tr:ie re- (B) A majority vote of the Board of Directors
placement check will discharge the drawer and en- and authorized by the vote of the stock-
dorser from liability. Neither is there incompatibility holders representing at least 2/3 of the out-
because both checks were given precisely to termi- standing capital stock.
nate a single obligation arising from the same
transaction. (Salazar vs. JY Brothers Marketing Cor- IV.
poration, G.R. No. 171998, October 20, 2010
DC is a unit owner of Medici Condominium
III. located in Pasig City. On September 7, 2011,
Medici Condominium Corp. (Medici) demanded
Under the Financial Rehabilitation and Insol- from DC payment for alleged unpaid association
vency Act (FRIA), the filing of a petition for volun- dues and assessments amounting to P195,000.00.
tary rehabilitation must be approved by: (1 %) DC disputed the claim, saying that he paid all
dues as shown by the fact that he was previously
236 BAR Q & A :N COMMERCIAL LAW
elected as Director and President of Medici. Maka ti Condominium Corporation vs. Cullen. G .R
Medici, on the other hand, claimed that DC's obli- No. 181416, November 11, 2013)
gation was a carry-over of his obligations to the
condominium developer, Medici Construction v.
Corporation. Consequently, DC was prevented
from exercising his right to vote and-be voted for A corporation organized under the Corpora-
during the 2011 election of Medici's Board of Di- tion Code commences to have corporate existence
rectors. This prompted DC to file a complaint for and juridical personality and is deemed incorpo-
damages before the Special Commercial Court of rated: (1%)
Pasig City. Medici filed a motion to dismiss on the
(A) from the date the application for incorpo-
ffround that the court has no jurisdiction over the
ration is filed with the Securities and Ex-
intra-corporate dispute which the Housing and
Land Use Regulatory Board (HLURB) has exdusive
change Commission (SEC)
jurisdiction over. (B) from the date the SEC issues a certificate
of incorporation under its of~icial seal
Is Medici correct? (4%)
(C) thirty (30) days after the date the applica-
Answer: tion for incorporation is filed with the SEC
No. Medici is not correct. Where a member of (D) thirty (30) days after the datethe SEC is-
the condominium corporation was denied the right sues a certificate of incorporation under its
to vote for alleged non-payment of condominium official seal
dues and assessments, the action although denomi-
nated as one for damages is an intra-corporate con- Answer:
troversy and therefore falling within the jurisdiction (B) From the date the SEC issues a certificate
of the Regional Trial Court designated as a special of incorporation under its official seal.
commercial court. Also, while RA No. 9904, or the
Magna Carta for Homeowners Associations em-
powers the HLRUB to hear and decide inter- VI.
association and/or intra-association controversies
On May 26, 2014, Jess insured with Jack In-
concerning homeowners associations, the same can
surance (Jack) his 2014 Toyota Corolla sedan un-
not be applied in the present case as in involves a
der a comprehensive motor vehicle insurance pol-
controversy between a condominium unit owner
icy for one year. On July 1, 2014, Jess' car was
and the condominium corporation (Medical Plaza
unlawfully taken. Hence, he immediately reported
2014 BAR EXAM!NATION 239
the theft to the Traffic Management Command

(TMC) of the Philippine National Police (PNP), pleted his degree with the highest honors in the
which made Jess accomplish a complaint sheet as shortest time. When he came back, he decided to
part of its procedure. In the complaint sheet, Jess set-up his own graduate school in his hometown
alleged that a certain Ric Silat (Silat) took posses- in Zamboanga. After seeking free legal advice
sion of the subject vehicle to add accessories and from his high-flying lawyer-friends, he learned
improvements thereon. However, Silat failed to that the Philippines follows the territoriality prin-
return the subject vehicle within the agreed 3-day ciple in trademark law, i.e., trademark rights are
period. As a result, Jess notified Jack of his claim acquired through valid registration in accordance
for reimbursement of the value of the lost vehicle with the law. Forthwith, Jinggy named his school
under the insurance policy. Jack refused to pay the Kluwer Graduate School of Business of Min-
claiming that there is no theft as Jess gave Silat danao and immediately secured registration with
lawful possession of the car. the Bureau of Trademarks. KU did not like the un-
authorized µse of its name by its top alumnus no
Is Jack correct? (4%) less. KU sought your help. What advice can you
Answer: give KU? (4%)
Answer:
No. Jack is not correct. The "theft clause" of a
comprehensive motor vehicle insurance policy has I will advice KU to seek for the cancellation of
been interpreted by the Court in several cases to the Kluwer Graduate School of Business of Min-
cover situations like (1) when one takes the motor danao with the Bureau of Trademarks.
vehicle of another without the latter's consent even
if the motor vehicle is later returned, there is theft - Jinggy is not the owner of the mark "Kluwer"
there being intent to gain as the use of the thing and as such, has no right to register the same in her
unlawfully taken constitutes gain, or (2) when there name. The owner is KU because it was the first one
is taking of a vehicle by another person without the to use it trade and commerce. It 1s ownership that
permission or authority from the owner thereof confers the right to register the mark and registra-
(Paramount Insurance vs. Spouses Remondeulaz, tion does not confer ownership of the mark. Even if
G.R. No. 173773, November 28, 2012) the mark "Kluwer" is not registered in the Philip-
pines, the same is entitled to protection against
trademark infringement and unfair competition in
VII. view of the country's obligation under the Paris
Convention. Under such convention, the Philippines
Jinggy went to Kluwer University (KU) in Ger-
is obligated to assure nationals of countries of the
many for his doctorate degree (Ph.D.). He com- Paris Convention that they are afforded an effective
2014 BAR EXAMINA!!ON 241
protection against violation of their intellectual

(B) Industrial Life Insurance
property rights in the Philippines. Thus, under the
Philippine law, a trade name of a national of a State (C) Motor Vehicle Liability Insurance
that is a party to the Paris Convention, whether or (D) Life Insurance
not the trade name forms part of a trademark, is pro-
tected "without the obligation of filing or registra- Answer:
tion" (Ecole de Cuisine Manille vs Renaus Cointreau
and Cie and Le Cordon Bleu Intl., G.R. No. 185830, (C) Motor Vehicle Liability Life Insurance
June 5, 2013)
NB The answer is still correct in the sense that IX.
even if the mark "Kluwer" is not registered in the
Philippines, the same is entitled to protection On February 21, 2013, Barrack entered into a
against trademark infringement and unfair competi- contract of insurance with Matino Insurance Com-
tion in view of the country's obligation under the pany (Matino) involving a motor vehicle. The pol-
Paris Convention. Under such convention, the Phil- icy obligates Matino to pay Barrack the amount of
ippines is obligated to assure nationals of countries Six Hundred Thousand Pesos (P600,000.00) in case
of the Paris Convention that they are afforded an ef- of loss or damage to said vehicle during the period
fective protection again$t violation of their intellec- covered, which is from February 26, 2013 to Feb-
tual property rights in the Philippines. ruary 26, 2014.
Slight modification is, however, needed. In Zun- On April 16, 2013, at about 9:00 a.m., Barrack
eca Pharmaceutical vs. Natrapharm, G.R. No. instructed his driver, JJ, to bring the motor vehi-
211850, September 8, 2020, the Supreme Court held cle to a near by auto shop for tune-up. However,
abandoned previow~ rulings when it held that JJ no longer returned and despite diligent efforts
trademark is acquired through registration made in to locate the said vehicle, the .efforts proved futile.
good faith and not prior use. Resultantly; Barrack promptly notified Matino of
the said loss and demanded payment of the insu.r-
VIII. ance proceeds of P600,000.00. In a let~er dated
July 5, 2013. Matino denied the claim, reasoning
As a rule, an insurance contract is consensual as stated in the contract that "the company shall
and voluntary. The exception is in the case of: not be liable for any malicious damage caused by
(1%) the insured, any member of his family or.by a per-
son in the insured's service.
(A) Inland Marine Insurance
Is Matino correct in denying the claim? (4%)
242 BAR Q & A IN COMMERCIAL LAW 2014 SAR EXAlvllNAT10N 243
Answer: (B) A general creditor on debtor's property

(C) A judgment creditor on debtor's property
No. Matino is not correct in denying the claim.
An insurance company cannot deny a claim by the (D) A mortgage creditor on debtor's mort-
owner of a motor vehicle who insured it against loss gaged property
or damage because the driver he employed stole it.
Matino cannot invoke the provision excluding mali- Answer:
cious damages caused by a person in the service of
the insured Contracts of insurance are to be con- (A) B
strued according to the sense and meaning of the
terms which the parties themselves have used. If XL
such terms are clear and unambiguous, they must
be taken and understood in their plain, ordinary and PA Assurance (PA) was incorporated in 1980
popular sense. The word "loss" refers to the act or to engage in the sale of pre-need educational
fact of losing or failure to keep possession, while the plans. It sold open-ended educational plans which
word "damage" means deterioration or injury to guaranteed the payment of tuition and other fees
property. Also, a contract of insurance is a contract to planholders irrespective of the cost at the time
of adhesion. So. when the terms of the insurance of availment. It also engaged in the sale of fixed
contain limitations on liability, courts should con- value plans which guaranteed the payment of a
strue them in such a way as to preclude the insurer pre-determined amount to planholders. In 1982,
from non-compliance with his obligation. (Alpha In- PA was among the country's top corporations.
surance and Surety Co. vs. Castor, G.R. No. 198174, However, it subsequently suffered financial diffi-
September 02, 2013) culties.
On September 8, 2005, PA filed a Petition for
X. Corporate Rehabilitation before the Regional Trial
Court {RTC) of Maka ti City. On October 17, 2005,
A person is said to have an insurable interest ten (10) plan holders filed an Opposition and Mo-
in the subject matter insured where he has a relation to Exclude Planholders from Stay Order on
tion or connection with, or concern in it that he the ground that planholders are not creditors as
will derive pecuniary benefit or advantage from they (planholders) have a trust relationship with
its preservation. Which among the following sub-
PA.
ject matters is not considered insurable? (1 %) ·
Are the planholders correct? (4%)
(A) A partner in a firm on its future profits
Answer:
XIII.
No. The plan-holders are not correct. Under the
Pursuant to its By-Laws, Soei- Corporation's
Interim Rules of Procedure on Co'rporate Rehapilita-
Board of Directors created an Executive Commit-
tion of 2000 (Interim Rules), which took effect on De-
cember 15, 2000, stay order issued by the rehabilita- tee to manage the affairs of the corporation in be-
tween board meetings. The Board of Directors ap-
tion court enjoins the enforcement of claims against
the debtor, its guarantors and sureties not liable pointed the following members of the Executive
solidarily with the principal debtor. Under the In- Committee: the President, Sarah L; the Vice Presi-
terim Rules, "claim" shall include "all claims or de- dent, Jane L; and, a third member from the board,
mands of whatever nature or character against the Juan Riles. On December 1, 2013, the Executive
debtor or its property, whether for money or other- Committee, with Sarah L and Jane L present, met
wise." "Creditor" shall mean "any holder of a and decided on the following matters:
claim." Hence, the claim of the plan-holders from PA 1. purchase of a delivery van for use in the
is included in the definition of "claims" under the corporation's retail business;
Interim Rules.
2. declaration and approval of the 13th
NB The answer is still valid even if it were to be month bonus;
based on FRIA which supplanted the Interim Rules.
3. purchase of an office condominium unit
at the Fort; and
XII.
4.
.
declaration of Pl0.00 per share cash divi-
To constitute a quorum for the transaction of dend.
corporate business, only a majority of the number
Are the actions of the Executive Committee
of Board of Directors is required: (1 %)
valid? (4%)
(A) as fixed by the corporate by-laws
Answer:
(B) as fixed in the articles of incorporation
(C) actually serving in the board The actions of the Executive Committee are
valid except for the declaration of cash dividends
(D) actually serving in the board but constitut- which is an act that cannot be delegated by the
ing a quorum
Board of Directors to the Executive Committee pur-
Answer: suant to Section 35 of the Corporation Code.
NB The answer is on the assumption that: a) the
(B) As fixed in the articles of incorporation Vice President is also a director because only board
2014 BAR EXAM!NA1'0"1 247
directors car1 be appointed as regular and voting curred prior to the date of the postdated check, its
members of the Executive Committee; and, b) that it acceptance as a mode of premium payment is effec-
is the by-laws that created the Executive Committee tively a grant of credit to Danny.
and the Board is simply authorized under the by-
laws to appoint the members. xv.
A, B, C, D, and E were members of the 2003-
XIV.
2004 Board of Directors of FLP Corporation. At the
On September 25, 2013, Danny Marcial election for the 2004-2005 Board of Directors, not
(Danny) procured an insurance on his life with a one of them was elected. They filed in court a de-
face value of P5,000,000.00 from RN Insurance rivative suit on behalf of FLP Corporation against
Company (RN}, with his wife. Tina Marcial (Tina) the newly-elected members of the Board of Direc-
as sole beneficiary. On the same day, Danny is- tors. They questioned the validity of the election
sued an undated check to RN for the full amount as it was allegedly marred by lack of quorum, and
of the premium. On October 1, 2013, RN issued the prayed for the nullification of the said election.
policy covering Danny's life insurance. On Octo- The 2004-2005 Board of Directors moved to dis-
ber 5, 2013, Danny met a tragic accident and died. miss the complaint because the derivative suit is
Tina claimed the insurance benefit, but RN was not proper. Decide. (4%)
quick to deny the claim because at the time of
Danny's death, the check was not yet encashed Answer:
and therefore the premium remained unpaid. The derivative suit is not proper. The petition-
Is RN correct? Will your answer be the same if ers are the injured parties whose right to vote and
the check is dated October 15, 2013? (4%) be voted upon were directly affected by the election
of the new board of directors. The cause of action
Answer: devolves on the petitioners, not on FLP Corporation,
which did not have the right to vote. Hence, the
No. RN is not correct. The contract of insurance complaint filed by A, B, C, D and E for the nullifica-
was consummated after the issuance of the check tion of the election is a direct action by the petition-
by Danny for the full amount of the premium and the ers, who were the members of the Board of Directors
unconditional delivery of an insurance policy of RN of the corpor!3,tion before the election, against re-
to Danny. By accepting the PDC, RN has effectively spondents, who are the newly-elected Board of Di-
granted credit to Danny to pay the premium. rectors. Under the circumstances, the derivative suit
My answer will still be the same even if the filed by petitioners in behalf of FLP is improper. De-
check is dated October 15, 2013. While the loss oc- rivative suit is a suit filed by a minority stockholder
in the name of the corporation to enforce a corporate

by the consignee's authorized customs broker,
right or cause of action (Legaspi Towers 300 vs.
Muer, G.R. No. 170783, June 18, 2012) RVM.
On January 26 and 29, 2011, the subject ship-
XVI. ment was withdrawn by RVM from the custody of
ATI. On January 29, 2011, prior to the withdrawal
In intellectual property cases, fraudulent in- of the last batch of the shipment, a joint inspec-
tent is not an element of the cause of action ex- tion of the cargo was conducted per the Request
cept in cases involving: (1 %) for Bad Order Survey (RBO} dated January 28,
2011. The examination report showed that 30,000
(A) trademark infringement sheets of steel were damaged and in bad order.
(B) copyright infringement NA Insurance paid LT Corporation the amount
(C) patent infringement of P.30,000,000.00 for the 30,000 sheets that were
damaged, as shown in the Subrogation Receipt
(D) unfair competition dated January 13, 2013. Thereafter, NA Insurance
demanded reparation against ATI for the goods
Answer:
damaged in its custody, in the amount
of P.5,000,00.00. ATI refused to pay claiming that
(A) Unfair competition
the claim was already barred by the statute of
limitations. ATI alleged that the Carriage of Goods
XVII. by Sea Act (COGSA) applies in this case since the
goods were shipped from a foreign port to the
On December 1, 2010, Kore A Corporation Philippines. NA Insurance clair_ns that the COGSA
shipped from South Korea to LT Corporation in does not apply, since ATI is not a shipper or car-
Manila some 300,000 sheets of high-grade special rier.
steel. The shipment was insured against all risks
by NA Insurance (NA). The carrying vessel arrived Who is correct? (5%)
at the Port of Manila on January 10, 2011. When
the shipment was discharged, it was noted that Answer:
25,000 sheets were damaged and in bad order. The
NA Insurance is correct. ATI should be ordered
entire shipment was turned over to the custody of
to pay NA Insurance notwithstanding the lapse of
ATI, the arrastre operator, on January 21, 2011 for
the one year prescriptive period for filing a suit un-
storage and safekeeping, pending its withdrawal
der the COGSA. The term "carriage of goods" under
Section 1 of COGSA covers the period from the time
250 BAR Q & A IN COMMERCIAL l.Aw
when the goods are loaded to the time when they

are discharged from the ship. When the goods have In its defense, Inter-Pacific claims that under
been discharged from the ship and given to the cus- the Holistic Test, the following dissimilarities are
tody of the arrastre operator, it is no longer covered present: the mark "S" found in Strong shoes is not
by the COGSA. Further, the COGSA does not men- enclosed in an "oval design"; the word "Strong" is
tion that an arrastre operator may invoke the pre- conspicuously placed at the backside and insoles;
scriptive period of one year; thus, it does not cover the hang tags labels attached to the shoes bear the
the arrastre operator (Insurance Company of North word "Strong" for Inter-Pacific and "Skechers
America vs Asian Terminals, GR No. 180784, Febru- U.S.A." for Skechers; and, Strong shoes are mod-
ary 15, 2012) estly priced compared to_ the costs of Skechers
shoes.
XVIII. Under the foregoing circumstances, which is
the proper test to be applied - Holistic or Domi-
Skechers Corporation sued Inter-Pacific for nancy Test? Decide. (4%)
trademark infringement, claiming that Inter-
Pacific used Skechers' registered "S" logo mark on Answer:
Inter-Pacific's shoe products without its consent.
Skechers has registered the trademark The proper test to be applied is the dominancy
"SKECHERS" and the trademark "S" (with an oval test. Applying the dominancy test, there is a confus-
design) with the Intellectual Property Office (IPO). ing similarity between "Skechers" rubber shoes and
"Strong" rubber shoes. The use of the stylized ''S''
In its complaint, Skechers points out the fol- by Inter-Pacific in its Strong Shoes infringes on the
lowing similarities: the color scheme of the blue, trademark "Skechers" already registered by
white and gray utilized by Skechers. Even the de- Skechers U.S.A. with the IPO. While it is undisputed
sign and "wave-like" pattern of the mid-sole and that Skechers U.S.A. stylized ''S" is TNithin an oval
outer sole of Inter Pacific's shoes are very similar design, the dominant feature of the trademark is
to Skechers' shoes, if not exact patterns thereof. stylized "S" as it is precisely the stylized "S" which
On the side of Inter-Pacific's shoes, near the upper catches the eye of the purchaser. (Skechers vs. Inter
part, appears the stylized "S" placed in the exact Pacific Industrial Trading Corporation, G.R. No.
location as that of the stylized "S" the Skechers 164321, March 28, 2011)
shoes. On top of the "tongue" of both shoes, ap-
pears the stylized "S" in practically the same loca- XIX.
tion and size.
Guetze and his wife have three (3) children:
Neymar, 25, who is now based in Rio de Janeiro,
Brazil; Muelter, 23, who has migrated to Munich, NB Under the Revised Corporation Code,
Germany; and James, 21, who resides in Bogota, residency requirement for incorpora-
Colombia. N eymar and Muelter have since re- tors was removed.
nounced their Philippine citizenship in favor of
their country of residence. Nearing 70 years old, (B) Yes, Guetze can serve as Chairman, as
Guetze decided to incorporate his business in Bi- President, and as General Manager of the
nondo, Manila. He asked his wife and three (3) corporation all at the same time. Section 25
children to act as incorporators with one (1) share of the Corporation Code provides that "two
of stock each, while he owned 999,996 shares of or more positions may be held concurrently
the 1,000,000 shares of the capital stock. (6%) by the same person. except that no one
shall act as president and secretary or as
(A) Assuming all other requirements are met, president and treasurer at the same time."
should the Securities an<:f Exchange Com- Such case does not fali within the excep-
mission (SEC) accept or reject the Articles tion under the aforesaid Section.
of Incorporation? Why? (C) No, the Articles of Incorporation may not be
(B) Being the control freak and micro-manager amended to reduce the number of directors
that he is, Guetze asked you - his astute to two. Section 14 of the Corporation Code
legal adviser - if he can serve as Chairman requires that the Articles of Incorporation
of the Board of Directors, as President, and shall contain the number of directors,
as General Manager of the corporation, all which shall not be less than 5 nor more
at the same time. Please advise Guetze. than 15. Hence, the reduction of the num-
ber of directors to two, to reflect the real
(C) Assuming the corporation has been prop- owners of the shares of stock, is not valid.
erly registered, may the Articles of Incor-
poration now be amended to reduce the
number of directors to two (2) - Guetze xx.
and his wife - to reflect the real owners of
On May 13, 1996, PAM, Inc. obtained a
the shares of stock?
P.15,000,000.00 fire insurance policy from Ilocano
Answer: Insurance covering its machineries and equip-
ment effective for one (1) year or until May 14,
(A) The SEC should reject the articles of incor- 1997. The policy expressly stated that the insured
poration because majority of the incorpora- properties were located at "Sanyo Precision Phils.
tors are not Philippine residents. Building, Phase III, Lots 4 and 6, Block 15, PEZA,
Rosario, Cavite." Before its expiration, the policy
was renewed on "as is" basis for another year or
254 BAR Q&A !N COMMERCIAL lAv; 2014 BAR EXAMiNA TION 255
until May 13, 1998. The subject properties were titled to rescind the insurance contract in case of an
later transferred to Pace Factory also in PEZA. On alteration in the use or condition of the thing in-
October 12, 1997, during the effectivity of the re- sured. An alteration in the use or condition of a
newed policy, a fire broke out at the Pace Factory thing insured from that to which it is limited by the
which totally burned the insured properties. policy made without the consent of the insurer. by
means within the control of the insured. and in-
The policy forbade the removal of the insured creasing the risks, entitles the insurer to rescind the
properties unless sanctioned by Ilocano. Condition contract of fire insurance. (Malayan Insurance Com-
9 (c) of the policy provides that "the insurance pany vs. PAP Co. G.R. No. 200784. August 7, 2013)
ceases to attach as regards the property affected
unless the insured, before the occurrence of any
XXI.
loss or damage, obtains the sanction of the com-
pany signified by endorsement upon the policy x x On July 3, 1993, Delia Sotero (Sotero) took out
x (c) if the property insured is removed to any a life. insurance policy from !locos Bankers Life In-
building or place other than in that which is surance Corporation (Ilocos Life) designating
herein stated to be insured." PAM claims that it Creencia Aban (Ab~n), her niece, as her benefici-
has substantially complied with notifying Ilocano ary. !locos Life issued Policy No. 747, with a face
through its sister company, the RBC, which, in value of Pl00,000.00, in Sotero's favor on August
fact, referred PAM to Ilocano for the insurance 30, 1993, after the requisite medical examination
coverage. and payment of the premium.
Is Ilocano liable under the policy? (4%) On April 10, 1996, Sotero died. Aban filed a
claim for the insurance proceeds on July 9, 1996.
Answer:
!locos Life conducted an investigation into the
Ilocano is not liable under the policy. With the claim and came out with the following findings:
transfer of the location of the subject properties, 1. Sotero did not personally apply for insur•
without notice and without insurer's consent, after ance coverage, as she was illiterate.
the renewal of the policy, the insured clearly com-
2. Sotero was sickly since 1990.
mitted concealment, misrepresentation and a
breach of material warranty. The Insurance Code 3. Sotero did not have the financial capabil-
provides that a neglect to communicate that which ity to pay the premium on the policy.
a party knows and ought to communicate, is called
4. Sotero did not sign the application for in•
concealment. Concealment entitles the injured party
surance.
to rescind a contract of insurance. Moreover, under
Section 168 of the Insurance Code, the insurer is en-
2014 B1~R EX,AMl'OA~ION 257
5. Aban was the one who filed the insurance

In this case, the policy was issued on
application and designated herself as the
beneficiary. August 30, 1993, and the insured died on
April 10. 1996 The insurance policy was
For the above reasons and claiming fraud, thus in force for a period of 3 years, 7
!locos Life denied Aban's claim on April 16, 1997, months and 24 days, Considering that the
but refunded the premium paid on the policy. (6%) insured died after the 2-year period, Ilocos
is, therefore, barred from proving that the
(A) May Sotero validly designate her niece as policy is void ab initio by reason of the in-
beneficiary? sured' s fraudulent concealment or misrep-
(B) May the incontestability period set in even resentation or want of insurable interest
in cases of fraud as alleged in this case? on the part of the beneficiary,
(C) Is Aban entitled to claim the proceeds un- (C) Yes, Aban is entitled to claim the proceeds.
der the policy? After the 2-year period lapse, or when the
insured dies within the period, the insurer
Answer: must make good on the policy, even though
the policy was obtained by fraud, conceal-
(A) Yes. Sotero may validly designate her ment, or misrepresentation. as in this case,
niece, Aban, as beneficiary. When the in- when the insured did not personally apply
sured takes insurance on his own life, he for the policy as she was illiterate and that
can designate anyone as beneficiary ex- it was the beneficiary who filled up the in-
cept those disqualified to receive donation surance application designating herself as
under Article 739 of the Civil Code, Aban beneficiary (Manila Bankers Life Insurance
does not fall within the disqualification. Corporation vs. Aban, G,R No. 175666)
(B) Yes, The "incontestability clause" is a pro-
vision in Insurance Code which provides XXII.
that after a policy of life fosurance made
payable on the death of the insured shall Paul George Pua (Pua) filed a complaint for a
have been in force during the lifetime of sum of money against the spouses Benito and
the insured for a period of 2 years from the Caroline James (Spouses James). In the complaint,
date of its issue or of its last reinstate- Pua prayed that the defendants pay Pua the
ment, the insurer cannot prove that the amount of 8,500,000.00, covered by a check. Pua
policy is void ab initio or is rescindable by asserts that defendants owed him a sum of money
reason of fraudulent concealment or mis- way back in 1988 for which the Spouses James
representation of the insured or his agent. gave him several checks. These checks, however,
had all been dishonoured and Pua has not been consideration therefor. And Spouses James can not
paid the amount of the loan plus the agreed inter- rebut the presumption by mere denial. Conse-
est. In 1996, the Spouses James approached Pua to quently, the case should be decided in favor of Pua
get the computation of their liability including the and against Spouses James.
2% compounded interest. After bargaining to
lower the amount of their liability, the Spouses XXIII.
James gave Pua a post-dated check bearing the
discounted amount of P8,500,000.00. Like the 1988 What vote is needed to consider every deci-
checks, the drawee bank likewise dishonoured sion to be a valid corporate act? (1 %)
this check. To prove his allegations, Pua submit-
(A) a majority of the directors present at the
ted the original copies of the seventeen (17)
checks issued by Caroline in 1988 and the check meeting
issued in 1996, Manilatrust tCheck No. 750. The (B) two-thirds of the directors present at the
Spouses James, on the other hand, completely de- meeting
nied the existence of the debt asserting that they (C) a majority of the directors present at the
had never approached Pua to borrow money in meeting at which there is a quorum
1988 or 1996. They asserted, instead, that Pua is
simply acting at the instance of his sister, Lilian, (D) two-thirds of the directors present at the
meeting at which there is a quorum
to file a false charge against them using a check
left to fund a gambling business previously oper-
ated by Lilian and Caroline. Answer:
Decide. (5%) (C) A majority of the directors present at the

meeting at which there is a quorum.
Answer:
XXIV.
The 17 original checks, completed and delivered
to Pua, ate veritable proof of the loan obligation of A criminal complaint for violation of B.P. 22 was
Spouses James to Pua. Under Section 24 of the Ne- filed by Foton Motors (Foton), an entity engaged
gotiable Instruments Law, "every negotiable in- in the business of car dealership, against Pura
strument is deemed prima facie to have been issued Felipe (Pura) with the Office of the City Prosecu-
for a valuable consideration; and every person tor of Quezon City. The Office found probable
whose signature appears thereon to have become a cause to indict Pura and filed an· information be-
party for value." Spouses James would not have is- fore the Metropolitan Trial Court (MeTC) of Que-
sued the checks to Pua if they did not receive any
2014 BAR EXM/INATION 261
zon City, for her issuance of a post-dated check in Answer:

the amount of P.1,020,000.00 which was subse-
Yes. Pura is liable. It is axiomatic that every
quently dishonored upon presentment due to
person criminally liable is also civilly liable. If the
"Stop Payment."
accused however, is not found to be criminally li-
Pura issued the check because her son, able, it does not necessarily mean that she is re-
Freddie, attracted by a huge discount lieved from civil liability because extinction of the
of P220,000.00, purchased a Foton Blizzard 4x2 penal action does not automatically carry with it ex-
from Foton. The term of the transaction was Cash- tinction of civil action. While Pura may have been
on-Delivery and no down payment was required. acquitted, and she was not an accommodation
The car was delivered on May 14, 1997, but party, she remains civilly as a result of issuing the
Freddie failed to pay upon delivery. Despite non- dishonored check.
payment, Freddie took possession of the vehicle.
Pura was eventually acquitted of the charge xxv.
of violating B.P. 22 but was found civilly liable for
the amount of the check plus legal interest. Pura In an action for collection of a sum of money,
appealed the decision as regards the civil liability, the Regional Trial Court (RTC) of Makati City is-
claiming that there was no privity of contract be- sued a decision finding D-Securities, Inc. liable to
tween Foton and Pura. No civil liability could be Rehouse Corporation for P.10,000,000.00. Subse-
quently, the writ of execution was issued but re-
adjudged against her because of her acquittal
turned unsatisfied because D-Securities had no
from the criminal charge. It was Freddie who was
more assets to satisfy the judgment. Rehouse
civilly liable to Foton, Pura claimed. Pura added
moved for an Alias Writ of Execution against Fair-
that she could not be_ an accommodation party ei-
field Bank (FB), the parent company of D-
ther because she only came in after Freddie failed
Securities. FB opposed the motion on the grounds
to pay the purchase price, or six (6) months after
that it is a separate entity and that it was never
the execution of the contract between Foton and
made a party to the case. The RTC granted the
Freddie. Her liability was limited to her act of issu-
motion and issued the Alias Writ of Execution. In
ing a worthless check, but by her acquittal in the
its Resolution, the RTC relied on the following
criminal charge, there was no more basis for her
facts: 499,995 out of the 500,000 outstanding
to be held civilly liable to Foton. Pura's act of issu-
shares of stocks of D-Securities are owned by FB;
ing the subject check did not, by itself, assume the
FB had actual knowledge of the subject matter of
obligation of Freddie to Foton or automatically
litigation as the lawyers who represented D-
make her a party to the contract.
Securities are also the lawyers of FB. As an alter
Is Pura liable? (5%)
2014 BAR EXAMiNATIO,\ 263
;262 BAR Q&A IN COMMERCIAL l.AW
ego, there is no need for a finding of fraud or ille• service of summons or what passes as such service
gality before the doctrine of piercing the veil of (Pacific Rehouse Corporation vs. Court of Appeals,
corporate fiction can be applied. The RTC ratioci- G.R. No. 199687, March 24, 2014}
nated that being one and the same entity in the
eyes of the law, the service of summons upon D- XXVI.
Securities has bestowed jurisdiction over both the
parent and wholly-owned subsidiary. DMP Corporation (DMP) obtained a loan
of P20 million from National Bank (NB) secured by
Is the RTC correct? (4%) a real estate mortgage over a 63,380sq. m. land
situated in Cabanatuan City. Due to the Asian
Answer:
Economic Crisis, DMP experienced liquidity prob-
No, the RTC is not correct. The fact that FB lems disenabling it from paying its loan on time.
owns almost all of the capital stock of D Securities is For that reason, NB sought the extra judicial fore-
not sufficient reason to disregard the separate legal closure of the said mortgage by filing a petition
personality of the latter and treat it as one with its for sale on June 30, 2003. On September 4, 2003,
parent company. To warrant piercing the veil of cor- the mortgaged property was sold at public auc-
porate fiction, there must be total and absolute con- tion, which was eventually awarded to NB as the
trol not only in shares but also in business policies highest bidder. That same day, the Sheriff exe-
and practices such that the corporation had not cuted a Certificate of Sale in favor of NB.
mind of its own with respect to the transaction at- On October 21, 2003, DMP filed a Petition for
tacked: the control. must also be used to commit Rehabilitation before the Regional Trial Court
fraud or wrong or perpetuate the violation of a legal (RTC). Pursuant to this, a Stay Order was issued
duty or dishonest or unjust act in contravention of
by the RTC on October 27, 2003.
the plaintiff's legal rights· and the aforesaid control
and breach of duty must have been the proximate On the other hand, NB caused the recording
cause of the injury or unjust loss cor:riplained of. of the Sheriff's Certificate of Sale on December 3,
These elements are not present in this case. 2003 with the Register of Deeds of Cabanatuan
City. NB executed an Affidavit of Consolidation of
Also, the court must have first acquired jurisdic- Ownership and had the same annotated on the ti-
tion over the corporation(s) involved before its or
tle of DMP. Consequently, the Register of Deeds
their separate personalities are disregarded; and the
cancelled DMP's title and issued a new title in the
doctrine of piercing the veil of corporate entity can
only be raised during a £up-blown trial over a cause
name of NB on December 10, 2003.
of action duly commenced involving parties duly NB also filed on March 17, 2004 an Ex-Parte
brought under the authority .of the court by way of Petition for Issuance of Writ of Possession before
the RTC of Cabanatuan City. After hearing, the roactive to the date of the filing of the petition for
RTC issued on September 6, 2004 an Order direct- voluntary or involuntary proceedings. Thus, even if
ing the Issuance of the Writ of Possession, which the commencement order was issued after the fore-
was issued on October 4, 2004. closure, it serves as the legal basis for rendering
DMP claims that all subsequent actions per- null and void the results of any extrajudicial activity
taining to the Cabanatuan property should have or process to seize the property. In that case, ac-
been held in abeyance after the Stay Order was tions with respect to the foreclosed mortgaged
issued by the rehabilitation court. property subsequent to the issuance of the com-
mencement order should be stayed.
Is DMP correct? (4%)
Answer: XXVII.
No. DMP is not correct. Since the foreclosure of ELP Insurance, Inc. issued Marine Policy No.
the mortgage and the issuance of the certificate of 888 in favor of FCL Corp. to insure the shipment of
sale in favor of the mortgagee were done prior to the 132 bundles of electric copper cathodes against all
appointment of a Rehabilitation Receiver and the risks. Subsequently, the cargoes were shipped on
issuance of the Stay Order, all the actions taken board the vessel "M/V Menchu" from Leyte to
with respect to the foreclosed mortgaged property Pier 10, North Harbor, Manila.
which were subsequent to the issuance of the Stay Upon arrival, FCL Corp. engaged the services
Order were not affected by the Stay Order. Thus, af- of CGM, Inc. for the release and withdrawal of the
ter the redemption period expired without the mort- cargoes from the pier and the subsequent delivery
gagor redeeming the foreclosed ·property, the mort-
to its warehouses/plants in Valenzuela City. The
gagee becomes the absolute owner of the property
goods were loaded on board twelve (12) trucks
and it was within its right to ask for consolidation of
owned by CGM, Inc., driven by its employed driv-
title and the issuance of new title in its favor. The
ers ar,i.d accompanied by its employed truck help-
writ of possession procured by the mortgagee de-
ers. Of the twelve (12) trucks en ro~te to
spite the subsequent issuance of Stay Order in the
Valenzuela City, only eleven (11) reached the des-
rehabilitation proceeding instituted is also valid.
tination. One (1) truck, loaded with eleven (11)
(Equitable PCI Bank vs. DNG Realty and Develop-
ment Corporation, 627 SCRA 125) bundles of copper cathodes, failed to deliver its
cargo.
Note, however, that under section 4 of Financial
Because of this incident, FCL Corp. filed with
Rehabilitation and Insolvency Act, the commence-
ELP Insurance, Inc. a claim for insurance indem-
ment date shall refer to the date on which the court
nity in the amount of P.1,500,000.00. After the req-
issues the commencement order which shall be ret-
2014 BAR EXA.tvrNA.TON 267
uisite investigation and adjustment, ELP Insur-

(A) A promissory note with promise to pay out
ance, Inc. paid FCL Corp. the amount of
Pl,350,000.00 as insurance indemnity. of the U.S. Dollar account of the maker in
XYZ Bank
ELP Insurance, Inc., thereafter, filed a com-
(B) A promissory note which designates the
plaint for damages against CGM, Inc. before the
U.S. Dollar currency in which payment is to
Regional Trial Court (RTC), seeking reimburse-
be made
ment of the amount it had paid to FCL Corp. for
the loss of the subject cargo. CGM, Inc. denied the (C) A promissory note which contains in addi-
claim on the basis that it is not privy to the con- tion a promise to paint the portrait of the
tract entered into by and between FCL Corp. and bearer
ELP Insurance, Inc., and hence, it is not liable (D) A promissory note made payable to the or-
therefor. der of Jose Cruz or Josefa Cruz ·
If you are the judge, how will you decide the
case? (4%) Answer:
Answer: (B) A promissory note which designates the US

Dollar currency in which payment is to be
CGM, Inc. should be held liable. for damages made
against ELP Insurance, Inc. The insurer, upon hap-
pening of the risk insured against and after payment XXIX.
to the insured is subrogated to the rights and cause
of action of the latter. CGM, as a common carrier, is KK is from Bangkok, Thailand. She studies
liable for the loss of the cargo. By virtue of the sub- medicine in the Pontifical University of Santo
rogation, ELP Insurance acquired the right to pro- Tomas (UST). She learned that the same foreign
ceed against CGM. Subrogation does not require the books prescribed in UST are 40-50% cheaper in
consent of the wrongdoer. It is an equitable assign- Bangkok. So she ordered 50 copies of each book
ment of right that accrues to the insurer after valid for herself and her classmates and sold the books
payment is made to the insured as a result of the at 20% less than the price in the Philippines. XX,
happening of the risks insured against. the exclusive licensed publisher of the books in
XXVIII. the Philippines, sued KK for copyright infringe-
ment.
Which of the following instruments is nego- Decide. (4 %)
tiable if all the other requirements of negotiability
are met? (1 %)
268 BAR Q & A IN COMMERCI.A.L LAW 2015 8AR EXAM/NATION 269
Answer:
KK did not commit copyright infringement. Un- 2015 BAR EXAMINATIONS

der the "first sale" doctrine, the economic rights of
the author relevant to the question extend only to
the first public distribution of each original copy, Af- I.
ter the first sale of the original copies, the owner
(A) Nadine has a checking account with Fair
may use and re-sell the same, Hence, there is no in-
& Square Bank. One day, she lost her
fringement by KK since the said doctrine permitted
importation and resale without the publisher's fur-
check book and the finder was able to
ther permission, forge her signature and encash the forged
check. Will Nadine be able to recover the
KK, however, must also establish the number of amount debited from her checking ac-
copies of the books he imported into the Philippines count from Fair & Square Bank? Justify
is compatible with fair use. Otherwise, there is your answe_r. (3%)
copyright infringement.
(B) Is a manager's check as good as cash?
Why or why not? (2%)
(C) When can you treat a bill of exchange as a
promissory note? (3%)
Answer:
(A) Yes, Nadine should be able to recover the

amount debited from her checking account
from Fair and Square Bank. The Bank is
supposed to know the signature of its cli-
ents, The Bank was thus negiigent in not
detecting the forgery of Nadine's signature
and paying the check. Under the circum-
stances, there was no negligence on the
part of Nadine which would preclude her
from invoking forgery, (Philippine National
Bank V. Quimpo, 158 SCRA 582.)
(B) Yes, a manager's check is good as cash. A goods were shipped. While in transit, the
manager's check is a check drawn by the
goods were insured by Novette. Does she
bank against itself. · It is deemed pre-
have an insurable interest over the goods
accepted by the bank from the moment of
even before ·delivery of the same to her?
issuar1ce. The check becomes the primary
Explain. (2%)
obligation of the bank which issues it and
constitutes its written promise to pay. By (B) Will an insurance policy be binding even
issuing it, the bank in effect commits its to- if the premium is unpaid? What if it were
tal resources, integrity and honor behind partially paid? (3%)
the check. (Tan v. Court of Appeals, 239
SCRA 310; International Corporate Bank v. Answer:
Gueco, 351 SCRA 516; Metrobank and Trust (A) Yes, Novette has an insurable interest in
Company v. Chiok, G.R. No·. 172652, No- the goods. The contract of sale was already
vember 26, 2014.)
perfected and Novette acquired interest
(C) A bill of exchange may be treated as a thereon although the goods have yet to be
promissory note in the following instances. delivered.
1. The drawee is a fictitious person or a (B) As a general rule, the insurance policy is
person not having the capacity to con- not valid and binding unless the premium
tract; thereof has been paid. This is the cash and
carry rule under the Insurance Code. Pre-
2. The drawer and the drawee are one
mium is the consideration for the undertak-
and the same person.
ing of the insurer to indemnify the insured
3. Where the instrument is so ambiguous against a specified peril. There are excep-
that there is a doubt as to whether the tions, however, as when there is an agree-
instrument is a bill or a note, the holder ment. allowing the insured to pay the pre-
may treat it either as a bill or note, at mium in installments and partial payment
the option of the holder. (Sections 130 has been made at the time of the loss.
and 17 of the Negotiable Instruments (Makati Tuscany Condominium Corporation
Law.) vs. Court of Appeals, 215 SCRA 463)
II. . III.
(A) Novette entered into a contract for the

(A) Discuss the three-fold character of a bill
of lading. (3%)
purchase of certain office supplies. The
(B) What is a "Jason clause" in a charter

(C) Yes, common carriers are liable to injuries
party? (2%)
to passengers even if the carriers observed
(C) Are common carriers liable for injuries to ordinary diligence and care because the ob-
passengers even if they have observed ligation imposed upon them by law is to
ordinary diligence and care? Explain. (2%) exercise extra-ordinary diligence. Common
carriers are bound to carry the passengers
Answer: safely as far as human care and foresight
can provide, using the utmost diligence of
(A) A bill of lading is considered a receipt for very cautious persons with a due regard for
the goods shipped to the common carrier. all the circumstances (Article 1755 of the
Civil Code)
It also serves as the contract by
which three parties, namely, the shipper,
the carrier and the consignee undertake IV.
specific responsibilities and assumed
stipulated obligations. (A) Maine Den, Inc. opened an irrevocable let-
ter of credit with Fair Bank, in connection
Third, it is the evidenc~ of the exis- with Maine Den, Inc.'s importation of
tence of the contract of carriage providing spare parts for its textile mills. The im-
for the terms and conditions thereof (Keng ported parts were released to Maine Den,
Hua Paper Products v. Court of Appeals, Inc. after it executed a trust receipt in fa-
286 SCRA 257)
vor of Fair Bank. When Maine Den, Inc.
was unable to pay its obligation under the
(B) The Jason clause derives its name from The
trust receipt, Fair Bank sued Maine Den,
Jason 225 US 32 (1912) decided by the US
Inc. for estafa under the Trust Receipts
Supreme Court under the Harter Act. By the
Law. The court, however, di°smissed the
Jason clause, a shipowner, provided he had
suit. Was the dismissal justified? Why or
exercised due diligence to make the ship
seaworthy and properly manned, equipped why not? (3%)
and supplied, could claim a general aver- (B) Does the rule "res perit domino" apply in
age contribution from cargo, even where trust receipt transactions? Explain. (2%)
the damage was caused by faulty naviga-
tion of the vessel, provided that the bill of Answer:
lading excluded liability for such faults.
(A) The dismissal of the complaint for estafa is
justified. In a number of cases, the Supreme
Court held that transactions referred to in V.

relation to trust receipts mainly involved
sales and if the entruster knew even before (A) A standby letter of credit was issued by
the execution of the alleged trust receipt ABC Bank to secure the obligation of X
agreement that the goods subject of the Company to Y Company. Under the
trust receipt were never intended by the standby letter of credit, if there is failure
entrustee for resale or for the manufacture on the part of X Company to perform its
of items to be sold, the agreement is not a obligation, then Y Company will submit
trust receipt transaction but a simple loan, to ABC Bank a certificate of default (in
notwithstanding the label. In this case, the the form prescribed under the standby
object of the trust receipt, spare parts for letter of credit) and ABC Bank will have
textile mills, were for the use of the entrus- to pay Y Company the defaulted amount.
tee and never intended for sale. As such, Subsequently, Y Company submitted to
the transaction is a simple loan. (Ng v. Peo- ABC Bank a certificate of default notwith-
ple of the Philippines, G.R. No. 173905, April standing the fact that X Company was not
23, 2010: Land Bank v. Perez, G.R No. in default. Can ABC Bank refuse to honor
166884, June 13, 2012; and Hur Ting Yang the certifica~e of default? Explain. (3%)
v. People of the Philippines, G.R. No. 195117,
August 14, 2013.) (B) Is the Uniform Customs and Practice for
Documentary Credits of the International
(B) No. The rule "res perit domino" apply in Chamber of Commerce applicable to com-
trust receipt transactions because the loss mercial letters of credit issued by a do-
of the goods, documents' or instruments mestic bank even if not expressly men-
which are the subject of a trust receipt tioned in such letters of credit? What is
pending their disposition, irrespective of the basis for your answer? {3%)
whether or not it was due to the fault or
negligence of the entrustee, shall not ex- Answer:
tinguish the entrustee's obligation to the
entruster for the value thereof.- (Section 10 (A) No. Under the doctrine of independence in
of PD 115; Rosario Textile Mills Corp v. a letter of credit, the obligation of the issu-
Home Bankers Savings and Trust Company, ing bank to pay the beneficiary does not
462 SCRA 88) depend on the fulfillment or non-fulfillment
of the main or originating contract underly-
ing the letter of credit. The obligation to
pay arises upon tender of the stipulated
documents under the letter of credit. In the
2015 BAR EXAMINA.,.lON 277
present case, the tender of the certificate of

(B) What is ."watered stock" and what is the
default entitles Y to payment under the
legal consequence of the issuance of such
standby letter of credit notwithstanding
the fact that X Company was not in default. stock? (3%)
This is without prejudice to the right of X
Answer:
Company to proceed against Y Company
under the law on contracts and damages. (A) Yes. Stock corporations are prohibited from
(Transfield Philippines v. Luzon Hydro Cor- retaining surplus profits in excess of 100%
poration, 443 SCRA 307)
of their paid-in capital stock except among
(B) Yes, the Supreme Court held that the ob- others, when the corporation is prohibited
servance of the Uniform Customs and Prac- under any loan agreement w.ith any finan-
tice in the Philippines is justified by Article cial institution or creditor, ,:,vhether local or
2 of the Code of Commerce which enunci- foreign, from declaring dividends without
ates that in the absence of any particular the consent of the creditor and such con-
provision in the Code of Commerce, com- sent has not been secured. (Section 43 of
mercial transaction shall be governed by the Corporation Code)
usage and customs generally observed. (B) Watered stocks are stocks issued for a con-
(Bank of the Philippine Islands v. De Reny sideration less than its par or issued value
Fabric Industries, Inc., 35 SCRA 253) or for a consideration in any form other than
cash, valued in excess of its fair value. Any
VI. director or officer of a corporation consent-
ing to the issuance of watered stocks or
(A) DEF Corporation has retained surplus who, having knowledge thereof, does not
profits in excess of 100% of its paid-in forthwith express his objection in writing
capital stock. However, it is
unable to de- and file the same with the corporate secre-
clare dividends, because it had entered tary shall be solidarily liable with the
into a loan agreement with a certain stockholder concerned to the corporation
creditor wherein the declaration of divi- and its creditors for the difference between
dends is not allowed without the consent the fair value received at the time of issu-
of such creditor. If DEF Corporation can- ance of the stock and the par or issued
not obtain this consent, will it be justified value of the same. (Section 65 of the Corpo-
in not declaring dividends to its stock- ration Code)
holders? Explain. (3%)
278 BAR Q & A IN COMMERCIAL l.Aw 2015 BAR EXAMINATION 279
VII. agent to act within the scope of an appar-

(A) A foreign company has been exporting ent authority and it holds him out to the
goods to a Philippine company for several public as possessing the power to do those
years now. When the Philippine company acts. (Advance Paper Corporation v. Arma
failed to pay the latest exportation, the Traders Corporation, G.R. No. 176897, De-
foreign company sued to collect in the cember 11, 2013)
Philippines. The Philippine company in• (2) By the trust fund doctrine, subscriptions to
terposed the defense that the foreign the capital stock of a corporation constitute
company was doing business in the Phil- a fund to which the creditors have the right
ippines without a license; hence, could to look for satisfaction of their claims. The
not sue before a Philippine court. Is this scope of the doctrine encompasses not only
defense tenable? Explain your answer. the · capital stock but also other property
(3%) and assets generally regarded in equity as
(B) Define: a trust fund for the payment of corporate
debts. (Halley v. Printwell, G.R. No. 157549,
1. Doctrine of apparent authority (2%) May 30, 2011: Ong v. Tiu, 401 SCRA 1)
2. Trust fund doctrine (2%)
VIII.
Answer:
Barn filed an action to enjoin SN Company's
(A) The defense is not tenable. The mere act of Board of Directors from selling a parcel of land
exporting from one's own country, without registered in the corporation's name, to compel
doing any specific commercial act within the corporation to recognize Barn as a stockholder
the territory of the importing country can- with 50 shares, to allow him to inspect the c;orpo-
not be deemed as doing business in the ra te books, and to claim damages against the cor-
importing country. Thus, the foreign com- poration and its officers. Subsequently, the corpo-
pany may sue in the Philippines despite ration and the individual defendants moved to
lack of license to do business in the Philip- dismiss the complaint since the corporation's cer-
pines. (B. Van Zuiden Bros Ltd. v. GTVL tificate of registration was revoked by the SEC
Manufacturing Industries 523 SCRA 233) during the pendency of Barn's case on the ground
(B) (1) By the doctrine of apparent authority, of non-compliance with reportorial requirements.
the corporation will be estopped from deny- The special commercial court granted the motion
ing the agent's authority if it knowingly and reasoned that only an action for liquidation of
permits one of its officers or any other assets can be maintained when a corporation has
280 BAR Q & A IN COMMERCIAL LAW 2015 BAR EXAMINAT!Ollc 28"
been dissolved and Barn cannot seek reliefs which versy remains and must be filed as an in-
in effect lead to the continuation of the corpora- tra-corporate dispute despite the subse-
tion's business. The court also ruled that it lost ju- quent dissolution of the corporation.
risdiction over the intra-corporate controversy (Aguirre v. FOB + 7, Inc., G .R. No. 170770,
upon the dissolution of the corporation. January 9, 201~)
(A) Was the court correct? (3%) (B) The action cannot prosper because the cor-
poration has no more legal capacity to sue
(B) Fqur years later, SN Company files an ac-
after three years from its dissolution. (Ala-
tion against Barn to recover c_orporate as-
bang Development Corporation v. Alabang
sets allegedly held by the latter for liqui-
Hills Village Association, G.R. No. 187456,
dation. Will this action prosper? (3%)
June 2, 2014)
Answer:
IX.
(A) The court is not correct. An action to be
recognized as a stockholder and to inspect (A) Able Corporation sold securities to 21
corporate documents is an intra-corporate non-qualified buyers during a 15-month
dispute which does not constitute a con- period, without registering the securities
tinuation of business. The dissolution of the with the Securities and Exchange Com-
corporation simply prohibits it from con- mission (SEC). Did Able Corporation vio-
tinuing its business. Moreover, under Sec- late the Securities Regulation Code
tion 145 of the Corporation Code, no right or (SRC)? Explain. (2%)
remedy in favor of or against any corpora- (B) Securities issued by the Philippine gov-
tion, its stockholders, members, directors
ernment are "exempt securities" and,
and officers shall be removed or impaired
therefore, need not be registered with
by the subsequent dissolution of the corpo-
the Secu.rities and Exchange Commission
ration.
prior to their sale or offering t~ the pub-
The dissolution does not automati- lic in the Philippines. What is the ration-
cally convert the parties into strangers or ale behind this exemption? (2%)
change their intra corporate relationship. (C) Why is the Securities Regulation Code
NeithH does it terminate existing causes called a "truth in securities law"? (2%)
of action which arose because of the cor-
porate ties of the parties. The cause of ac-
tion involving an intra-corporate contra-
282 BAR Q & A IN COMMERCIAL LAW 2015 BAR EXAMINATIOt\ 283
Answer:
involving violations of the SRC. If you were the
judge, how would you rule on the motion to dis-
(A) Yes because under the SRC, securities
miss? (3%)
shall not be sold or offered to be sold to
the public within the Philippines unless Answer:
the securities are registered with and ap-
proved by the SEC. Public means 20 or The motion should be denied. Civil suits falling
more inventors. The fact that the securi- under the SRC, like liability for selling unregistered
ties were sold during a 15 month period is securities, are under the exclusive original jurisdic-
immaterial. tion of the RTC and hence, need not be first filed be-
(B) The rationale for the exemption is that the fore the SEC unlike criminal cases, wherein the lat-
public is amply protected even without ter body exercises primary jurisdiction. (Pua v. Citi-
the registration of the securities to be is- bank, G.R. No. 180064, September 16, 2013)
sued by the government.
(C) The Securities Regulation Code is called a XI.
"truth in securities law" because it re- (A) Why is the Bangko Sentral ng Pilipinas
quires the issuer to make full and fair dis- considered a lender of last resort? (2%)
closure of information about securities be-
ing sold or offered to be sold within the (B) Distinguish a conservator from a receiver
Philippines and penalizes manipulative of a bank. (2%)
and fraudulent acts, devices and schemes. (C) What is insider trading? (2%)
X. Answer:
(A) It is considered the lender of last resort be-

Mr. and Mrs. Reyes invested their hard-earned
savings in securities issued by LEAD Bank. After cause it lends to banks and similar institu-
discovering that the securities sold to them were tions under financial distress when they
have no other means to raise funds.
not registered with the Securities and Exchange
Commission (SEC) in violation of the Securities (B) A conservator is appointed if a bank or
Regulation Code (SRC), the spouses Reyes filed a quasi-bank is in a state of continuing in-
complaint for nullity of contract and for recovery ability or unwillingness to maintain a con-
of a sum of money with the RTC. LEAD Bank dition of liquidity deemed adequate to pro-
moved to dismiss the case on the ground that it is tect the interest of creditors and depositors.
the SEC that has primary jurisdiction over actions The conservator shall take charge of the as-
284 BAR Q&A IN COMMERCIAL l.Aw 2015 BAR EXAM!NAT!ON 285
sets and liabilities of the bank and exercise fused the request for disclosure on the
management and exercise other powers to ground that the investments are confi-
restore the bank's viability. The conserva- dential under the Secrecy of Bank Depos-
torship shall not exceed one year. its Law (RA 1405, as amended). Is the
bank's refusal justified? Defend your an-
A receiver is appointed generally if
swer. (2%)
the realizable value of the bank's assets as
determined by BSP is less than its liabili- (B) First Bank received an order of garnish-
ties. The receiver shall take charge of the ment over a client's peso and dollar de-
assets and liabilities of the institution and posits in First Bank. Should First Bank
administer the same for the benefit of its comply with that order? Explain. (3%)
creditors. The receiver shall determine
within 90 days whether the bank can be Answer:
rehabilitated, otherwise, he shall recom-
mend the closure of the institution. (A) It is justified. Under Secrecy of Bank Depos-
its Law, investment in bonds issued by the
NB. Under RA 11211 (July 2018) which Philippine government is also absolutely
amended Section 30 of RA 7653, the power confidential and may not be examined, in-
of the receiver to rehabilitate the bank was quired or looked into by any person, gov-
removed. Upon its appointment as receiver ernment official .. bureau or office save for
based on the statutory grounds, PDIC must the exceptions provided by law. None of
proceed forthwith to the liquidation of the the exceptions apply in the present case.
closed bank. (B) First Bank should comply with the order of
(C) Insider trading is the buying or selling by garnishment over a client's peso deposits
securities by an insider while in the pos- because there is nothing in RA 1405 that
session of a material non-public informa- places bank deposits beyond the reach of
tion. judgment creditor. And the disclosure of in-
formation on bank deposits pursuant to the
writ of garnishment is only incidental to the
XII.
execution process. (PCIB v. Court of Ap-
(A) Raymond invested his money in securities peals, 193 SCRA 452)
issued by the Philippine government, The dollar deposits. however. are ex-
through his bank. Subsequently, the Bu- empt from garnishment or court order un-
reau of Internal Revenue asked his bank der the Foreign Currency Act (RA 6426).
to disclose his investments. His bank re-
Thus, the bank should not comply with Answer:

this part of the garnishment.
(A) The distinctions between trademark copy-
XIII. right and patent are as follows:
1. As to definition:
(A) A commercial bank wants to acquire
shares in a cement manufacturing com- a. Trademark is any visible sifrn
pany. Do you think it can do that? Why or capable of distinguishing goods.
why not? (2%) b. Copyright is an incorporeal right
(B) What is the single borrower's limit? (2%) granted by statute to the author
or creator of original literary and
Answer: artistic works whereby he is in-
vested for a limited period of
(A) A commercial bank cannot acquire shares time with the right carry out. au-
in a cement manufacturing company be- thorize and prevent the repro-
cause a commercial bank can only invest in duction, distribution, transfor-
the equity of allied undertakings, meaning, mation, rental. public perform-
undertakings related to banking. (Section ance and other forms of commu-
30 of RA 8791) nication of his work to the pub-
lic.
(B) Under the single borrower's limit, the total
amount of loans, credit accommodations c. Patent is any technical solution
and guarantee that the bank may extend to of any problem in any field of
any person shall not exceed 25% of the human activity which is new,
bank's net worth. requires an inventive step and
industrially applicable.
XIV. 2. As to object
(A) Differentiate trademark, copyright and a. The object of trademark are goods.
patent from each other. (6%) b. The object of copyright are original
(B) What is the doctrine of equivalents? (2%) literary and artistic works.
(C) In what ways would a case for infringe- c. The object of patent is invention.
ment of trademark be different from a 3. As to term
case for unfair competition? (3%)
a. The term of trademark is ten years.
b. The term of copyright is generally 50

tered corporation, imported tires from CHEN, Inc.
years.
under several sales contracts and sold them here
c. The term of patent is 20 years from in the Philippines. In 2015, CHEN, Inc. filed a
application trademark application with the Intellectual Prop-
4. As to how acquired erty Office (IPO) for the mark Light Year to be
used for tires. The IPO issued CHEN, Inc. a certifi-
a. Trademark is acquired through regis- cate of registration (COR) for said mark. Clark En•
tration and use. terprises sought the cancellation of the COR and
NB This should be changed to trademark claimed it had a better right to register the mark
is acquired t,hrough registration in ac- Light Year. CHEN, Inc. asserted that it was the
cordance with law, in view of the owner of the mark and Clark Enterprises was a
Zuneca case. mere distributor. Clark Enterprises argued that
there was no evidence on record that the tires it
b. Copyright is acquired from the mo-
ment of creation. imported from CHEN, Inc. bore the mark Light
Year and Clark Enterprises was able to prove that
c. Patent is acquired through applica- it was the first to use the mark here in the Philip·
tion with the Intellectual Property Of- pines. Decide the case. (4%)
fice.
Answer:
(B) Under the doctrine of equivalents, in-
fringement of patent occurs when a device While Republic Act No. 8293, otherwise known
appropriates a prior invention by incorpo- as Intellectual Property Code of the Philippines, re-
rating its innovative concept and albeit moved the previous requirement of proof of actual
with some modifications and change per- use prior to the filing of an application for registra-
forms the same function in substantially tion of a mar~, proof of prior and continuous use is
the same way to achieve the same result. necessary to establish ownership of trademark.
(Godines v. Court of Appeals, 226 SCRA Such ownership of the trademark confers the right
338) to register the trademark. Since Chen owns the
trademark as evidenced by its actual and continu-
xv. ous use prior to the Clark Enterprises, then it is the
one entitled to the registration of the trademark. The
CHEN, Inc., a Taiwanese company, is a manu- fact that Clark was the first one to use the mark here
facturer of tires with the mark Light Year. From in the Philippines will not matter. Chen's prior ac-
2009 to 2014, Clark Enterprises, a Philippine regis- tual use of the trademark even in another country
bars Clark from applying for the registration of the
290 Bt_R Q&A IN Cm,1MERCtAL LAw
2015 BAR EXAMINt_YION 291
same trademark. (E. Y Industrial Sales v. Shien Dar Answer:

Electricity and Machinery, G.R. No. 184850, O_ctober
20, 2010; Ecole de Cuisine Manille v. Renaud Coin- (A) ( 1) A covered transaction report involves
treau, G.R. No. 185830, June 5, 2013) transaction/s in cash or other equiva-
lent monetary instrument involving a
NB This answer is no longer correct in total amount in excess of P500,000.00
view of the Zuneca doctrine.
within one banking day while suspi-
cion transaction report involves trans-
XVI. actions with covered institutions re-
gardless of the amounts involved made
(A) On the anti-money laundering laws: under any of the suspicious circum-
1. What is the distinction between a stances enumerated by law.
"covered transaction report" and a (2) No. The authority to freeze deposits is
"suspicious transaction report"? (2%) lodged with and based upon the order
2. Does the Anti-Money Laundering of the Court of Appeals. (Section 10 of
RA 9160, as amended)
Council have the authority to freeze
deposits? E:Kplain. (2%) (B) (1) The appointment of a distributor in the
(B} On foreign investments: Philippines is not sufficient to consti-
tute doing business unless it is under
1. A foreign company has a dist;ributor the full control of the foreign corpora-
in the Philippines. The latter acts in tion. If the distributor is an independ-
his own name and account. Will this ent entity doing business for its own
distributorship be considered as do- name and account, the latter cannot be
ing business by the foreign company considered as doing business. (Steel
in the Philippines? (3%) Case v. Design International Selection,
G.R. No. 171995, April 18, 2012)
2. ABC Corporation was organized in
Malaysia but has a branch in the Phil- (2) Yes it is a considered a Philippine na-
ippines. It is entirely owned by Fili- tional as long as it is registered as do-
pino citizens. Can you consider ABC ing business in the Philippines under
Corporation a Philippine national? the Corporation Code. (Section 1 of RA
(2%) 7042, as amended by Section 1 of RA
8179)
292 BAR Q &A IN COMtv1ERCIAL l.Aw
2016 BAR EXAMIN,ATIO!s 293
Shure Insurance Corporation (Shure) on October

2016 BAR EXAMINATIONS 11, 2016 and paid the premium in cash. It took the
company a week to approve Jason's application.
On October 18, 2016, Shure mailed the approved
I policy to Jason which the latter received five (5)
days later. However, Jason's house had been
What does "doing business in the Philippines"
razed by fire which transpired a day before his re-
under the Foreign Investments Act of 1991 mean?
(5%) ceipt of the approved policy. Jason filed a written
claim with Shure under the insurance policy.
Answer: Shure prays for the denial of the claim on the
ground that the theory of cognition applies to con-
The phrase "doing business in the Philippines" tracts of insurance.
under the Foreign Investments Act of 1991 include Decide Jason's claim with reasons. (5%)
soliciting orders, service contracts; opening offices
whether called liaison officers or branches' appoint- Answer:
ing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the No. What governs insurance contract is the
country for a period or periods totaling 180 days or cognition theory whereby the insurance contract is
more; participating in the management, supervision perfected only from the time the applicant came to
or control of any domestic business, firm, entity or know of the acceptance of the offer by the insurer. In
corporation in the Philippines; and any other act or this case, the loss occurred a clay prior to Jason's
acts that imply continuity of commercial dealings or knowledge of the acceptance by Shure of Jason's
arrangements, and contemplate to that extent the application. There being not perfected insurance
performance of acts or works or the exercise of some contract, Jason is not entitled to recover from Shure.
of the functions normally incident to and in progres-
sive prosecution of, commercial gain or of the pur- III
pose or object of the business organization.
ABC Appliances Corporation (ABC) is a do-
II mestic corporation engaged in the production and
sale of televisions and other appliances. YYY En-
Jason is the proud owner of a newly-built gineers, a Taiwanese ,company, is the manufac-
h~use worth P5 million. As a protection against turer of televisions and other appliances from
any possible loss or damage to his house, Jason whom ABC actually purchases appliances. From
applied for a fire insurance policy thereon with 2000, when ABC started doing business with YYY,
2016 8AREXAMiNATiON 295
it has been using the mark "TTubes" in the Phil-

use thereof. The presumption of ownership
ippines for the television units that were bought
accorded to a registrant is rebuttable and
from YYY. In 2015, YYY filed a trademark applica- must yield to evidence to the contrary.
tion for "TTubes." Later, ABC also filed its applica-
tion. Both claim the right over the trademark NB The answer in letter ( a ) is no longer correct in
"TTubes" for television products. YYY relies on view of the Zuneca doctrine.
the principle of "first to file" while ABC involves
the "doctrine of prior use." IV
(A) Does the fact that YYY filed its applica-
X's "MINI-ME" burgers are bestsellers in the
tion ahead of ABC mean that YYY has the
country. Its "MINI-ME" logo, which bears the
prior right over the trademark? Explain
color blue, is a registered mark and has been so
briefly. (2.5%)
since the year 2010. Y, a competitor of X, has her
(B) Does the prior registration also mean a own burger which she named "ME-TOO" and her
conclusive assumption that YYY Engi- logo thereon is printed in bluish-green. When X
neers is in fact the owner of the trade- sued Y for trademark infringement, the trial court
mark "TTubes?" Briefly explain your an- ruled in favor of the plaintiff by applying the Ho-
swer. (2.5%) listic Test. The court held that Y infringed on X's
mark since the dissimilarities between the two
Answers: marks are too trifling and frivolous such that Y's
"ME-TOO," when compared to X's "MINI-ME,"
(A) No. Since YYY is not the owner of the trade- will likely cause confusion among consumers.
mark, it has no tight to apply for .registra-
tion. ·Registration of trademark, by itself, is Is the application of the Holistic Test correct?
not a mode of acquiring ownership: It is the {5%)
ownership of a trademark that confers the
right to register the same. (Birkenstock Or- Answer:
thopaedia GMBH vs. Philippine Shoe Expo
Marketing Corporation, G.R. No. 194307,
The application of the Holistic Test is not cor-
November 20, 2013) rect. In a case involving burger products, the Su-
preme Court has consistently applied the domi-
(b) No. Registration merely creates a prima fa- nancy test. Under the dominancy test, the focus is
cie presumption of the validity of the regis- on the dominant featu:,e of the competing trade-
tration, of the registrant's ownership of the marks. Big Mak has been held to be co:nfusingly
trademark and the exclusive right to the similar with Big Mac and so with McDo and Mcjoy
both under the-'dominancy test. Accordingly. MINI-
296 BAR Q & A IN C0\,1MERCIAL U-.\N
2016 BAR EXMv1iN.".TION 297
ME trademark is c.onfusingly similar with the ME- VI

TOO mark. (McDonald's Corporation v. LC Big Mak
Burger, Inc., G.R. No. 143993, August 18, 2004) Nautica Shipping Lines (Nautica) bought a
second hand passenger ship from Japan. It modi-
V fied the design of the bulkhead of the deck of the
ship to accommodate more passengers. The ship
MS Brewery Corporation (MS) is a manufac- sunk with its passengers in Tablas Strait due to
turer and distributor of the popular beer "MS heavy rains brought by the monsoon. The heirs of
Lite." It faces stiff competition from BA Brewery the passengers sued Nautica for its liability as a
Corporation (BA) whose sales of its own beer common carrier based on the reconfiguration of
product, "BA Lighter," has soared to new h~ights. the bulkhead which may have compromised the
Meanwhile, sales of the "MS Lite" decreased con- stability of the ship. Nautica raised the defense
siderably. The distribution and marketing person- that the monsoon is a fortuitous event and, at
nel of MS later discovered that BA has stored most, its liability is prescribed by the Limited Li-
thousands of empty bottles of "MS Lite" manufac- ability Rule. Decide with reasons. (5%)
tured by MS in one of its warehouses. MS filed a
suit for unfair competition against BA before the Answer:
Regional Trial Court (RTC). Finding a connection
between the dwindling sales of MS and the in- The limited liability rule will not apply in this
creased sales of BA, the RTC ruled that BA re- case because there was contributory negligence on
sorted to acts of unfair competition to the detri- the part of the shipowner. The reconfiguration of the
ment of MS. Is the RTC correct? Explain. (5%) bulkhead of the deck of the ship to accommodate
more passengers made the vessel unseaworthy.
Answer: (Philippine General Insurance Company vs. Court of
Appeals, 273 SCRA 262)
The RTC is not correct. Hoarding, _or the act of
accumulating empty bottles to impede circulation of VII
the bottled product, does not amount to unfair com-
petition. BA did not fraudulently "pass its prod-off" A railroad track of the Philippine National
uct as that of MS Lite. There was no representation Railway (PNR) is lo.cated near a busy intersection
or misrepresentation on the part of BA that would of Puyat Avenue and Osmefi.a Highway. One af-
confuse or tend to confuse its goods with those of ternoon, the intersection was heavily congested,
MS Lite. (Coca Cola Bottlers Philippines v. Gomez, as usual. Juan, the driver of a public utility jeep-
G.R. No. 154491, November 14, 2008) ney (PUJ), drove onto the railroad tracks but could
go no farther because of the heavy traffic at the
intersection. After the jeepney stopped right on tion that Total should place in escrow Pl billion to
the railroad track, it was hit and overturned by a cover for contingent claims against it. Total com-
PNR train, resulting in the death of Kim, a pas- plied. After securing the approval of the BSP, the
senger of the PUJ, and injuries to Juan and his two banks signed the agreement. BSP thereafter
other passengers. Juan, the injured passengers issued a circular advising all bank and non-bank
and Kim's family sued the PNR for damages for its intermediaries that effective January 1, 2016, "the
negligence. It was established that the steel pole banking activities of Total Bank and Royal Bank
barrier before the track was broken, and that the have been consolidated and the latter has carried
PNR had the last clear chance of avoiding the ac- out their operations since then."
cident. On the other hand, the PNR raised the de- (A) Was there a merger and consolidation of
fense that the track is for the exclusive use of the the two banks in point of the Corporation
train and that motorists are aware that it is negli- Code? Explain. (2.5%)
gence per se to stop their vehicles on ·the tracks.
Decide the case and explain. (5%) (B) What is meant by a de facto merger? Dis-
cuss. {2.5%)
Answer:
Answer:
PNR should be held liable. PNR had the last
clear chance of avoiding the injury but did not exer- (A) There was no merger or consolidation of
cise the diligence expected of it under the circum- the two banks in point of the Corporation
stances. Code. The Supreme Court ruled in Bank of
Commerce v. Radio Philipp1ne Network, Inc.
(G.R. No. 195615, April 21. 2014) that there
VIII
can be no merger if the requirements and
procedure for merger were not observed
In 2015, Total Bank (Total) proposed to sell to
and no certificate of merger was issued by
Royal Bank (Royal) its banking business for P 10
the SEC.
billion consisting of specified assets and liabilities.
The parties reached an eventual agreement, (B) De facto merger means that a corporation
which they termed as "Purchas~ and Assumption called the .Acquiring Corporation acquired
(P & A) Agreement," in which Royal would ac- the assets and ).iabilities of another corpo-
quire Total's specified assets and liabilities, ex- ration in exchange for equivalent value of
cluding contingent claims, with the further stipu- shares of stock of the Acquiring Corpora-
lation that it should be approved by the Bangko tion.
Sentral ng Pilipinas (BSP). BSP imposed the condi-
2016 BAR EXAMINAT!ON 301
IX to him and as such, may not be covered by

the rule on concealment, his frequent head
X insured his life for P20 million. X, plays golf ache is a materiai fact known to him that
and regularly exercises everyday, hence is consid- should have been disclosed to the insurer
ered in good health. He did not know, however, prior to the effectivity of the insurance pol-
that his frequent headache is really caused by his icy.
being hypertensive. In his application form for a (b) It is still a material information. It is settled
life insurance for himself, he did not put a check that the insured cannot recover even
to the question if he is suffering from hyperten- though the material fact not disclosed is
sion, believing that because of his active lifestyle, not the cause of the loss.
being hypertensive is a remote possibility. While
playing golf one day, X collapsed at the fairway X
and was declared dead on arrival at the hospital.
His death certificate stated that X suffered a mas- After securing a Pl millipn loan from B, A
sive heart attack. drew in B's favor a bill of exchange with C as
(A) Will the beneficiary of X be entitled to the drawee. The bill reads:
proceeds of the life insurance under the October 1, 2016.
circumstances, despite the non-disclosure
that he is hypertensive at the time of ap- Pay to the order of B the sum of Pl million.
plication? (2.5%) To: C (drawee). Signed, A.
(B) If X died in an accident instead of a heart A then delivered the bill to B who, however,
attack, would the fact of X's failure to dis- lost it. It turned out that it was stolen by D, B's
close that he is hypertensive be consid- brother. D lost no time in forging B's signature
ered as material information? (2.5%) and negotiated it to E who acquired it for value
and in good faith.
Answer:
May E recover on the bill from C, the drawee?
(A) No, the beneficiary of X is not entitled to Explain. (5%)
the proceeds of the life insurance. The fre-
quent headache, of X is a material fact that Answer:
should have been disclosed to the insurer.
The concealment of such material fact enti- E cannot recover from C, the drawee. The
tles the insurer to rescind the insurance forged endorsement of B did not result in transfer of
policy. While his hypertension is not known
title in favor of E as no right can he acquired under elements of derivative suit namely; a) exhaustion of
such forged endorsement. intra corporate remedies available under the articles
of incorporation,. by-laws and rules and regulations
governing the corporation to obtain the relief the
XI
stockholder desires; b) it is not a nuisance suit; and
c) appraisal right not available. (Ching v. Subic Bay
Royal Links Golf Club obtained a loan from a
Golf and Country Club, G.R No. 174353, September
bank which is secured by a mortgage on a titled
lot where holes 1, 2, 3 and 4 are located. The bank 10, 2014)
informed the Board of Directors (Board) that if the Furthermore, there was no wrongful act on the
arrearages are not paid within thirty (30) days, it part of the board of director for simply selling the
will extra-judicially foreclose the mortgage. The treasury shares below market value given the cir-
Board decided to offer to the members 200 pro- cumstances obtaining in the corporation. The terms
prietary membership shares, which are treasury and conditions of the sale of treasury shares are rea-
shares, at the price of Pl 75,000.00 per share even sonably determined by the board of directors under
when the current market value is P200,000.00. the business judgment rule. Under such rule, ques-
tions of policy and management are left to the sound
In behalf and for the benefit of the corpora- discretion of the board of directors and their acts are
tion, Peter, a stockholder, filed a derivative suit valid for as long as they acted in good faith and not
against the members of the Board for breach of
contrary to law.
trust for selling the shares at P25,000.00, lower
than its market value, and asked for the nullifica-
tion of the sales and the removal of the board
XII
members. Peter claims the Club incurred a loss of X owns 10,000 shares in Z Telecoms Corp. As
PS million. The Board presented the defense that
he is in immediate need of money, he offered to
in its honest belief any delay in the payment of sell all his shares to his friend, Y, at a bargain
the arrearages will be prejudicial to the Club as price. Upon receipt of the purchase price from Y,
the mortgage on its assets will be foreclosed and X proceeded to indorse in blank the certificates of
the sale at a lower price is the best solution to the shares and delivered these to Y. The latter then
problem. Decide the suit and explain. (5%) went to the corporate secretary of Z Telecoms
Corp. and requested the transfer of the shares in
Answer:
his name. The corporate secretary refused since X
The derivative suit will not prosper because merely indorsed the certificates in blank to Y. Ac-
while it was filed by a stockholder on behalf of the cording to the corporate secretary, the certificates
corporation the complaint did not allege the other should have been specifically indorsed to the pur-
chaser, Y. Was the corporate secretary justified in quisition of the shareholdings in H Corp.
declining Y's request? Discuss. (5%) by C Corp.? Discuss. (2.5%)
Answer: Answer:
The Corporate Secretary is not· justified in de- (A) Tender offer means a publicly announced
clining Y's request. Under Section 63 of the Corpora- intention by a person acting alone or in
tion Code, shares of stock covered by a stock certifi- concert with other persons to acquire the
cate may be transferred by the delivery of tl;le cer- outstanding equity securities of a public
tificate endorsed by the stockholder-owner or his company or outstanding equity securities
authorized representative or other person legally au- of an associate or related company of such
thorized to make the transfer. The endorsement public company which controls said pubiic
need not be specifically in favor of the purchaser. company. (Section 19.1.8 of t11.e SRC Imple-
menting Rules and Regulations)
XIII. (B) Yes, the mandatory tender offer is still ap-

plicable even if the acquisition. direct or in-
C Corp. is the direct holder of 10% ,of the direct, is less than 35% when the purchase
shareholdings in U Corp., a nonlisted (not public) would result in direct or indirect ownership
firm, which in turn owns 62% of the sharehold- of over 50% of the total outstanding equity
ings in H Corp., a publicly listed company. The securities of a pubiic company. (Cemco
other principal stockholder in H Corp. is G Corp. Holdings v; National Life Insurance Com-
which owns 18% of its shares. Meanwhile, the ma- pany of the Philippines, G.R No. 171815,
jority stocks in U Corp. are owned by B Corp. and August 7, 2007)
v. Corp. at 22% and 30%, respectively. B Corp. and
v. Corp. later sold their respective shares in U XIV
Corp. to C Corp., thereby resulting in the increase
of C Corp. 's interest in U Corp., whether direct or X, a government official, has a number of
indirect, to more than 50%. bank accounts in T Bank containing millions of
pesos. He also opened several trust accounts in
(A) Explain the Tender Offer Rule under the the same bank which specifically covered the
Securities Regulation Code. (2.5%) placement and/or investment of funds. X was later
(B) Does the Tender Offer Rule apply in this charged with graft and corruption before the
case where there has been an indirect ac- Sandiganbayan (SB) by the Ombudsman. The Spe-
cial Prosecutor filed a motion praying for a court
order authorizing it to look into the savings and

trust accounts of X in T Bank. X opposed the mo- Answer:
tion arguing that t4e trust accounts are not "de-
Yes, ABC Corporation violated the provisions of
posits" under the Law on Secrecy of Bank Depos-
the Securities Regulation Code that prohibits sale of
its (Rep. Act No; 1405). Is the contention of X cor-
rect? Explain. (5%) securities to the public, like promissory notes, with-
out a registration statement filed with and approved
Answer: by the Securities and Exchange Commission.
The contention of X is not correct. Deposits in XVI

the context of the Secrecy of Philippine currency de-
posits include deposits of whatever nature and kind. Henry is a board director in XYZ Corporation.
They include funds deposited in the bank giving rise For being the "fiscalizer" in the Board, the major-
to creditor-debtor relationship, as well as funds in- ity of the board directors want him removed and
vested in the bank like trust accounts. (Ejercito v. his shares sold at auction, so he can no longer par-
Sandiganbayan, G.R. No. 157294-95, November 30, ticipate even in the stockholders' meetings. Henry
2006) approaches you for advice on whether he can be
removed as board director and stockholder even
xv without cause. What is your advice? Explain
"amotion" and the procedure in removing a direc-
ABC Corp. is engaged in the pawnshop busi- tor. (5%)
ness involving cellphones, laptops and other gadg-
ets of value. In order to expand its business and Answer:
attract investors, it offered to any person who in-
Henry cannot be removed by his fellow direc-
vests at least Pl 00,000,00 a "Promissory Note"
tors. The power to remove belongs to the stock11old-
where it obligated itself to pay the holder a 50%
ers. He can only be removed by the stockholders
return on investment within one month. Due to
representing at least 2/3s of the outstanding capital
the attractive offer, many individuals invested in stock in a meeting called for that purpose. The re-
the company but not one of them was able to real- moval may be with or without cause except that in
ize any profit after one month.
this case, the removal has to be with cause because
Has ABC Corp. violated any law with its it is intended to deprive minority stockholders of the
scheme? Explain. (5%) right of representation.
He can not likewise be removed as a stock-
holder. Unlike in a non-stock corporation where a
308 BAR Q& A iN COMMERCIAL LAW
member may be removed for causes specified in the (B) As counsel of ABC, you are asked for ad-
by-laws, Philippine laws do not allow the removal of vice on whether or not to grant the in-
a stockholder in a stock corporation .
struction of PJ. What will be your advice?
A motion is the premature ousting of a director (2.5%)
or officer from his post in the corporation.
Answer:
XVII
(A) Letter of credit is any arrangement how-
ever named or described whereby a bank
PJ Corporation (PJ) obtained a loan from ABC
acting upon the request of its client or on
Bank (ABC) in the amount of P10 million for the
its behalf agrees to pay another against
purchase of 100 pieces of ecodoors. Thereafter, a
stipulated documents provided that the
Letter of Credit was obtained by PJ agains.t such
terms of the credit are complied with. (Sec-
loan. The beneficiary of the Letter of Credit is
tion 2 of the Uniform Customs and Practices
Scrap Metal Corp. (Scrap Metal) in Beijing, China.
for Documentary Credit)
Upon arrival of 100 pieces of ecodoors, PJ exe-
cuted a Trust Receipt in favor of ABC to cover for Trust receipt is an arrangement
the value of the ecodoors for its release to PJ. The whereby the issuing bank {referred to as
terms of the Trust Receipt is that any proceeds the entruster under the trust receipt), re-
from the sale of the ecodoors will be delivered to leases the imported goods to the importer
ABC as payment. After the ecodoors were sold, PJ, (referred to as the entrustee), but that the
instead of paying ABC, used the proceeds of the latter in case of sale must deliver the pro-
sale to order from Scrap Metal another 100 pieces ceeds thereof to the entruster up the ex-
of ecodoors but using another bank to issue a new tent ofthe amount owing to the entmster,
Letter of Credit fully covered by such proceeds. or to return the goods in case of non-sale.
PJ refused to pay the proceeds of the sale of (b) I will' not grant .the instruction of PJ. Under
the first set of ecodoors to ABC, claiming that the the independence principle, the obligation
ecodoors that were delivered were defective. It of the bank to pay the Scrap Metal Corpora-
then instructed ABC not to negotiate the Letter of tion is not dependent on the fulfillment or
Credit that was issued in favor of Scrap Metal. non-fulfillment of the main contract under-
lying the letter of credit but conditioned
(A) Explain what is a "Letter of Credit" as a only on its submission of the stipulated
financial device and a "Trust Receipt" as documents to ABC Bank.
a security to the Letter of Credit. (2.5%)
310 BAR Q & A IN COMMERCIAL LAW 2016 BAR EXAMIN,£1,T!ON 311
XVIII lation does not violate the principle of mu-

tuality of contracts. The stipulation would
B Bank, a large universal bank, regularly ex- have been void if the supposed consent is
tends revolving credit lines to business establish- given prior to the increase in interest rate.
ments under what it terms as socially responsible
banking and private business partnership rela- (b) An escalation clause with a de-escalation
tions. All loans that are extended to clients have a clause is valid provided that the client's
consent is still secured prior to a.Dy in-
common "Escalation Clause," to wit: "B Bank
crease in interest rate. Otherwise, the esca-
hereby reserves its right to · make successive in-
lation clause is void. Client's consent to the
creases in interest rates in accordance with the
increase is not necessary if the escalation
bank's adopted policies as approved by the Mone-
clause provides that : 1) there can be an in-
tary Board; Provided that each successive increase
crease in interest rates if allowed by law or
shall be with the written assent of the depositor."
by the Monetary Board; and 2) that there
(A) X, a regular client of the bank, contends must be a stipulation for the reduction of
that the "Escalation Clause" is unfair, un- the stipulated interest rate in the event that
the applicable maximum rates of interest
conscionable and contrary to law, morals,
are reduced by law or the Monetary Board.
public policy and customs. Rule on the is-
This is not the case obtaining in the prob-
sue and explain. (2.5%)
lem because the increase is still based on
{B) Suppose that the "Escalation Clause" in- the bank policies not by law or the Mone-
stead reads: "B Bank hereby reserves the tary Board.
right to make reasonable increases in in-
terest rates in accordance with bank poli- XIX
cies as approved by the Monetary Board;
Provided, there shall be corresponding In 2015, R Corp., a domestic comp~ny that is
reasonable decreases in interest rates as wholly owned by Filipinos, filed its opposition to
approved by the Monetary Board." Would the applications for Mineral Production Sharing
this be valid? Explain. {2.5%) Agreements (MPSA) of O Corp., P Corp., and Q
Corp. which were pending before the Panel of Ar-
Answer: bitrators (POA) of the Department of Environment
and Natural Resources {DENR). The three corpora-
(A) The "escalation clause" is valid because
tions wanted to undertake exploration and mining
each successive increase shall be with the activities in the province of Isabela. The oppositor
written assent of the depositor. This stipu-
alleged that at least 60% of the capital sharehold-
ings of the applicants are owned by B Corp., a

grandfather rule. (Narra Nickel Mmmg and Devel-
100% Chinese corporation, in violation of Sec. 2, opment Corporation vs. Redmont Consolidated _Mines
Art. XII of the Constitution. The applicants coun- Corp, GR No. 195580, January 28, 2015)
tered tha·t they are qualified corporations as de-
fined under the Philippine Mining Act of 1995 and
the Foreign Investments Act of 1991 since B Corp, xx
holds only 40% of the capital stocks in each of
Company X issued a Bank A Check No. 12345
them and not 60% as alleged by R Corp.
in the amount of P500,000.00 payable to the Bu-
The Summary of Significant Accounting Poli- reau of Internal Revenue (BIR) for the company's
cies statement of B Corp. reveals that the joint taxes for the third Iquarter of 1997. The check was
venture agreements of B Corp. with Sigma Corp. deposited with Bank B, the collecting bank with
and Delta Corp. involve the O Corp., P Corp., and Q which the BIR has an account. The check was
Corp. The ownership of the layered corporations subsequently cleared and the amount of
and joint venture agreements show that B Corp. P500,000.00 was deducted from the company's
practically exercises control over the 0, P and Q balance. Thereafter, Company X was notified by
corporations. 0, P and Q corporations contend that the BIR of its non-payment of its unpaid taxes de-
the control test should be applied and its MPSA spite the P500,000.00 debit from its account. This
applications granted. On the other hand, R Corp. prompted the company to seek assistance from
argues that the "grandfather rule" should be ap- the proper authorities to investigate on the mat-
plied. Decide with reasons. (5%) ter.
Answer: The results of the investigation disclosed that
unknown then to Company X, its chief accountant
The grandfather rule should apply. The Su- Bonifacio Santos is part of a syndicate that de-
preme Court held in a similar case that even though vised a scheme to syphon its funds. It was discov-
on paper the capital shareholding in a mining com- ered that though deposited, the check was never
pany is 60% owned by Filipinos and 40% by foreign- paid to the BIR but was passed on by Santos to
ers, if there is a doubt as to the locus of the benefi- Winston Reyes, Bank B's branch manager and
cial ownership and control, the grandfather rule Santos' co-conspirator. Instead of bringing the
should apply. Based on the facts, B Corporation, a check to the clearing house, Reyes replaced Check
Chinese corporation, practically exercises control No. 12345 with a worthless check bearing the
over 0, P and Q Corporations. Such circums.tance same amount, and tampered documents to cover
creates a doubt as to where control and beneficial his tracks. No amount was then credited to the
ownership reside that warrants application of the BIR. Meanwhile, Check No. 12345 was subse-
quently cleared and the amount therein credited
2017 BAR EXAMINATION 3'15
314 BAR Q & A iN COMMERCIAL lAVv
into the accounts of fictitious persons, to be later

withdrawn by Santos and Reyes.
2017 BAR EXAMINATIONS
Company X then sued Bank B for the amount
of P500,000,00 representing the amount deducted I.
from its account. Bank B interposed the defense
that Company X was guilty of contributory negli-
gence since its confidential employee Santos was A.
an integral part of the scheme to divert the pro-
Absolute Timber Co. (ATC) has been engaged
ceeds of Check No. 12345. Is Company X entitled
in the logging business in Isabela. To secure one
to reimbursement from Bank B, the collecting
of its shipments of logs to be transported by An-
bank? Explain. (5%)
dok Shipping Co., ATC purchased a marine policy
Answer: with an "all risks" provision. Because of a strong
typhoon then hitting Northern Luzon, the vessel
Yes Company X is entitled to reimbursement sank and the shipment of logs was totally lost.
from the collecting bank. In a similar case, the Su-- ATC filed its claim, but the insurer denied the
preme Court ruled that the drawer could recover the claim on several grounds, namely: (1) the vessel
amount deducted from its account because it failed had not been seaworthy; (2) the vessel's crew had
to ensure that the check be paid to the designated lacked sufficient training; (3) the improper loading
payee while the collecting bank should share ½ of of the logs on only one side of the vessel had led to
the loss because its branch manager conspired in the tilting of the ship to that side during the
the fraud. (Philippine Commercial International Bank stormy voyage; and (4) the extremely bad weather
v. Court of Appeals, 350 SCRA 446) 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:
ATC's claim is sustainable. The all-risk policy
that ATC procured from the insurer insures against
all causes of conceivable loss or damage except
when the loss or damage was due to fraud or inten-
tional misconduct committed by ATC. The grounds
2017 BAR EXNJINATiON 317
316 BAR Q & A IN Cm,1MERCIAL LA.w
of denial that the insurer invoked are not due to the Answer:
fraud or intentional misconduct of the insurer. (New
World International Development vs. NYK FilJapan (a) Insurable interest is that mterest which a
Shipping Corporation, 656 SCRA 129) person is deemed to have in the subject
matter of the insured where he has a rela-
tion or connection to it such that the person
B. will derive pecuniary benefit or advantage
from the preservation of the subject matter
The newly restored Ford Mustang muscle car or will suffer pecuniary loss or damage from
was just released from the car restoration shop to its destruction, termination or mjury by the
its owner, Seth, an avid sportsman. Given his pas- happening of the event insured against it.
sion for sailing, he needed to go to a round-the-
world voyage with his crew on his brand-new 180- (b) Seth and Sean have separate insurable in-
meter yacht. Hearing about his coming voyage, terests. Seth's insurable interest is his legal
Sean, his bosom friend, asked Seth if he could bor- and and/or equitable interest over the vehi-
row the car for his next roadshow. Sean, who had cle as an owner while Sean's insurable in-
been in the business of holding motor shows and terest is the safety of the vehicle which
promotions, proposed to display the restored car may become the basis of liability in case of
of Seth in major cities of the country. Seth agreed loss or damage to the vehicle. (Malayan In-
surance vs. Philippine First Insurance Co,
and lent the Ford Mustang to. Sean. Seth further
e!<pressly allowed Sean to use the car even for his 676 SCRA 268)
own purposes on special occasions during his. ab-
II.
sence ·trom the country. Seth and Sean then went
together to Bayad Agad Insurance Co. (BAIC) to A.
get separate policies for the car in their respective
names. Morgan, a lawyer, received a lot of diving and
BAIC consults you as its lawyer on whether other water sports equipment as payment of his
separate policies could be issued to Seth and Sean professional fe~s by Dennis, his client in a child
in respect of the same car. custody case. Dennis owned a diving and water
sports dealership in Anilao, Batangas. Morgan de-
(a) What is insurable interest? (2%) cided to name Dennis as entrustee because he did
(b) Do Seth and Sean have separate insurable not have any experience in selling such special-
interests? Explain briefly your answer. ized sports equipment. They executed a trust re-
(3%) ceipt agreement, with Morgan as entruster and
Dennis as entrustee.
Before the sports equipment could be sold, a and Mary covering certain goods deposited by the
strong typhoon hit Batangas. Anilao and other latter with the former. Peter, Paul and Mary then
parts of Batangas experienced power outage. Tak- negotiated and endorsed the warehouse receipts
ing advantage of the total darkness, unidentified to Cyrus, Magnus and Charles upon payment by
thieves destroyed the padlocks of the establish- the latter of valuable consideration for the ware-
ment of Dennis, and carted off the equipment in- house receipts. Cyrus, Magnus and Charles were
side.
not aware of, nor were they parties to any irregu-
Morgan demanded that Dennis pay the value larity or infirmity affecting the title or the face of
of the stolen equipment, but the latter refused on the warehouse receipts.
the ground that he also had suffered from the ef- On due dates of . the warehouse receipts,
fects of the typhoon, and insisted that the cause of Cyrus, Magnus and Charles demanded that Safe
the loss was a fortuitous event or force majeure. surrender the goods to them. Safe refused because
Is the justification of Dennis warranted? Ex- its warehouseman's claim must first be paid.
plain your answer. (4%) Cyrus, Magnus and Charles refused to pay, and
insisted that such claim was the liability of Peter,
Answer: Paul and Mary.
(a) What is a warehouseman's claim? (3%)
The transaction is not really a trust receipt
within the ambit of Presidential Decree No. 115, (b) Is Safe's refusal to surrender the goods to
otherwise known as Trust Receipts Law, since there Cyrus, Magnus and Charles legally justi-
is no loan component in the transaction. In a trust fied? Explain your answer. (3%)
receipt, the entruster granted the loan to finance the
acquisition of the goods, which goods are held in Answer:
trust for the benefit of the entruster pending their
disposition. Not being a trust receipt, where force (a) A warehouseman's lien consist of the stor-
majeure would not have been a defense, the sup- age charges as well as other fees and
posed entrustee is not liable for the loss of the charges as may be stipulated in the ware-
sports equipment following general principle that house receipt.
force majeure exempts the obligor from liability. (b) Yes, Safe's refusal to surrender the goods is
justified. Under the Warehouse Receipts
B. Law, the warehouseman may withhold de-
livery of the goods unless the demand to
Safe Warehouse, Inc. (Safe) issued on various deliver is accompanied by an offer to pay
dates negotiable warehouse receipts to Peter, Paul the warehouseman's lien. The lien is pos-
2017 81,R EXAMINATION 32':
sessory in nature. It attaches to the goods

regardless of who the owner thereof. Are the garnishment and levy of Matteo's as-
sets lawful and proper? Explain your answer. (4%)
III.
Answer:
A.
The garnishment and levy of Mateo's assets are
Data Realty, Inc. (DRI) was engaged in realty not valid because Mateo is not covered by the reha-
development. The family of Matteo owned 100°/o bilitation proceedings or any stay order that the re-
of the capital stock of ORI. Matteo was also the habilitation court may issue. It is DRI, with a legal
President and Chairman of the Board of Directors. personality separate and distinct from Iv'Iateo, which
Other members of Matteo's family held the major filed the petition for rehabilitation and would have
positions in ORI. Because of a nasty takeover fight been entitled to the effects of any commencement
with D&E Realty Co., Inc. (D&E), another realty order (and stay order) that the court may issue. The
developer, for the control of a smaller realty com- commencement order would have the effect of set-
pany with vast landholdings, ORI and D&E en- ting aside any seizure of property or attempt to en-
gaged in an expensive litigation that eventually force a claim against the debtor.
led to a money judgment being rendered in favor It would have been different if Mateo acted as
of D&E. surety and the court issues a commencement order
(with stay order), the effects of which ar~ retroactive
Meantime, DRI, facing inability to pay its li-
to the filing of the petition. In which event, the gar-
abilities as they fall due but still holding substan-
nishment of his deposits and level of assets would
tial assets, filed a petition for voluntary rehabilita-
have been valid.
tion, Trying to beat the consequences of rehabili-
tation proceedings, D&E moved in the trial court
for the issuance of a writ of execution. The trial B.
court also happened to be the rehabilitation court.
The writ of execution was issued. Sid used to be the majority stockholder and
President of Excellent Corporation (Excellent).
Serving the writ of execution, Merto, the court When Meridian Co., Inc. (Meridian), a local con-
sheriff who ~ad just passed his Credit Transac- glomerate, took over control and ownership of Ex-
tions subject in law school, garnished Matteo's cellent, it brought along its team of officers. Sid
bank accounts, and levied his real properties, in- thus became a minority stockholder and a minor-
cluding his house and lot in Makati. ity 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 Excel- IV.

lent's, thereby making Excellent virtually the only
beverage manufacturer in the country. Procopio, a Director and the CEO of Parisian
Left out and ignored by the management,. Sid Hotel Co., Inc. (Parisian}, was charged along with
became a fiscalizer of sorts, questioning during other company officials with several counts
the Board meetings the direction being pursued of estafa in connection with the non-remittance of
by Excellent's officers. SSS premiums the company had collected from its
employees. D1,1ring the pendency of the cases, Pa-
Ultimately, Sid demanded the inspection of risian filed a petition for rehabilitation. The court,
the books and other corporate records of Excel- finding the petition to be sufficient in form and
lent. The management refused to comply, saying substance, issued a commencement order to-
that his right as a minority stockholder has been gether with a stay or suspension order.
much reduced.
Citing the commencement order, Procopio
State under what conditions_ may Sid properly and the other officers facing the criminal charges
assert his right to inspect the books and other cor- moved to suspend the proceedings in
porate records of Excellent. Explain your answer. the estafa cases.
(3%)
(a) What is a commencement order, and
Answer: what is the effect of its issuance? Explain
your answer. (4%)
Sid may properly assert his right to inspect the (.b) Suppose you are the trial judge, will you
books and other corporate records of Excellent pro-
grant the motion to suspend of Proco-
vided the following conditions are met:
pio, et aJ.?Explain your answer. (4%)
1. the purpose of his inspection. is legitimate
and germane to his interest as a stock- Answer:
holder;
(a} A commencement order is an order issued
2. the right should be exercised during rea- by the Rehabilitation Court if the petition
sonable hours on business day; and for rehabilitation filed by the financially dis-
tressed debtor or by its creditor is sufficient
3. he has not improperly used any information in form and substance. The rehabilitation
secured in previous examination. (Section proceedings are commenced upon issuance
74 of the Corporation Code; Terelay Invest-
by the rehabilitation court of a commence-
ment v. Yulo, G.R. No. 160924, August 5,
ment order. The stay order which is in-
2015).
cluded in the commencement order shall
2017 BAR EXA\<liNP/ON 325
suspend all actions or proceedings for the

5. If the buyer is merely a continuation of the
enforcement of claims against the debtor. personality of the seller or the so called
(Section 16 of the Financial Rehabilitation
business - enterprise transfer rule.
and Insolvency Act)
(b) No, considering that· the stay order does B.

not include criminal action against the in-
div,idual debtor, or owner, partner, director Santorini Corporation (Santorini} was in dire
or officer of the debtor. (Section 18 of the straits. In order to firm up its financial standing, it
Financial Rehabilitation and Insolvency agreed to entertain the merger and takeover offer
Act) of Proficient Corporation (Proficient), the leading
company in their line of business. Erica, the major
V. stockholder of Santorini, strongly opposed the
merger and takeover. The matter of the merger
A.
and takeover by ·Proficient was included in the
Under the Nell Doctrine, so called because it agenda of the next meeting of Santorini's Board of
was first pronounced by the Supreme Court in the Directors. However, owing to Erica's serious ill-
1965 ruling in Nell v. Pacific Farms, Inc. (15 SCRA ness that required her to seek urgent medical
415), the general rule is that where one corpora- treatment and care in Singapore, she failed to at-
tion sells or otherwise transfers all of its assets to tend the meeting and was consequently unable to
another corporation, the latter is not liable for the cast her vote. The Board of Directors approved the
debts and liabilities of the transferor. merger and takeover. At the time of the meeting,
Santorini had been in the red for a number of
State the exceptions to the Nell Doctrine. (4%) years owing to its recurring business losses and
Answer: reverses.
Erica seeks your legal advice regarding her
1. The exceptions to the Nell doctrine are as
right as a stockholder opposed to the corporate
follows:
action. Explain your answer. (4%)
2. When the buyer expressly or impliedly as-
sumes the liabilities of the seller; Answer:
3. If the sale amounts to a merger or consoli- Erica may exercise her appraisal right. Ap-
dation: praisal right is the right of the stockholder to de-
4. If the sale is entered into fraudulently or mand the payment of the fair value of his shares af-
made in bad faith; and ter dissenting from a corporate act in the cases
326 BAR Q & A IN COMMERCIAL l.AW 2017 BAR EXAMINATION 327
specified by law, like in the case of merger. It is im- (b) Is BG Company's opposition based on
perative however that she attends the stockholders' conflict of interest and violation of the
meeting where the proposed merger will be taken restrictions on DOSRI transactions le-
up or files her written dissent against it, otherwise, gally and factually correct? Explain your
she cannot exercise such right. answer. (4%)
C. Answers:
Samito is the President and a Director of (a) The restrictions are as follows:
Lucky Bank (Lucky), a commercial bank holding 1. The Transactions must be approved
its main office in Makati. His brother, Othello, by at least majority of the entire
owned a big fishing business based in Malabon. board excluding the director con-
Othello applied for a loan of PSO Million with cerned:
Lucky. Othello followed the ordinary banking pro- 2. The required approval shall be en-
cedures in all the stages of the processing of his tered upon the records of the bank
application. When required, he made the neces- and copy of such entry shall be sub-
sary- arrangements to guarantee the loan. Thus, in mitted to the BSP; and
addition to the real estate mortgage, Othello exe-
cuted a joint and solidary suretyship, issued post- 3. Unless the loan is non-risk, the loan
must not exceed the book value of
dated checks, and submitted all other require-
the paid up shares of the borrowing
ments prescribed by Lucky.
DOSRI and the amount of unencum-
When the loan application was about to be bered deposits. (Section 36 of RA
approved and the proceeds released, BG Com- 8791).
pany, a keen competitor of Othello in the fishing
industry, wrote to the Board of Directors and the (b) BG Company's opposition based on con-
management of Lucky questioning the loan on the flict of interest and violation of the restric-
ground of conflict of interest due to Samito and tions on DOSRI transactions are not le-
Othello being brothers, citing the legal restriction gally and factually correct. The "related
against bank exposure of directors, officers, interest" referred to under DOSRI extends
stockholders or their related interests (DOSRI). only to spouse of the Directors, Officers
and Stockholders, their ascendants and
(a) What are the three restrictions imposed descendants up to the first degree of affin-
by law on DOSRI transactions? (4%) ity or consanguinity. Brothers are second
328 BAR Q &A IN Cm,1MERCIAL LAW
degree relatives and as such, cannot be The stay order, once issued, has the effect of enjoin-
considered "related interest".
.
ing the enforcement of claims against Hortencia .
VI. If Hortencio is not registered as a sole proprie-
torship, he can file a petition for suspens10n of pay-
A. ments in the city or province in which he has re-
sided for six months prior to the filing of the petition,
Hortencio owned a modest grocery business a remedy available for an individual debtor who has
in Laguna. Because of the economic downturn, he more assets than liabilities but foresees the impos-
incurred huge financial liabilities. He remained sibility of paying his debts when they respectively
afloat only because of th.e properties inherited fall due. (Section 94 of FRIA).
from his parents who had both come from landed
families in Laguna. His ma-in creditor was Pure- B.
silver Company (Puresilver), the principal supplier
of the merchandise sold in his store. To secure his Wyatt, an internet entrepreneur, engaged in a
credit with Puresilver, he executed a real estate sideline business of creating computer programs
mortgage with a dragnet clause involving his fam- for selected clients on a per project basis and for
ily's assets worth several millions of pesos. servicing basic computer problems of his friends
Nonetheless, Hortencio, while generally in the and family members. His main job was being an
black, now faces a situation where he is unable to IT consultant at Futurex Co., a local computer
pay his liabilities as they fall due in the ordinary company.
course of business. What will you advise him to do Because of his ill-advised investments in the
to resolve his dire financial condition? Explain stock market and the fraud perpetrated against
your answer. (5%) him by his trusted confidante, Wyatt was already
drowning in debt, that is, he had far more liabili-
Answer: ties than his entire assets.
If Hortencia is doing business as a registered What legal recourse remained available to
sole proprietorship, he can file a petition for rehabili- Wyatt? Explain your answer. (5%)
tation. Under the Financial Rehabilitation and Insol-
vency Act (FRIA), a sole proprietorship can now file Answer:
a petition for rehabilitation. The remedy may be
availed of in case of actual or technical insolvency. If Wyatt is registered as sole proprietorship, he
In the petition, he can pray for the issuance of a may file a petition for rehabilitation or voluntary liq-
commencement order which includes a stay.order. uidation. Under the Financial Rehabilitation and In-
330 BAR Q & A IN COMMERCIAL lP.W
2017 .BAR EXAMINATION 331
solvency Act (FRIA), an insolvent debtor may file a

petition for rehabilitation even if the assets are less Answer:
than liabilities. The petition should include a reha-
Pascuala did not infringe on the rights of Vir-
bilitation plan and nominee for rehabilitation re-
tucio. The fair use of a copyrighted work for criti-
ceiver. He can also file a petition for voluntary liqui-
cism, comment, news reporting, teaching including
dation since his liabilities exceed his assets. The ob-
limited number of copies for classroom use. scholar-
jective of liquidation is to get a discharge, maximize
ship, research and similar purposes is not a,_, in-
recovery of assets and effect equitable distribution
fringement of copyright. (Section 185 of RA 8293, as
of such assets based on the rules on concurrence
and preference of credit. amended)
In this case, Virtucio's reproduction of the lim-
If he is not registered as a sole proprietorship,
ited number of CD was for classroom use and edu-
he may only file a petition for voluntary liquidation
cational purposes thus negating copyright infringe-
since his assets are less than liabilities (Section 103
ment.
of FRIA). Petition for suspension of payments is not
available as a remedy to an individual debtor not
registered as a sole proprietorship. B.
Super Biology Corporation (Super Biology) in-
VII.
vented and patented a miracle medicine for the
cure of AIDS. Being the sole manufacturer, Super
A. Biology sold the medicine at an exorbitant price.
Because of the sudden prevalence of AIDS cases in
Virtucio was a composer of Ilocano songs who Metro Manila and other urban areas, the Depart-
has been quite popular in the Ilocos Region. Pas- ment of Health (DOH) asked Super Biology for a
cuala is a professor of music in a local university license to produce and sell the AIDS medicine to
with special focus on indigenous music. When she the public at a substantially lower price. Super Bi-
heard the musical works of Virtucio, she pur- ology, citing the huge costs and expenses incurred
chased a CD of his works. She copied the CD and for research and development, refused.
sent the second copy to her Music instructions for
the class to listen to the CD and analyze the works Assuming you are asked your opinion as the
of Virtucio. legal consultant of the DOH, discuss how you will
resolve the matter. (4%)
Did Pascuala thereby infringe Virtucio's copy-
right? Explain your answer. (4%)
Answer: Given that her appropriation of the necklace

was theft, may Flora be successfully prosecuted
DOH may file a petition for compulsory license for money laundering? Explain briefly your an-
with the Director of Legal Affairs of the Intellectual swer. (4%)
Property Office to exploit the patented medicine
even without the agreement of the patent owner on Answer:
the ground of public interest, in particular, health
Flora may not be prosecuted for money launder-
and safety of the public. (Section 193 of RA 8293, as
amended)
ing. Money laundering is a crime whereby the pro-
ceeds of an unlawful activity are transacted making
Once granted, the DOH may then produce and it appear that they originated from legitimate
sell the AIDS medicines for a cheaper price subject sources. One of the ways of committing money
to payment of reasonable royalties to Super Biology. laundering is if a person knows the cash relates to
unlawful activity and transacts. Under the n1les im-
VIII. plementing the Anti-Money Laundering law, how-
ever, only qualified theft (not simple theft) is consid-
ered an·unlawful activity. In the case presented. the
A.
theft committed by Flora did not become qualified
Flora, a frequent traveller, found a purse con- because it was not committed with grave abuse of
cealed between the cushions of a large sofa inside discretion.
the VIP lounge in NAIA while she was waiting for
her flight to be called. Inside the purse was a very B.
valuable diamond-studded necklace. She decided
not to tum over the purse to the airport manage- Prosperous Bank is a domestic bank with
ment, and instead to keep it. On her return from head office in Makati. It handles the banking re-
her travels, she had a dependable jeweller ap- quirements of thousands of clients.
praise the necklace, and the latter told her that The AMLC initiated a discreet investigation of
the necklace was easily worth at least the financial transactions of Lorenzo, a suspected
P5,000,000.00 in the open market. To test the ap- drug trafficker based in Naga City. The intelli-
praisal, she pawned the necklace for gence group of the AMLC, in coordination with
P2,000,000.00. She then deposited the entire the counterpart group from the PDEA and the
amount in her checking account with Metro Bank. NBI, gathered ample evidence establishing
Promptly, Metro Bank reported the transaction to Lorenzo's unlawful drug activities. The AMLC had
the Anti-Money Laundering Council (AMLC). probable cause that his deposits and investments
in various banks, including Prosperous Bank, were

related to m9ney laundering. Cesar misplaced the check. Dexter, a dormmate of
Cesar, found the check, altered its amount to
Accordingly, the AMLC now transmits to P91,000.00, and forged Cesar's indorsement by
Prosperous Bank a formal demand to allow its way of a blank indorsement in favor of Felix, a
agents to examine the banking transactions of known jeweler. Felix then caused the deposit of
Lorenzo, but Prosperous Bank refuses the de- the check in his account with Solar Bank. As col-
mand.
lecting bank, Solar Bank stamped "all previous in-
Is Prosperous Bank's refusal justified? Explain dorsements guaranteed" on the check. Seeing
your answer. (4 %) such stamp of the collecting bank, Good Bank paid
the amount of P91,000.00 on the check.
Answer:
May Good Bank claim reimbursement from
Alfred? Explain your answer. (4%)
Prospero's refusal is not justified. Notwith-
standing the provisions of RA 1405, RA 6426 and RA
Answer:
8791, the AMLC may inquire into or examine any
particular deposit or investment with any bank or Good Bank may claim reimbursement from Al-
non-bank financial institution if there is a probable fred but only for the amount of P 1,000. It cannot re-
cause that the deposits are related to unlawful ac- cover the Php90,000 difference because payment
tivity under the Anti-money laundering law, as in made under a materially altered check is not pay-
this case. Bank inquiry order from the court is not ment done in accordance with the instructions of
necessary since the predicate crime is violation of the drawer. When Good Bank did not pay according
the Dangerous Drugs Law. (Section 11 of RA 9160, as to the tenor of the instrument, then it has no right to
amended)
claim reimbursement from Alfred much less the
right to deduct the erroneous payment it made from
IX. Alfred's account. (Metrobank vs. Cabilzo, 510 SCRA
259; Areza vs. Express Savings Bank, G.R. No.
A. 176697, September 10, 2014)
Alfred issued a check for Pl,000.00 to Benja- B.

min, his friend, as payment for an electronic
gadget. The check was drawn against Alfred's ac- In 2006, Donald, an American temporarily re-
count with Good Bank. Benjamin then indorsed siding in Cebu City, issued to Rhodora a check for
the check specially in favor of Cesar. However, $50,000.00 drawn against Wells Fargo Bank with
offices in San Francisco, California. Rhodora nego-
tiated the check and delivered it to Yaasmin, a

Florencio, already penniless after spending all of
Filipina socialite who frequently travelled locally
his money on beer the night before, just stole a
and internationally. Because of her frequent trav-
ride in the bus by hiding in the on-board toilet of
els, Yaasmin misplaced the check. It was only 11
the bus,
years later on, in 2017, when she found the check
inside a diary kept in her vault in her Hollywood, During the trip, the bus collided with another
California house. bus coming from the opposite direction. The three
friends all suffered serious physical injuries.
Discuss and explain the rights of Yaasmin on
the check. (4 % ) What are WTC's liabilities, if any, in favor of
Aurelio, Jerome and Florencio? Explain your an-
Answer: swer, (4%}
This is a case of stale check, a check not pre- Answer:

sented within a reasonable time from issuance.
Hence, Wells Fargo will be justified in refusing to WTC, as a common carrier, is liable to Aurelio
honor the check if presented for payment. What for breach of contract of carriage. In case of death or
Yasmin can do is to request Donald the drayver to injury to passenger, there is a presumption of fault
issue a new check to Yasmin in her capacity as the on the part of the common carrier unless it ex.:,rcised
endorsee of Rhodora, the original payee, Donald, the extraordinary diligence in ensuring the safety of its
drawer shall be discharged from liability only if the passengers. WTC is also liable to Jerome for breach
delay caused him prejudice, (Art 1249 of the Civil of contract although Jerome was carried gratui-
Code) tously. However, for Jerome. a stipulation limiting
the liability of WTC for negligence is valid but not
X. for willful acts or gross negligence (Article 1758 of
the Civil Code). WTC is not liable to Florencio there
Wisconsin Transportation Co., Inc. (WTC) being no contract of carriage between :he two.
owned and operated an inter-island de luxe bus
service plying the Manila-Batangas-Mindoro XI.
route. Three friends, namely: Aurelio, Jerome and
Florencio rode on the same WTC bus from Manila TRUE or FALSE - Explain briefly your answer.
bound for Mindoro. Aurelio purchased a ticket for
himself. Jerome, being a boyhood friend of the (a) A conviction under the Trust Receipts
bus driver, was allowed a free ride by agreeing to Law shall bar a prosecution for estafa
sit during the trip on a stool placed in the aisle. under the Revised Penal Code. (2%)
2017 6A.R EXAMiNATION 339
(b) The term capita/in relation to public

whether or not entitled to vote in the elec-
utUities under Sec. 11, Art. XII of the
tion of directors.
1987 Constitution refers to the total out-
standing capital stock comprising both (c) False, because forgery, as a real defense.
common and non-voting preferred can be raised even against a holder in due
shares. (2 % )
course.
(c) Forgery is a real defense but may only (d) True, news reports are not subject to
be raised against a holder not in due copyright by express provision of the In-
course. (2%) tellectual Property Code. It i.s the expres-
(d} sion of the news that is copyrightable.
News reports are not copyrightable. (2%)
(e)
(e) False, double insurance only applies to
The law on life insurance prohibits dou- property insurance.
ble insurance. (2%)
Answer: XII.
(a) True, because the criminal violation of the Onassis Shipping, Inc. {Onassis) operated pas-
trust receipts agreement as when the en- senger vessels and cargo trucks, and offered its
trustee does not deliver the proceeds of services to the general public. In line with its vi-
the sale of the goods subject of the trust sion and mission to protect the environment, Go-
receipt or fails to return the goods in case Green Asia (Go-Green), an NGO affiliated with
of non-sale already constitutes estafa un- Greenpeace, entered into· a contract with Onassis
der the Revised Penal Code, whereby Go-Green would operate with its own
crew the MN Dolphin, an ocean-going passenger
(b) True, In the case of Roy IIIv. Herbosa (G.R vessel of Onassis.
No. 207246, November 22, 2016), the Su- While on its way to Palawan carrying Go-
preme Court held that the required per- Green's invited guests who were international and
centage of Filipino ownership shall be ap-
local observers desirous of checking certain envi-
plied to BOTH (a) the total number of out-
ronmental concerns in the area, the MN Dolphin
standing shares of stock entitled to vote in
encountered high waves and strong winds caused
the election of directors; AND (b) the total
by a typhoon in the West Philippine Sea. The
number of outstanding shares of stock,
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%) 2018 Bar Exams in Commercial Law
Answer: I.
The contract that Onassis and Greenpeace en- Yeti Export Corporation (YEC), thru its President,
tered into is a bareboat or demise charter because negotiated for Yahoo Bank of Manila (YBM) to is-
Greenpeace was not only given possession of the sue a letter of credit to course the importation of
vessel but also the command and control of the electronic parts from China to be sold and distrib•
navigation as shown by its authority to hire its own uted to various electronic manufacturing compa-
crew who will man the vessel. The bareboat charter nies in Manila. YBM issued the letter of credit and
effectively converts Onassis from a common carrier forwarded it to its correspondent bank, Yunan
to a private carrier. (Federal Phoenix Assurance v. Bank (YB) of Beijing to notify the Chinese export-
Fortune Sea Carrier, G.R. No. 188118, November 23, ers to submit the bill of lading in the name of YBM
2015)
covering the goods to be exported to Manila and
Being a mere lessor and having ceased to be to pay the Chinese exporters the purchase price
the owner of the vessel with respect to the naviga- upon verification of the authenticity of the ship-
tion, Onassis has no liability to the passengers who ping documents.
contracted with Greenpeace. Greenpeace is the one
liable to the passengers for the injuries they sus- The electronic parts arrived in the Port of Manila,
tained in the course of the navigation. and YBM released them to the custody of YEC as
an entrustee under a trust receipt. When· YEC un-
packed 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 there-
after commenced the following:
a) , Civil suit to hold YB liable for failure to

ensure that the electric 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%) negotiating bank because it did not buy the
draft of the beneficiary of the letter of
b) Criminal suit against YEC and its Presi- credit. But even if YB acted as a confirming
or negotiating bank, such kind of corres-
dent for estafa, and sought the payment
pondent bank has no similar obligation to
of the amount covered in the trust re-
ensure that the goods shipped match with
ceipt. The defense of the YEC President is
those described in the bill of lading.
that he cannot be held liable for a trans-
action of the corporation,. of which he 2) The President of YEC can not invoke as a
only acted as an officer, and that it is YEC defense the doctrine of separate juridical
as the principal that should be held liable personality to avoid criminal liability. The
under the trust receipt, which was en- law specifically. makes the director, officer
tered into in the name of YEC and pursu- or any person responsible for the violation
ant to YEC's corporate purposes. He cited of the Trust receipt agreement crimina11y
as his legal ground the "Doctrine of Sepa- liable precisely for the reason that a
rate Juridical Personality." Is the Presi- Corporation, being a juridicai entity, can
dent's contention meritorious? (2.5 %) not be the subject of the penalty of
ANSWER: imprisonment. Nevertheless, following the
same doctrine of separate legal personality,
he can not be civilly liable there bemg no
1. There is no merit in the case against YB. YB
showing that he binds with YEC to pay the
only acted as an advising bank whose only
loan. Only YEC is liable to pay the loan
obligation after determining the apparent
covered by the letter of credit/trust receipt.
authenticity of the letter of credit is to
(Ching vs. Secretary of Justice. 481 SCRA
transmit a copy thereof to the beneficiary of
609 (2006) and Section 13 of PD 115)
the letter of credit. It has no obligation to
ensure that the goods loaded for expor-
tation corresponded with those described II.
in the bill of lading. YB can not be
Yolanda executed and signed a promissory
considered a confirming bank because to
note with all the requisites for negotiability being
be one it must have assumed a direct
obligation to the seller as if it has issue the present, except from the amount which was left
letter of credit. (Marphil Export Corporation blank. She kept the promissory note in her desk
vs. Allied Banking Corporation, G.R. No.
and decided to place the amount at a later date.
187922, September 21, 2016) Neither is YB a The indicated payee, Yohann, managed to obtain
the promissory notE: from Yolanda's desk and
344 BAR Q & A IN COMMERCIAL LAW 2018 BAR EX.C\M:,AT!ON 345
filled out the amount for the sum of PhPl0 mil- make all parties prior to Yvette liable is
lion, which was the amount actually lent by him conclusively presumed under Section 16 of
to Yolanda, but excluding the agreed interest. Yo- the NIL. Therefore, Yvette can hoid Yolanda
hann later endorsed and delivered the check to , a prior party, liable. A complete but
Yvette, under circumstances that would constitute undelivered instrument is only a personal
the latter to be a holder in due course. defense not available againt a holder in due
course.
a) May Yvette hold Yolanda liable on the
note? (2.5%) III.
b) Would your answer be the same if the On Novemb~r 23, 2017, Yas Ysmael (Ysmael)
promissory note was actually completed loaned the amount of PhP5 million to Yarn &
by Yolanda (including the amount of Thread Corporation (YTC}, though its President.
PhPl0 million), but stolen from her desk Ylmas Yektas (Yektas). Which loan was evidenced
by Yohann? Can Yvette enforce the note by a Promissory Note (PN), which reads as follow:
against Yolanda? (2.5%)
ANSWER: Date: _ _ _ _ __
a) Yvette can not hold Yolanda liable on the Within one year from date hereof, I prom-
note. This a case of incomplete and
ise to pay to the order of YAS YSMAEL,
undelivered instrument insofar as Yolanda the sum of PhP5 million with interest at
is concerned. Where an incomplete instru-
120% per annum.
ment has not been delivered, it will not, if
completed and negotiated without autho-
YARN & THREAD CORPORATION
rity, be a valid contract in the hands of any
holder, including a holder in due course as
against Yolanda, whose signature was By: (Sgd.)
placed thereon before delivery (Section 15
Ylmas Yektas
of the Negotiable instruments law)
Yektas was the controlling stockholder of YTC
b) The answer will not be the same. Now that at the time the PN was issued. As security for the
the instrument is complete but undelivered payment of the PN, Yektas issued and delivered to
and in the hands of Yvette, a holder in due Ysmael as postdated personal check covering the
course, a valid and intentional delivery to face value of the PN drawn from his account with
Yellow Bell Bank and Trust Company. The pro- no consideration for the PN, it is void for
ceeds of the loan under the PN were used by YTC lack of consideration.
as working capital.
d) YTC, now owned by new owners, cannot
A year later, Ysmael inserted the date of "No- be held liable on the PN since it was en-
vember 23, 2017" on the date section of the PN, tered into by its former owner and
and made a form.al demand upon YTC, through President, which act the new Board of
Yektas, to pay the note, but which was refused on Directors did not ratify.
the ground that Yektas was no longer the presi-
dent and controlling shareholder of YTC. By this e) The PN is void for being in violation of
time, all the shares of YTC had already been sold the Usury Law seeking interest at an un-
to a new group of investors. Ysmael deposited the conscionable rate of 120% p.a.
personal check issued by Yektas which was dis-
honored. He then files a collection suit against ANSWER:
YTC and Yektas including the accrued interest.
1. The defense is not meritororious. Where the
The defendants raised the following defenses instrument is not dated, it will be consi-
in the collection suit. Rule on the merits of each dered to be dated as of the time it was
defense. (2% each) issued (Section 17 of NIL (C). Section 14 of
NIL also concedes to the payee the prima
a) A PN issued with a blank date is one that facie authority to fill-in the blanks in a
is not payable on demand or on a fixed negotiable instrument. Such prima facie
or determinable future time, and there- stands in the absence of evidence to the
fore the insertion of the date constituted contrary.
material alteration that nullified it, so
2. The defense is not meritorious. Where the
that no cause of action arose. instrument contains or a person adds to his
signature words indicating that he signs
b) Yektas cannot be made liable on the PN for or on behalf. of a principal or in a
since he signed in his capacity as Presi- representative capacity, he must disclose
dent of YTC, which fact was known to his principal and must indicate that he is
Ysmael although not indicated on the acting on benalf of his principal (Section 2.0
PN.
of NIL).
c) Yektas signed the merely merely as an
accommodation to YTC. As he received
Alternative answer
unconscionable despite the absence of the
The defense is meritorious. Since the matter of Usury Law, the legal rate of mterest shall
signing the note by Yektas on behalf of YTC is be deemed to apply. Thus, the PN remains
known to Ysmael, then, Yektas has no personal valid
liability as it may be inferred from the note that he is
acting only in a representative capacity. IV.
1. The defense is not meritorius. An Ysidro, a paying passenger, was on board Bus
accommodation party signs a negotiable No. 904 owned and operated by Yatco Transporta-
instrument as a maker, drawer, endorser, tion Company (Yatco). He boarded the bus at Mu-
acceptor without receiving value therefor noz, Nueva Ecija with Manila as his final destina-
and only for the purpose of lending his tion. He was seated on the first row, window seat
name in another. He is liable to a holder for on the left side of the bus. As the bus was negoti 0
value notwithstanding such holder, at the ating the national highway in front of the public
time of taking the instrument, knew him market of Gerona, Tarlac, the bus came to a full
only to be an accommodation party (Section stop because of the traffic. The driver of the bus
29 of NIL)
took this opportunity to check on the tires of the
2. The defense is not meritorius. In stock bus and to relieve himself. As he was alighting
sales, where shareholder sell a block of from the bus to do these, an unidentified man
stock to new or existing shareholders, the standing along the highway hurled a huge rock at
transaction takes place at the shareholder the left side of the bus and hit Ysidro between his
level only. Because the corporation has a eyes. He lost consciousness and immediately the
legal personality separate and distinct from driver, with the conductor, drove the bus to bring
that of its shareholders, a change in the him to the nearest hospital.
composition of shareholders will not affect
Ysidro's wife and children brought a civil ac-
its existence nor extinguish its separ;ate
tion to collect damages from Yatco, alleging that
legal personality (SME Bank vs. Samson,
as a common carrier, it was required to exercise
G.R. No. 186641, October 8, 2013)
extraordinary diligence in ensuring the safety of
3. The defense is not meritorius. The Usury its passengers. They contended that, in case of in-
law is currently suspended in view of CB juries and/or death on the part of any of its pas-
Circular 905 series of 1982 which lifted the sengers, the common carrier is presumed to be at
ceiling on interest rate for loans. Moreover, fault. In its defense, Yatco alleged that it is not an
if the interest rate is deemed to be absolute insurer of its passenger and that Ysidro's
death was not due to any defect in the means of
transport or method of transporting passengers, or

diligence of a very cautious person with a
the negligent acts of its employees, Since the ac-
due regard for all the circumstances or
cident was due to the fault of a stranger over
simply put, with extraordinary diligence .
whom the common carrier had no control, or of
(Art. 1755 of the Civil Code )
which it did not have any prior knowledge to be
able to prevent it, the cause of Ysisdro's death My answer will be different. A common
should be considered a fortuitous event and not carrier is responsible for death or injuries
the liability of the common carrier. caused by wilfull acts of other passengers
or strangers, only if the common carrier's
a) Is a common carrier presumed to be at employees through the exercise of the
fault whenever there is death or injury diligence of a good father of a family could
to its passengers, regardless of the cause have prevented the act (Art. 1763 of the
of death or injury? {2.5%) Civil Code). (GV Florida Transport vs. Heirs
of Romeo Battung, Jr., G.R. No. 208802. 14
b) What kind of diligence is required of October 2015)
common carriers like Yatco for the pro-
tection of its passengers? (2.5%) V,
c) Will your answer be the same as your

answer in (b) above, if the assailant was Yellow Fin Tuna Corporation (Yellow Fin), a
another paying passenger who boarded domestic corporation, applied for a credit facility
the bus and deliberately stabbed Ysidro in the amount of PhP50 million with Yengzi Fi-
to death? (2.5%)
nancial Corporation (YFC). The application was
Al\JSWER: approved and the Credit Agreement was signed
and took effect. Ysko and Yuan, Yellow Fin
Chairman and President, respectively, executed a
Yes, by express provision of law, in case of
death or injuries to passengers, common continuing Suretyship Agreement in favor of YFC
carriers are presumed to have been fault or wherein they guaranteed the due and full pay-
ment and performance of Yellow Fin's guarantee
to have acted negligently unless they
proved that they exercised extraordinary obligations under the credit facility. YFC soon dis-
diligence (Art. 1756 of the Civil Code) covered material inconsistencies in the financial
statements given by Yellow Fin, drawing YFC to
A common carrier is bound to carry the conclude that Yellow Fin committed misrepresen-
passengers safely as far as human care and tation. Under the Credit Agreement, any misrep-
foresight can provide, using the utmost resentation by Yellow Fin or its sureties will con-
stitute an event of default. YFC thus called an

event of default and filed a complaint for sum of Vinsel. Without the knowledge of Yang. Yin
money against Yellow Fin, Ysko, and Yuan. Im- changed the designation of the beneficiary to an
mediately thereafter, Yellow Fin filed a pbtition "irrevocable designation" of Yinsel and Yessel
for rehabilitation. The court suspended the pro- jointly. When Yang learned of the affair, she was
ceedings in YFC's complaint until the rehabilita- so despondent that, having chanced up Yin and
tion court disposed of the petition for rehabilita- Yessel on a date, she rammed them down with the
tion. YFC posits that the suspension of the pro- car she was driving, resulting in Yin's death and
ceedings should only be with respect to Yellow Vessel's complete loss of mobilization. Yang was
Fin but not with respect to Ysko and Yuan. sued for parricide, and while the case was pend-
ing, she filed a claim on the proceeds of the life
Is YFC correct? (2.5%) insurance of Yin as irrevocable beneficiary, or at
ANSWER: least his legal heir, and opposed the claims on be-
half of Vessel and her daughter Yinsel. Yang
claimed that her designation as beneficiary in
YFC is correct. Actions or proceedings against
Yin's life insurance policy was irrevocable, in the
the surety of the insolvent debtor that filed a
nature of "one coupled interest," since it was
petition for rehabilitation are not subject to the stay
order. Consequently, the suit may continue against made in their accordance with their mutual
him. (Section 18 (c) of FRIA) agreement to designate one another as sole bene-
ficiary in their respective life policies. She also
claimed that the beneficiary designation of Yessel
VI. and the legitimate minor child Yinsel was void be-
ing the product of an illicit relationship and there-
Shortly after Yin and Yang were we, they
fore without "insurable interest."
each took out separate life insurance policies on
their lives, and mutually designated one another a) ls Yang correct in saying that her desig-
as sole beneficiary. Both life insurance policies nation as beneficiary was irrevocable?
provided for a double indemnity clause, the cost (2.5%)
for which was added to the premium rate. During
the last 10 years of their marriage, the spouses b) Do Yessel and Vinsel have "insurable in-
had faithfully paid for the annual premiums over terest" on the life of Yin? (2.5%)
the life policies from both their salaries. Unfortu-
nately, Yin fell in Love with his officemate, Yessel, ANSWER:
and they carried on an affair. After two years,
their relationship bore them a daughter named a) Yang is not correct. The insured shall have
the right to change the beneficiary he
2018 BAR EXAMINA T:ON 355
designated in the policy unless he has

ing for breach of such contract, and prosecuting
expressly waived this right in the policy.
unauthorized showing movies produced by Yelp
There is nothing in the life insurance
policy taken by Yang which indicated that
Pictures, it appointed Atty. Yson, a local lawyer,
the designation of Ying is irrevocable. As as its attorney-in-fact.
such, it is deemed to be revocable. Simultaneously with the execution of the film
distribuJ;ion agreement, Yehey Movies also
b) Yessel has no insurable interest .on the life granted Yelp Pictures an option to acquire up to
of Yin because she can not be lawfully 40% of the total outstanding capital stock in Ye-
designated as beneficiary. Persons who
hey Movies post-exercise of the option, at the op-
are proscribed to become donees under
tion price of Php.01 per number of shares covered
the rules on donation can not be
by the option, exercisable within a period of one
appointed as beneficiary. Toes~ include
(1) year from the date of the grant, at the exercise
persons in illicit relations as in the case of
price of PhPl00 per share. Once exercised, Yelp
Yin and Yeseel. Yinsel, however , has
Pictures was granted the right to nominate two (2)
insurable interest on the life of Yin. There
directors of the Board Yehey Movies, and Yavic
is no proscription in naming an
Yamson agreed to vote all his shares for the elec-
illegitimate child as a beneficiary. (Heirs of
Loreta Maramag vs. Maramag, G.R. No.
tion of directors to be nominated by Yelp Pictures.
181132, June 5, 2009)
a) May the acts of entering into the film
distribution contract, the subsequent
VII, execution and performance of the terms
of the contract in the Philippines, and
Yelp Pictures Inc. (Yelp Pictures), a movie the appointment of Atty. Yson, be con-
production company based in California USA, en-
sidered as act of "doing business" in the
tered into a contract with Yehey Movies Inc., a Philippines that will require Yelp Pic-
Filipino movie production and distribution com- tures to register as a foreign corporation
pany which is registered in the Philippines under and obtain license to do business in the
the Securities Regulation Code (SRC) and listed in business? (2.5%)
the Philippine Stock Exchange Inc. (PSE), for the
exclusive distribution in the Philippines of movies b) Will your answer in (a) be the same if
produced in the USA by Yelp Pictures. Yehey Mov- Yelp Pictures exercises the option be-
ies is currently owned 85% by Yavic Yamson, and comes a substantial shareholder, and is
the balance, by the Republic of the Philippines. able to elect two {2) directors in the
For the purposes of entering into the contract, su- Board of Yehey Movies? (2.5%)
356 BAR Q & A IN COMMERCl/,L LAW
c) Must the option granted Yelp Pictures be (YHC) and 20% by Yengco Exploration Inc (YEI).
registered under the SRC? (2.5%) The remaining 20% is held by the public. YHC is a
ANSWER: private non-listed eorporation which, in turn, is
60% owned by Yatlas Mines Inc. (YMI), and 40%
a. A foreign Corporation which owns the by Yacnotan Consolidated Inc (YCI). On August 8,
Copyright to foreign films and exclusive 2008, the Board of Directors of YEI passed a reso-
distribution rights in the Philippines and lution approving the acquisition of. 50% and 25%
appointed an attorney in-fact to file of the shares held by YMI and YCI, respectively, in
criminal cases on behalf of the corporation the authorized capital stock of YHC.
is not doing business in the Philippines Yolly one of the staff members in the office of
because the contract was executed the Corporate Secretary of YEI, was immediately
abroad and the hiring of the attorney-in- asked to type the resolution and file the disclosure
fact is merely for the protection of its with the PSE and the Securities and Exchange
property rights. (Columbia Pictures vs. Commission {SEC). Before doing that, she secretly
Court of Appeals (261 SCRA 144))
called her brother who works with a stock broker-
age company, to purchase, in the name of Yolly's
b. It will be the same. Mere passive
investment in equity and voting the equity husband, 5,000 shares in YCC. After the acquisi-
tion was disclosed to the SEC and the PSE, the
shares of the corporation to elect its
director in the board of a domestic market price of YCC increased by 50%.
corporation is not tantamount to doing
business. a) In acquiring 75% of the total capital
stock of YHC, should YEI be required to
c. While options are securities, the option do a mandatory tender offer? (2.5%)
was granted only to Yelp Pictures and not
b) Can YoHy be held liable for insider trad-
to the public. As a consequence, the
ing? (2.5%)
option need not be registered with the
SEC.
ANSWER:
VIII. a) In acquiring 75% of the total capital stock

of YHC, YEI should be required to do a
Yenkell Cement Corporation (YCC) is a public mandatory tender offer. By acquiring the
corporation whose shares are listed as the PSE. It combined 75% shareholdirigs of YMI and
is 60% owned by Yenkell Holdings Corporation YCI in YCC, YEI effectively owns 45% of
YCC. Add that to the 20% it directly owns

in YCC, YEI now owns and controls 65% of no distinction that the insider is buying for
YCC. Once a person singly or in concert himself or for the account of another. As
with others acquires more than 50% of the such, it is immater:al that the broker
voting stock of a public company, manda- purchased securities for the account of
tory tender offer rule. The tender offer rule Yolly's husband. The information about
covers not only direct acquisition but also the MTO is also materiai as it will likely
indirect acquisition or any type of affect the decision of a reasonable person
acquisition. Whatever may be the method to buy or sell the securities.
by which control of a public company is
obtained either through the direct pur- Alternative answer.
chase of its stocks or through indirect
Yolly can be held liable for insider trading.
means, mandatory tender offer rule
Insider trading is the buying or selling of securities
applies. (Cemco Holdings vs. National
by an insider while in the possession of material non
Life Insurance Company, 529 SCRA 2007)
public information. Yolly is an insider because by
reason of her position, she had access to material
b) Yolly can not be held liable for insider
non public information. While the purchase was in
trading per se. Insider trading is the
the name of the husband, it is clear from the facts
buying or selling of securities by an
that she was the one who purchased the shares but
insider while in the possession of a
concealed it in tp.e name of her husband.
material non-public information. While
Yolly is an insider because, she has access
to material non-public information by IX.
reason of her relationship with the Issuer,
she did not, however, buy or sell securi- Yangchou Inc.•~ (YI) Articles of Incorporation
ties. She is liable, however, for having (AOI) provides two (2) types of shares of stock:
communicated -material non-public common and preferred shares. Its AOI further
information about'the issuer to· any person provides that "the preferred shares shall have a
who by virtue of such communication guaranteed annual dividend of 3% of the par
becomes an insider where the· insider value." Its By-Laws also specifically provides that
communicating the information knows or "preferred shareholdings shall be cumulative and
has reason to believe that such person will participating." No other terms of preference are
likely buy or sell a security of the issuer provided for preferred ·shares in either the AOI or
while in possession of such information By-Laws of YI.
(Section 27.3 of the SRC) The law makes
Q&A 2018 BAR EXAMINATION 361
360 BAR IN COMMERCIAL LAW
For the first five years of operations, the com- x.

pany was operating at a loss. At the end of the
sixth year, YI realized a net profit of PhP100 mil- Ybarra is the registered shareholders of 500
lion, and unrestricted retained earnings of PhP30 shares in Yakal Inc., of which only 50% has been
million. The YI Board of Directors declared p.nd paid up, but for which the corporation had
paid out dividends of 1 % on common shares, and erroneously issued a covering certificate of stock
5% on preferred shares, which amo~nted to a total for the entire 500 shares. Ybarra sells the entire
of PhP30 million. 500 shares for cash pursuant to a notarized Deed
of Sale in favor of Ynchon, and which certificate
However, the preferred shareholders made a was duly endorsed and delivered. When Ynchon
formal demand that they be given an additional presented the Deed of Sale and the endorsed
3% dividend for each of the five (5) years based on certificate of stock, as well as proof of payment to
the preferred shares features of "cumulative and the Bureau of Internal Revenue (BIR} of the tax
participating," and an additional 1 % given to the· due on the sale of shares, the Corporate Secretary
common shareholders, which could all be accom- of Yakal Inc. refused to register the sale on the
modated within the remaining balance of the net gorund of lack of written authority from Ybarra to
profits. cancel the certificate and have the shares
registered in the name of Ynchon.
Should YI's Board heed the demand of its pre-
ferred shareholders? (2.5%) a. Does Ynchon have a cause of action to
file a petition for mandamus to compel
ANSWER:
the corporation to register the 500 shares
YI's Board should not heed the demand of its in his name in the corporation books?
preferred shareholders. While the preferred shares (2.5%)
are cumulative and participating, the holders there-
b. Who is liable to pay the remaining un-
of are entitled to dividends only if the unrestricted
paid 50% balance - Ybarra or Ynchon?
retained earnings are sufficient to pay such divi-
dends. Dividends are declared based on unrestric- (2.5%)
ted retained earnings and not on the amount of net
ANSWER:
profit. Republic Planters Bank vs. Agana, G.R. No.
51765, March 3, 1997) Section 43 of the Corporation a) Yes Ynchon has a cause of action to file the
Code petition for mandamus to compel the corpo-
ration to register the 500 shares in the
corporation's books. In Andaya vs. Rural
Bank of Cabadbaran, G.R. No. 188769, a) Can Yenetic's AOI be formally amended
August 3. 2016, the Supreme Court (aban- to remove the right of appraisal on all
doning its previous ruling in Ponce vs dissenting stockholders in all matters
Alsons Cement) ruled that the transferees under the law which requires a ratifica-
of shares of stock are real parties in interest tion vote of the stockholders?
having a cause of action for mandamus to
compel the registration of transfer and the b} If the increase in Authorized Capital
corresponding issuance of stock certificates Stock is formally submitted to the stock-
even without the written authority from the holders in a meeting duly called for the
seller to cancel the certificate and register purpose, what is the vote necessary for
the shares in the books of the corporation the stockholders' ratification, and may
then dissenting stockholders exercise
b) Ynchon should be the one to pay the their appraisal right?
remaining balance but without prejudice to
his right to recover from Ybarra. The effect c) Once the increase in the Authorized
of the sale of the shares was to extinguish Capital Stock of Yenetic has been legally
the obligation of the seller to the Corpora- effected with the SEC, can the new
tion to pay whatever is the balance in the shares from the unissued shares be of-
contract of subscription. The sale of shares fered to a new limited group of investors
to the buyer with the consent of the without having to offer them to the
corporation effectively resulted innovation. shareholders of record since no pre-
(lnterport Resources Corporation vs. Securi- emptive right is provided for in the AOI
ties Specialist Inc., G.R. No. 154069, June 6, and By-Law of Yenetic?
2016)
ANSWER:
XI. Yenetic's AOI can not be amended to
a)
remove appraisal right of the stockholders
Yenetic Corporation wants to increase its Au-
on matters requiring their approval in
thorized Capital Stock (which is currently fully
cases where the law grants them such
subscribed and issued) to be able to increase its
appraisal right, like:
working capital to undertake business expansions.
i. In case any amendment to the articles
The board of directors consults with you as of incorporation has the effect of
legal counsel on the proper answers to the follow- changing or restricting the rights of
ing issues: (2.5% each)
2018 BAR EXAM/NATION 365
any stockholder or class of shares. or of

authorizing preferences in any respect cised (Articles 81 and 42 of the Corporation
Code) unless the corporation is a close
superiors to those of outstanding
corporation where a stockholder may
shares of any class, or of extending or
shortening the term of corporate demand the payment of the fair value of his
existence; shares for any reason whatsoever (Section
105 of the Corporation Code)
ii. In case of sale, lease, exchange,
transfer , mortgage, pledge or other XII.
disposition of all or substantially all of
the corporate property and assets; Yashtag Holdings, Inc.'s (Yashtag Holdings)
iii. In case of merger, (Section 81 of the AOI states that its primary purpose is to invest in
Corporation Code) real and personal properties of every kind or
otherwise acquire and deal with stocks, bonds,
iv. In case of investment of funds in the
and other securities or evidence or indebtedness
secondary purpose of the corporation
of any other corporation, and to hold or to own,
or another business (Section 42)
use, sell in, and dispose of, any such stock." It
Appraisal right is a statutory right, It can not be further states that it ~as an authorized capital
denied to the stockholders in cases where the law stock of PhP 1 million, all of which have been fully
allows such right. For all the other matters under subscribed and paid up. ·
the Corporation Code which require ratificatory Yashtag Holdings' President, Mr. Yokada,
approval of the shareholders, the AOI may be
convinced Yeh, Yah and Yo to lend/invest money
formally amended to remove appraisal right because with Yashtag, which money will be invested in a
the right does not exist anyway in those cases.
sister company, Yashtag realty, Inc. (Yashtag Re-
a) Any provision or matter stated in the AOI alty), a corporation that develops premium real
may be amended by a Majority vote of the state projects in the Philippines. For the amount
board of directors and the vote or written loaned/inves~ed, yashtag Holdings issued two (2)
assent of the stockholders representing at postdated checks to each lender/investor, one rep-
least 2/3s of the outstanding capital stock. resenting the principal amount, and the other
Stockholders can not exercise any appraisal covering the guaranteed interest that ranged be-
right in case of amendment to the articles tween 18-32% p.a. On the maturity dates of the
of incorporation to increase capital stock checks, the individual lender/investor can review
because this is not one of the cases allowed the loans/investment, and may either collect only
by law where appraisal right may be exer- the interest or roll over the same with the princi-
pal amounts. Eventually, the bursting of the real
state bubble brought about a serious financial cri- ANSWER:

sis around the world including the Philippines.
Yashtag Realty collapsed and with it Yashtag a) The doctrine of separate juridical persona-
Holdings defaulted in the payment of its lity is a principle of law which ordains that
loans/investments, as well as the dishonor of the the corporation has a separate legal perso-
tens of thousands of postdated checks issued to its nality from the stockholders, directors and
various lenders/investors. officers composing it. The limited liability
rule, on the other hand, means that the
Yeh, Yah and Yo filed several charges against
liability of a stockholder who is not a
Yashtag Holdings and its President, making them
director, officer or agent of the corporation,
solidarily liable for the investments they failed to
is limited to his subscription to the capital
recover. Yeh, Yah and Yo proved that the Yashtag
stock of the corporation.
Holdings, acting through Mr. Yokada, was able to
get a total of PhP 800 million of loans/investments NB. The following answer should also
from the public under the scheme, and from be given credit because the question may
which Mr. Yokada, as the controlling stockholders, be construed as to whether this defense is
was able to withdraw a total amount of PhP300 pertinent under the second question.
million for his personal account and entered into The lirriited liability rn.le, also known
the books of Yashtag Holdings as "Advances to as the real or the hyphotecary nature .of
Stockholders." Mr. Yokada pleads as a defense maritime law, simply means that that the
that he cannot be made personally liable on the liability of the shipowner or Ship' agent
claim of the group under the doctrines of "Sepa- arising from the transportation of goods
rate Juridical Personality" and "Limited Liabi- and passengers 1s limited to their interest
lity." in the vessel which is hyphotecated for
such obligations or which stands as a
a) What are the doctrines of "Separate Ju- guaranty for their settlement. This rule
ridical Personality" and "Limited Liabil- may be best explained by the doctrine: No
ity"? (2.5%) vessel. no liability. (Aboitiz Shipping
Corporation vs. General Accident Fire and
b) Decide on the merits of Mr. Yokada's
Life Assurance Corporation, 217 SCRA 359)
defense against being made liable for
yashtag Holdings' obligations. (2.5%) b) Yokada can not validaly mvoke the
doctrine of separate juridical personality
and limited liability. Yokada acted in bad
faith in withrawing 300m for his personal
368 BAR Q&A IN COMMERCIAL LAW 2018 BAR EXAMiNAT!ON 369
account. Having acted in bad faith, he binding effect of the escalation clause appearing
becomes solidarily liable with tJ::i.e corpora- on their loan agreement.
tion. Further, having issued securities to
Mr. Yamato subsequently defaulted on the
the public without prior approval of the
loan and vanished. Thus, YBC Bank extrajudicially
SEC is also another basis to hold him soli-
darily liable with the issuer corporation. foreclosed on the REM, and was the highest bid-
der at the public auction sale. It was only then
NB. An examinee who answ,ers that that the bank determined that there were actually
the limited liability rule is a maritime law two separate TCTs issued for the property and one
concept and has no bearing to the issue, of which was in the name of Mr. Yamsuan who
should also be given credit. occupied the property after having brought it ear-
lier from Mr. Yamato.
XIII.
a) Can YBC bank unilaterally increase the
YBC Bank extended a loan of PhP50 million to interest rates on the loan? (2.5%)
Mr. Yamato secured by a real estate mortgage
(REM) on a large tract of land. The covering Trans- b) Is YBC Bank a mortgage buyer in good
fer Certificate of Title (TCT) of the property mort- faith? It is prefe!red over Mr. Yamsuan?
gaged did not indicate any incumbrance or lien on (2.5%)
it or lien on it, and the bank was able to obtain a
ANSWER:
certified true copy of the TCT from the Register of
Deeds showing that the owner's copy submitted a) YBC Bank can not unilaterally increase the
to the bank was a genuine title. The loan agree- interest rates on the loan. A stipulation
ment provided an escalation clause which stated allowing the bank to increase. the interest
that, at the anniversary date of the loan, YBC rate unilaterally is a sole potestative
barik was granted the option to increase the inter- condition which violates the principle of
est rate whenever there would be an increase in mutuality of contract and as such is null
the Bangko Sentral ng Pilipinas' prevailing rates. and void; (PNB vs. Padilla. G.R No. 88880,
Three years later, Mr. Yamato received a formal April 30, 1991)
notice from YBC Bank raising the interest rate of
the loan based on the escalation clause provided b) YBC Bank is not a mortgagee buyer in
for in the Loan Agreement. Mr. Yamato refused to good faith. As a bank, it should have
pay based on the increased interest rate that was exercised due diligence to determine who
affected without consent. The YBC insists on the the actual and true owner of the real
property is prior to the grant of the loan.
371
withstanding the fact that the cause of

Also, Yamsuan has a prior right to the
property being the first buyer. death was suicide? (2.5%}
ANSWER:
XIV.
a) The insurer can not raise the issue of con-
On June 21, 2008, Yale took out a life insur- cealment because oniy material facts
ance policy on her life in the amount of PhPl0 mil- known to the insured at the time of the is-
lion and named her husband Yandy and daughter suance of the policy should be disclosed to
as joint irrevocable beneficiaries. Before the policy the. insurer. (Section 28 o:f the IC) Yate's
was issued and the premium s were paid, Yate previous cancer diagnosis is no longer a
underwent a medical checkup with a physician material fact at the time she procured the
accredited by the insurer, and the only result policy.
found was that she was suffering from high blood
pressure. Yate was previously diagnosed by a pri- Alternative answer
vate physician of having breast cancer which she The insurer may raise the issue of
did not disclose to the insurer in her application, concealment. Even though Yaloe had been
nor to the insurer's accredited physician because cured of cancer, her previous cancer diag-
by then, she was told that she was already cancer- nosis is still a material fact which should
free after undergoing surgery which removed have beeen disclosed. The test of materi-
both her breasts. She was later diagnosed with ality is the probable influence on the deci-
psychotic tendency that graduated into extreme sion of the insure in making inquiries and
despondency. She was found dead hanging in her forming his estimates of the risk. Had he
closet 36 months after the issuance of the policy. known about the cancer. the insurer may
The police authorities declared it to be a case of have asked. for a higher premium.
suicide. The policy did not include suicide as an
excepted risk. b) Yes, the insurer is liable. The rnle is that
the insurer in life insurance is liable in
a) Can the insurer raise the issue of failure case of suicide only when it is committed
to disclose that she had cancer as a after the policy has been in force for a
cause for denying the claim of the bene- period of two years from the date of issue
ficiaries? (2.5 % ) or last reinstatement. The rule, however,
admits of an exception so that when
b) Are the beneficiaries entitled to receive suicide is comrritted in the state of
the proceeds of the life insurance not- insanity, it shall be compensable
2018 BAR EXAM\N~,TION 373
regardless of the date of commission. and registration as a trade or brand

(Section 180-A of the Insurance Code). In name? (2.5%)
the given facts, Yate was diagnosed with
psychotic tendency that graduated into b) Can Aling Yasmin seek injunctive relief
extreme despondency. Thus, even though against Aling Yoling from using the
Yate committed 36 months from issuance brand name "Ysmaellas," the latter
of the policy, the insurer is liable. relying on the doctrine of "prior use" as
evidenced by her prior copyright
xv. registration? (2.5%)
c) Can Aling Yoling seek the cancellation of

A distinctive-tasting pastillas is well known
Aling Yasmin's trademark registration of
throughout the country as having been developed
the brand name "Ysmaellas," the latter
within the close knit women's group in Barangay
relying on the ground of "Well Known
Ysmael which is located along a very busy na-
Brand" clearly evidenced by her (Aling
tional highway. Its popularity has encouraged the
Yoling's) prior copyright registration, ac-
setting up of several shops selling similar deli-
tual use of the brand, and several maga-
cacies, with the most famous product being the
pastillas of "Barangay San Ysmael." Eventually, zine articles? (2.5%)
the pastillas of Aling Yoling under the brand name
"Ysmaellas" began to attract national distinction. ANSWER:
Aling Yoling therefore registered it as copyright Aling Yoling can not successfully obtain
a)
with the National Library. Her neighbor, Aling court relief to prohibit Aling Yasmin from
Yasmin, realizing the commercial value of the using the brand name "Ysmaellas" in her
brand, started using the term "Ysmaellas" for her product on the basis of Aling Yoling's
pastillas but used different colors. Aling Yasmin copyright. The brand name "Ysmaellas" is
registered the brand name "Ysmaellas" with the proper subject of trademark, not
Intellectual Property Office (IPO). copyright. They can not be interchanged.
The copyright on a trade name or mark
a) Can Aling Yoling successfully obtain does not guarantee her the right to the
court relief to prohibit Aling Yasmin exclusive use of the same for the reason
from using the brand name "Ysmaellas" that it is not a proper subject of said
in her products on the basis of her (Aling intellectual right. (Kho vs. Court of
Yoling's) copyright? What is the differ- Appeals, G.R. No. 115758, March 19, 2002;
ence between registration as a copyright
374 BAR Q & A IN COMMERCIAL I.AW 2018 BAR EXAMIN!\T;ON 375
Juan vs. Juan, G.R. No. 221372, August 23, prior user even though the mark is not
2017). well-known.
The registration of a copyright is only
a proof of the recording of the copyright XVI.
but not a condition precedent for the
copyright to subsist and for copyright Yosha was able to put together a mechanical
infringement suit whereas registration of a water pump in his garage consisting of suction
trademark is an indispensable requisite systems capable of drawing water from the earth
for any trademark infringement suit. using less human effort that what was then re-
quired by existing models. The water pump sys-
b) Aling Yasmien can seek injunctive relief tem provides for a new system which has the
against Aling Yoling from using the brand elements of novelty and inventive steps. Yosha,
name "Ysmaellas" because of the doctrine while preparing to have his invention registered
of prior use. It is ownership of the trade- with the IPO, had several models of his new sys-
mark that confers the right to register. tem fabricated and sold in the province.
Registration does not confer ownership.
Since Aling Yasmin was the first one to a} Is Yosha's invention no longer pat-
use the brand or trade name in commerce, entable by virtue of the fact that he had
then she is considered the owner thereof. sold several models to the public before
the formal application for registration of
NB. The answer should not be changed in patent was filled with the IPO?
view of the Zuneca doctrine that trade-
mark is acquired through registration b) If Yosha is able to properly register his
made in good faith and not by prior use. patent with the IP_O, can he prevent
anyone who has possession of the earlier
c) Yes, Aling Yoling can not seek the models from using them? (2.5%)
cancellation of Aling Yasmin's trademark
registration of the brand name "Ysmaellas" ANSWER:
on the ground of well-known brand
because the well-lmown mark rule only a) Yosha's invention is still patentable
applies to a mark which is well-known despite the fact he had sold several
internationally and in the Philippines models to the public before the formal
(Section 123 (E) of the Intellectual Property application for registration of the patent
Code). Nevertheless, she can seek the was filed with the IPO. It is true that an
cancellation of the trademark for being the invention shall not be considered new if it
376 BAR Q & A IN COMMERCIAL l.AW
forms part of a prior art and that prior art

shall consist of everything which has been and Gaming Corporation (PAGCOR). On the basis
made available to the public anywhere in of an intelligence report, he was found, in conniv-
the world, before the filing date or the ance with some slot machine customers, to have
priority date of the application claiming padded the credit meter readings of slot machines
the invention. This, however, presupposes in the casino where he was employed. After being
that the one who has made available the served with notice and opportunity to contest the
patentable invention to the public is a findings, he was found guilty of the charges and
person other than the applicant for patent. orders dismissed by PAGCOR. After receiving his
copy of the order for dismissal, he claimed to have
Under the doctrine of non prejudical sent to the Board of PAGCOR his motion for re-
disclosure, the disclosure of information consideration was unacted upon, he filed an ac-
contained in the application during the 12 tion with the Civil Service Commission {CSC) for
months preceding the filing date or prior- illegal dismissal. PAGCOR claimed that his action
ity date of the application shall not preju-
has prescribed because it was files more than 15
dice the applicant on the ground of lack of days after his dismissal became final. Yvan
novelty if such disclosure was made by
claimed that there was no final decision yet be-
the inventor himself (Section 25, IPC).
cause the Board of P AGCOR has not yet acted on
b) Yosha can no longer prevent anyone who his motion for reconsideration. He presented a
has possession of the earlier models from copy of his facsimile transmission addressed to
using them even if Yosha is able to the Board of PAGCOR seeking reconsideration of
properly registe.r the patent with the !PO. his dismissal, and the fact that there has been no
One of the limitations of patent rights is action taken. He claimed that based on the elec-
the use of the patented product which has tronic Commerce Act of 2000, his facsimile trans-
been put on t~e market in the Philippines mission should be considered like any genuine
by the owner of the product insofar as and authentic paper pleading, PAGCOR denied
such use is performed after the product having received it and was able to prove that the
has been so put on the said market telephone number of P ACGOR used in the facsim-
(Section 172 of the IP Code) ile transmissfon was wrong. CSC denied his com-
plaint on account of prescription. He appealed
CSC's dismissal in court.
XVII.
a) Was CSC correct in dismissing the case?
Yvan was a slot machine operator supervisor
(2.5%)
in a casino operated by the Philippine Amusement
378 BAR Q & A IN COIIAMERCIAL LAW
2018 BAR EX,'NINAT!ON 379
b) Can Yvan's bank be ordered by the court

XVIII.
to disclose if there were unreasonable
increase in his bank deposit when the al- Through various acts of graft and bribery,
leged acts were committed? Mayor Ycasiano accumulated a large amount of
ANSWER: wealth which he converted into U.S. dollars and
deposited in a foreign Currency Deposit Unit
a) CSC is correct in dismissing the case. The (FCDU) account with the Yuen Bank (YB). On a tip
E-commerce law does not cover or allow given by the secretary of the mayor, the Anti-
e-filing or facsimile transmission as a Money Laundering Council (AMLC) sent and order
mode of filing of pleadings in admin- to YB to confirm the amount of U.S dollars that
istrative cases. Mayor Ycasiano had in his FCDU account, YB
claims that, under the Foreign Currency Deposit
The Supreme Court has also ruled Act (R.A. No. 6426, as amended), a written permis-
that a facsimile transmission cannot be sion from the depositor is the only instance al-
considered as electronic evidence. It is not lowed for the examination of FCDU accounts. YB
the functional equivalent of an original alleges t;hat AMLC on its own cannot order a
under the Best Evidence Rule and is not banking institution to reveal matters relating to
admissible as electronic evidence. (MCC bank accounts.
Industria1 Sales Corp. v. Ssangyong Corp.,
G.R. No. 170633, October 17, 2007). A. Is the legal position of UB, in requiring
written permission from the depositor,
b) No, Yvan's bank can not be ordered by the correct? (2.5%)
court to disclose if there were unreason-
able increases in his bank deposit when B. Does AMLC have the power to order a
the alleged acts were committed. The banking institution to reveal matters re-
inquiry into bank deposits allowable lating to bank accounts? (2.5%)
under RA 1405 must be premised on the
fact that the money deposited in the ANSWER:
account is itself the subject of the action.
Otherwise, the inquiry will amount to an a) CSC is correct in dismissing the case. The
impermissible encroachment into one's E-commerce law does not cover or allow
right to privacy. (BSB Gtoup vs. Go, G.R. e-filing or facsimile transmission as a
No. 168644, February 16, 2010 ) mode of filing of pleadings in administra-
tive cases.
b) No, Yvan's bank can not be ordered by the

court to disclose if there were
unreasonable increases in his bank 201_9-Bat Exam_s in Commercial Law
deposit when the alleged acts were
committed. T):l.e inquiry into bank PART I
deposits allowable under RA 1405 must
be premised on the fact that the money Note: As stated in the instructions. Part 1 covers
deposited in the account is itself the problems sets labelled A.1. to A.10. All answers to
subject of the action. Otherwise, the these questions should be written in Booklet 1.
inquiry will amount to an impermissible
encroachment into one's right to privacy.
(ESB Group vs. Go, G.R. No. 168644, A.1.
February 16, 2010 )
Define the following terms:
a) Trust Fund Doctrine (2%)
The trust fund doctrine provides that subscrip-

tions to the capital stock of a corporation constitute
a fund to which the creditors have a right to look for
the satisfaction of their claims. (Ong vs. Tiu, 401
SCRA 1 (2003)) The scope of the doctnne when the
corporation is insolvent encompasses not only the
capital stock, but also other property and assets
generally regarded in equity as a trust fund for the
payment of corporate debts. (Halley vs. Printwell,
Inc., G.R. No. 157549. May 30. 2011)
b) Unfair Competition (2%)
Unfair competition is the passing off or attempt-

ing to pass off upon the public of the goods or busi-
ness of one person as the goods or business of an-
other with the end and probable effect of deceiving
the public. Passing off takes place where a person,
by imitative devices on the general appearance of
A.2.
the goods, misleads prospective purchasers into
buying his merchandise under the impression that In May 2018, ABC Corp. entered .into a mer-
they are buying that of his competitors. (Republic
chandising contract which terms and conditions
Gas Corporation vs. Petron Corporation, G.R No.
were totally lopsided in favor of the counterparty,
194062, June 17, 2013)
XYZ, Inc. As a result, ABC Corp. suffered financial
c) Insurable interest in property (2%) losses.
A year after, or in May 2019, Mr. X became a
Insurable interest in property or any interest stockholder of ABC Corp. Learning about the cir-
therein or any relation or liability in respect thereof cumstances surrounding the merchandising con-
of such nature that a contemplated peril might indi- tract, Mr. X filed a derivative suit against ABC
rectly damnify the insured. It may consist of an ex-
Corp.'s directors to claim damages on behalf of
isting interest, an inchoate interest founded on an
ABC Corp. due to their mismanagement.
existing interest, or an expectancy coupled with an
existing interest in that out of which the expectancy a) What is a derivative suit? (2%)
arises (Sections 13 and 14, IC)
A derivative ·suit is an action filed by the
d) Splitting of deposits (2%) stockholder in the name and on behalf of
the corporation to enforce a corporate right
Splitting of deposits occurs whenever a deposit or cause of <3.Ction to set aside wrongful
account with an outstanding balance of more than acts committed by its directors and/or offi-
the statutory maximum amount of insured deposit cers (Ang for and in behalf of Sunrise Mar-
maintained under the name of natural or juridical keting vs. Ang, G.R No. 201675, June 19,
persons is broken down and transferred into two or
2013; Florete vs. Florete, G.R No. 174909,
more accounts in the name/s of natural or juridical
persons or entities who have no beneficial owner- January 20, 2016)
ship on transferred deposits in their names within b) Was Mr. X's filing of a derivative suit
120 days immediately preceding or during a bank
proper? Explain. (3%)
declared holiday or immediately preceding a closure
order by the BSP for the purpose of availing of the The filing of derivative suit is not proper.
maximum deposit insurance coverage. (Section 11, One of the requisites of derivative suit is
FDIC Charter, as amended by Republic Act No. 9576) that the person filing the suit must be a
stockholder of the corporation at the time
the acts or transactions subject of the ac-
tion occurred and the time the action was
2019 BAR EXAMINA 7 !0N 385
384 BAR Q & A IN COMMERCIAL LAvv
filed (Rule 8, Section 1, Interim Rules of tion should first be offered to the stock-
Procedure for Intramural-Corporate Contro- holders for subscription or purchase before
versies). In the present case, the transac- they can be issued to, or acquired by, per-
tion subject of the derivative suit occurred sons who are not stockholders of the corpo-
when X was not yet a stockholder. In fact, ration. This rule is intended to prevent the
X only became a stockholder one year dilution of stockholder's equity stake m the
thereafter. corporation. (Section 39, Corporation Code;
Section 38 of the Revised Corporation Code)
A.3. b) Is Ms. Z's contention correct? Explain.
In June 2018, DEF Corp. sent notices to its (3%)
stockholders informing them of the corporation's Z's contention is not correct. Pre-emptive
issuances of new shares• of stock. The notice in- right is not absolute. It may be waived ex-
cluded a reminder that, pursuant of DEF Corp's pressly or impliedly. Failure of the stock-
Articles of Incorporation, any stockholder who holder to exercise his right withm the pe-
fails to exercise his or her pre-emptive right riod set forth by the corporation amounts to
within three (3) weeks from receipt of notice a waiver of pre-emptive right
would be considered to have waived the same.
Ms. Z, a stockholder of DEF Corp., failed to A.4.
exercise her pre-emptive right within the said pe-
riod. However, she claimed that she did not val- In 2016, X Corp. obtained a loan worth
idly waive her right to do so because a waiver P50,000,000.00 from J Bank, which was secured by
must be expressed in writing. a third-party mortgage executed by Y, Inc. in fa-
vor of X Corp. Since X Corp. was not able to settle
a) Explain the concept of pre-emptive right its loan obligation to J Bank when it fell due, and
under the Corporation Code. (2%) despite numerous demands, J Bank foreclosed the
mortgaged properties. The properties were sold in
Pre-emptive right is the right of the stock- a foreclosure sale for P35,000,0000.00 thereby
holders to subscribe to any and all issuance leaving a P15,000,000.00 deficiency. For failure of
or disposition of shares of any class by the X Corp. to pay said deficiency, J Bank filed a com-
corporation in proportion to their ·sharehold- plaint for sum of money against X Corp., its Presi-
ing in the corporation. This means that, ex- dent, Mr. P, and Y Inc.
cept in the cases provided by law, original
or primary shares of stock of the corpora-
2019 BAR EXAMINATIOI\ 387
With respect to Mr. P, J Bank argued that he Piercing the corporate veil based on the alter
should be held solidarily liable together with X ego theory requires the concurrence of three ele-
Corp. because he signed the loan document on ments, namely:
behalf of X Corp. in his capacity as President. On (1) Control, not mere majority or complete stock
the other hand, J Bank contended that Y, Inc. control, but complete domination. not only of
should also be held solidarily liable because the finances but of policy and business practice in
shareholdings of both corporations are identically respect to the transaction attacked so that the
owned and their operations are controlled by the corporate entity as to this transaction had at
same people, hence, Y Inc. is a mere alter ego of X the time no separate mind, will or existence of
Corp. its own;
a) Should Mr. P held liable? Explain. (2.5%) (2) Such control must have been used by the
defendant to commit fraud or wrong, to
Mr. P is not liable. The corporation being a perpetuate the violation of a statutory or other
mere artificial person can only act thru its positive legal duty, or dishonest and unjust act
representative. The corporate representa- in contravention of plaintiff's legal right; and
tive is not liable for any act taken on behalf The aforesaid control and breach of duty must
(3)
of the corporation unless he acted in bad have proximately caused the injury or unjust
faith or with gross negligence in directing loss complained of. (Development Bank of the
the affairs of the corporation or made him- Philippines vs. Hydro Resources Contractors
self liable solidarily with the corporation. In Corporation, G.R. No. 167603, March 13, 2013)
this case, P, as President signed the loan
document not for himself but on behalf of X Control then is not enough. The facts do not
Corporation. Nothing in the facts indicated show that the control over the corporation
that he bound himself liable with the corpo- was used to perpetuate fraud or violate a
ration or he acted in bad faith or with gross positive legal duty in contravention of the J
negligence. Bank's right and that such control and
breach of duty as the proximate cause suf-
b) Should Y. Inc. be held liable? Explain.
fered by the Bank.
(2.5%)
Y Inc. is not liable. Interlocking sharehold- ,A.5.

ers, directors and officers, per se, is not
Mr. Y filed a case captioned as "Injunction
enough reason to set aside the separate le-
with Prayer for Status Quo Order, Temporary Re-
gal personalities of X and Y.
straining Order and Damages" against Z Company
2019 BAR EXAMINA-,-:ON 389
388 BAR Q & A IN COMMERC:AL LAW
to prohibit the latter from selling shares which shares does not pertain to the enforcement
Mr. Y. alleged that the subscription for the said of the parties' rights and obligation under
shares was already partly paid by him, but the the Corporation Code,
subject shares were nonetheless being offered for
b) Assuming that it was Z company which
sale by Z Company to the corporation's other instead filed a case against Mr. Yin order
stockholders. to collect the unpaid balance of his stock
subscriptions, is the case considered an
a) Is the case filed by Mr. Y against Z Com-
intra-corporate dispute? Explain. (2.5%)
pany considered an intra-corporate dis-
pute? Explain. (2.5%) Yes, both relationship and nature of the
controversy tests are present. The dispute
The case is not considered an intra-
is between the stockholder and the corpo-
corporate dispute. To determine if a case
ration. The issue of unpaid subscription
involves an intra-corporate controversy, the
pertains to the enforcement of their rights
Supreme Court has consistently applied
and obligations under the Corporation
two tests: the relationship test and the na-
ture of the controversy test. Under the rela- Code.
tionship test, an intra-corporate contro-
versy arises when the conflict is "between A.6.
the corporation, partnership or association
and its stockholders, partners, members or In January 2016, Mr. H was issued a life in-
officers." The nature of the controversy test surance policy by XYZ Insurance Co., wherein his
examines the controversy in relation to the wife, Mrs. W, was designated as the sole benefici-
"enforcement of the parties' correlative ary. Unbeknownst to XYZ Insurance Co., however,
rights and obligations under the Corpora- Mr. H had been previously diagnosed with colon
tion Code and the internal and intra- cancer, the fact of which Mr. H had concealed dur-
corporate regulatory rules of the corpora- ing the entire time his insurance policy was being
tion. It is not yet certain that Mr. Y is a processed.
stockholder of Z Company. Thus, the first
In January 2019, Mr. H unfortunately commit-
test is not present. And even assuming that
ted suicide. Due to her husband's death, Mrs. W,
the parties are stockholders of the corpora-
as beneficiary, filed a claim with XYZ Insurance
tion and as such, satisfy the relationship
Co. to recover the proceeds of the late Mr. H's life
test, the dispute is not rooted in the exis-
insurance policy. However, XYZ Insurance Co. re-
tence of intra-corporate relationship. The
sisted the claim, contending that: 1. The policy to
action for injunction to stop the sale of
2019 BAR Ex.AMINATiON 391
void ab initio because Mr. H fraudulently con- A.7.

cealed or misrepresented his medical condition,
Ms. J offered to sell her car to Ms. K. an inter-
i.e., his colon cancer; and 2. As an insurer in a life
insurance policy, it cannot be held liable in case of ested buyer. Consequently, Ms. J emailed Ms.Ka
suicide. copy of the proposed Deed of Sale covering the
same. After· agreeing to its terms, Ms. K printed
Rule each of XYZ Insurance Co. 's contentions. and then signed the emailed copy of the Deed of
(5%) Sale. She then faxed it to Ms. J who signed the
The first contention is not tenable. Under the faxed copy.
incontestability clause, after a policy of life insur- Is the copy of the Deed of Sale faxed by Ms. K
ance made payable upon the death of the insured to Ms. J considered an electronic document under
shall have been in force during the lifetime of the the Electronic Commerce Act? Explain. (2%)
insured for a period of two years from the issuance
of the policy or last reinstatement, the insurer must The copy of the deed of sale faxed by Ms. K to
make good on the policy even though the policy was Ms. J is not an electronic document. The Supreme
obtained through fraud, concealment or misrepre- Court has already ruled that a facsimile transmis-
sentation (Section 48 JC, Manila Bankers vs. Aban, sion cannot be considered as electronic evidence.
G.R. No. 175666, July 29, 2013; Sun Life of Canada It is not the functional equivalent of an original
vs. Sibya, G.R. No. 211212, June 08, 2016). Even if under the Best Evidence Rule and is not admissi-
Mr. H had concealed or misrepresented that he was ble as electronic evidence. (MCC Industrial Sales
previously diagnosed with colon cancer, XYZ can no Corp. v. Ssangyong Corp., G.R. No. 170633, Octo-
longer rescind the policy since it had been in force ber 17, 2007).
already for three years.
A.8.
On the second contention, XYZ Insurance is li-
able despite the suicide of Mr. H. Under the Insur- KLM Printers, Inc. operated a mall outlet lo-
ance Code, the insurer is liable when suicide is
cated at the ground floor of university building in
committed after the policy has been in force for a
Quezon City. It possessed soft copies of certain
period of two years from the date of issue or its last
textbooks on file, and would print "book-alikes" of
reinstatement (Section 180-A, IC). In this case, Mr. H
these textbooks (or in other words, reproduced the
committed suicide three years after issuance of the
entire .textbooks) upon order and for a fee. It
policy. Thus, XYZ should be liable to the beneficiary
would even display samples of such "book-alikes"
of Mr. H.
in its stall for sale to the public.
2019 SAR EXAMINATION
393
Upon learning of KLM Printers, Inc.'s activi- of the author and the offer to the public of copies of
ties, the authors of the textbooks filed a suit the book has an injurious effect upon the potential
against it for copyright infringement. In its de- market or value of the copyrighted work.
fense, KLM Printers, Inc. invoked the doctrine or
fair use, contending that the "book-alikes" are be- A.9.
ing used for educational purposes by those who
avail of them. X Pharmaceuticals, Inc. has been manufactur-
ing the antibiotic ointment Marvelopis, which is
a) What is the doctrine of f~ir use? (2%) covered by a patent expiring in the year 2020. In
January 2019, the company filed an application
Under this doctrine, the fair use of a copy- for a new patent for Disilopis, which although
righted work for (1) criticism, comment, (2) news re- constituting the same substance as Marvelopis, is
porting, (3) teaching including multiple copies for no longer treated as an antibiotic but is targeted
classroom use, (4) scholarship, research, and similar and marketed for a new use, i.e., skin whitening.
purposes is not an infringement of copyright.
What are the three (3) requisites of pat-
a)
b) Is KLM Printers, Inc.'s invocation of the entability under the Intellectual Property
doctrine of fair use proper in this case? Code? (3%)
Explain. (3%)
The requisites of patentability are novelty. in-
In determining whether the use made of a work ventive step and industrial applicability.
in any particular case is fair use;-.the factors to be
considered shall include: a) the purpose and charac- a. Novelty. - An invention shall not be con-
ter of the use, including whether such use is of a sidered new if it forms part of a prior art.
commercial nature or is for non-profit educational
purposes; b) The nature of the copyrighted work; c) Prior art shall consjst of:
The amount and substantiality of the portion used in
Everything which has been made available
relation to the copyrighted work as a whole; and d)
to the public anywhere in the world, before
the effect of the use upon the potential market for or .
value of the copyrighted work. (SECTION 185.1 of the filing date or the priority date of the ap-
the Intellectual Property Code) plication claiming the invention; and
The whole contents of a published applica-
Based on these factors, the invocation of the
tion for a patent, utility model, or industrial
doctrine of fair use is not proper. The reproduction of design registration. filed or effective in the
the copies is commercial in nature, the entire book Philippines, with a filing or priority date
is reproduced thereby violating the economic right
394 BA;:; Q & A IN COMMERCIAL LAW
that is earlier than the filing or priority date

ofthe application. In 2009, a Filipino corporation, RST Corp.,
filed before the IPO a Petition for cancellation of
b. Inventive Step. - An invention involves an W Hotels, Inc.'s "W" trademark on the ground of
inventive step if, having regard to prior art, it is not non-use, claiming that W Hotels, Inc. failed to use
obvious to a person skilled in the art at the time of its mark in the Philippines because it is not oper-
the filing date or priority date o_f the application ating any hotel in the country which bears the
ciaiming the invention. "W" trademark.
c. Industrial Applicability. - An invention In its defense, W Hotels, Inc. maintained that

that can be produced and used in any industry shall it has used its "W" trademark in the Philippine
be industrially applicable. commerce, pointing out that while it did not have
any hotel establishment in the Philippines, it
b) Should X Pharmaceuticals, Inc.'s patent should still be considered as conducting its busi-
application for Disilopis be granted? Ex- ness herein because its hotel reservation services,
plain. (2%) albeit for its hotels abroad, are made accessible to
Philippine residents through its interactive web-
No, the patent application for Disilopis should sites prominently displaying the "W" trademark.
not be granted. The use of the existing patent al-
W Hotels, Inc also presented proof of actual book•
though for a different purpose will not satisfy the ing transactions made by the Philippine residents
elements of novelty and inventive step.
through such websites.
Furthermore, under the law, there is no inven- Is W Hotels, Inc. 's defense against the petition
tive step if the drug or medicine is just a result of a
for cancellation. of trademark tenable? Explain.
discovery of any new property or new use for a
(5%)
known substance. (Section 26.2, Intellectual Prop-
erty Code, as amended.)
The defense of W Hotel is tenable. Having a ho-
tel establishment in the Philippines vvith the trade-
A.10. mark W is not the only way to prove actual use of
the trademark. In one case, the Supreme Court ruled
In 2005, W Hotels, Inc., a multinational corpo- that the use of the mark in an interactive website
ration engaged in the hospitality business, applied sufficiently showing an intent towards realizing a
for and was able to register its trademark "W" within-State commercial activity or interaction is
with the Intellectual Property Office of the Philip- considered actual use to keep the trademark regis-
pines (IPO) in connection with its ilotels found in tration in force. That W Hotel was able to present
different parts of the world. proof of actual booking transactions made by the
397
Philippine residents though such website proves a)

What is the concept of "insolvency" un-
that the use of its "W" mark through its interactive der the Financial Rehabilitation and In-
website 1s intended to produce a discernible com- solvency Act (FRJA)? May W Medical, Inc.
mercial effect or activity within the Philippines, or at be considered "insolvent" under the
the very least, seeks to establish commercial inter- FRIA? Explain. (3 % )
action with local consumers. This is tantamount to
actuai use of the trademark that will preclude can- Insolvency· shali refer to the financial condition
cellation of the trademark for non-use. (W Land of a debtor that is generally unable to pay its or his
Holdings, Inc. v. Starwood Hotels and Resorts liabilities as they fall due in the ordinary course of
Worldwide, Inc., G.R. No. 222366, December 4, 2017) business or has liabilities that are greater than its or
his assets (Section 4 (p) FRIA). Based on this defini-
tion of insolvency under FRIA, W Medi.cai may be
PART II
considered insolvent even though its assets are
more than its liabilities as it can not pay its liabili-
Note: As stated in the instructions, Part II covers
problem sets labelled B.11 to B.20. All answers to ties as they fall due.
these questions should be written in Booklet II. Assuming that W Medical, Inc. is consid·
b)
ered "insolvent", may it file petition for
B.11. suspension of payments under the FRIA?
Explain. (2%)
W Medical, Inc. operated a full-service hospi-
tal name WMed. Using its stockholders' advan- No, W Medical Inc. can not file a petition for
tages and a mortgage loan from Bank X, W Medi- suspension of payment. Such remedy is not avail-
cal, Inc. commenced the construction of a new 11- able to juridical insolvent debtor but only to insol-
storey WMed Annex Building. Unfortunately, due vent individual debtor. (Section 94, FRIA}
to financial constraints, only seven (7) floors were
constructed and the WMed Annex Building re- c)
Assuming that W Medical, Inc. is consid-
mained unfinished. ered "insolvent", what are the legally rec-
ognized modes of rehabilitation it may
Despite the non-completion of the WMed An- opt to avail of? (3%)
nex Building, W Medical, Inc. continued its opera-
tions and earned modest revenues. While W Medi- W Medical Inc., may avail itself of any of the le-
cal, Inc. 's assets are more that its liabilities and it gally recognized modes of rehabilitation:
is able to turn a monthly profit, it could not pay its A. Court-supervised which can be voluntary or
loan installments to Bank X as they fall due.
involuntary
a} Should the case filed against Z Insurance

B. Pre-negotiated Rehabilitation
Co. be suspended in light of the Com-
C. Out of Court or Informal Restructuring mencement Order? Explain. (2.5%)
Agreement
The case against Z Insurance Co should not be
d} If W Medical, Inc. files a petition for reha- suspended despite the commencement order. Under
bilitation before the court, is it possible FRIA, the stay order, which is included in the com··
for the rehabilitation proceedings to be mencement order, does not cover ciaim against the
converted into one for liquidation? Ex- surety of the insolvent debtor (Section 18 (c) FRIA)
plain. {2%) for the simple reason that it is not the one subject of
the petition for rehabilitation
Yes, the Court may convert the rehabilitation
into one of one liquidation jf the debtor is insolvent b) Should the criminal case filed against Mr.
and there is no substantial likelihood that the debtor P be suspended in light of the Com·
can be rehabilitated (Sectio_n 25 (c) FRIA) mencement Order? Explain. (2.5%)
B.12. The criminal case against Mr. P is not sus-

pended by the commencement order. Under FRIA,
EFG, Inc. is indebted to Bank Y in the amount the suspension of claims in corporate rehabilitation
of P50,000,000,00. The loan was secured by a sure- does not extend to criminal action against the dis-
tyship agreement issued by Z Insurance Co. tressed corporation or its directors and officers (Sec-
tion 18 (g)) This is because the prosecution of the
Due to EFG, Inc. 's default, Bank Y filed a case officers has no bearing on the pending rehabilitation
against Z Insurance Co. as surety. There is also a of the insolvent debtor. (Panlilio vs. Regional Trial
pending criminal case for violation of the Bounc- Court, G.R. No. 173846, February 2, 2011)
ing Checks Law against the President of EFG, Inc.,
Mr. P, who signed the check as signatory for the B.13.
company.
Enumerate at least two (2) rights of a data
Unable to meet its obligations as they fell due
EFG, Inc. filed a petition for rehabilitation. Find- subject under the Data Privacy Act. (2%}
ing the petition sufficient in form and substance, The rights of the data subject under the Data
the court issued a Commencement Order, which
was thereafter published. Privacy Act are:
401
2019 BAR EXAM\NATION
400 BAR Q& A IN COMMERCIAL I.AW
identity and contact details of the

1. The right to be informed personal. data controller or its rep-
a. on whether personal data pertaining to resentative;
him or her shall be, are being, or have period for which the information
been processed, including the exis- will be stored; and
tence of automated decision-making
and profiling; existence of their rights as data
subjects (Section 34a, IRR).
b. and notified about the following infor-
mation before the entry thereof into the The right to access. This means reasonable
2.
processing system of the personal in- access upon demand to the following:
formation controller, or at the next Contents of his or her personal data
practical opportunity: that were processed
Description of the personal data to Sources from which personal data
be entered into the system; were obtained
Purposes for which they are being Names and addresses of recipients of
or will be processed, · the personal data
Basis of processing, when process- Manner by which such data were proc-
ing is not based on the consent of . essed
data subject;
Reasons for the disclosure of the per-
Scope and method of the personal sonal data to recipients, if any
data processing; Recipients or
Information on automated processes
classes of recipients to whom the
where the data will, or is likely to, be
personal data are or may be dis-
made as the sole basis for any decision
closed;
that significantly affects or will affect
Methods utilized for automated the data subject
access, if the same is allowed by
Date when his or her personal data
the data subject, and the extent to
concerning the data subiect were last
which such access is authorized,
including meaningful information accessed and modified
about the logic involved, as well The designation, name or identity, and
as the significance and the envis- address of the personal information
aged consequences of such proc- controller (Section 34c, IRR)
essing for the data subject;
The personal data is incomplete, out-

3. The right to object. The data subject shall
dated, false, or unlawfully obtained
have the right to object to the processing of
his or her personal data, including process- The personal data is being used for
ing for direct marketing, automated proc- purpose not authorized by the data
essing or profiling. subject
Rule: When a data subject objects or with- The personal data is no longer neces-
holds consent, the personal information sary for the purposes for which they
controller shall no longer process the per- were collected
sonal data The data subject withdraws consent or
objects to the processing, and there is
Exceptions: no other legal ground or overriding le-
a. The personal data is needed pursuant gitimate interest for the processing
to a subpoena The personal data concerns private in-
b. The collection and processing are for formation that is prejudicial to data
obvious purposes, including, when it is subject, unless justified by freedom of
necessary for the performance of or in speech, of expression, or of the press or
relation to a contract or service to otherwise authorized
which the data subject is a party, or The processing is unlawful
when necessary or desirable in the
context of an employer-employee rela- The personal information controller or
tionship between the collector and the personal information processor vio-
data subject; or lated the rights of the data subject
(Section 34e, IRR)
c. The information is being collected and
processed as a result of a legal obliga- The right to damages. The data subject
5.
tion (Section 34b, IRR) shall be indemnified for any damages sus-
tained due to such inaccurate, incomplete.
4. The right to erasure or blocking. The data outdated, false, unlawfully obtained or un-
subject shall have the right to suspend, authorized use of personai data, taking into
withdraw or order the blocking, removal or account any violation of his or her rights
destruction of his or her personal data from and freedoms as data subject (Section 34f.
the personal information controller's filing
IRR)
system, upon proof of any of the following
grounds:
2019 BAR EXA!v;iNATION 405
6. The right to file a complaint

mation by the intended recipients thereof:
a. The complainant must have first in- Provided, That recipients or third parties
formed, in writing, the personal infor- who have previously received such proc-
mation controller or concerned entity of essed personal data shall be informed of its
the privacy vioiation or personal data inaccuracy and its rectification. upon rea-
breach to allow for appropriate action sonable request of the data subject (Sect10n
on the same; AND 34d, IRR)
b. the personal information controller or
8. Right to data portability - this nght gives
concerned entity did not take timely or
data subjects the mechanism to obtain
appropriate action on the claimed pri-
their personal data in an electronic or struc-
vacy violation or personal data breach,
tured format from personal information con-
or there is no response from the per- trollers if such personal data is being proc-
sonal information controller within fif-
essed through electronic means, and en-
teen (15) days from receipt of informa-
ables the further use of such personal data
tion from the complaint; AND
by the data subjects (Section 36, IRR: Sec-
c. the complaint is filed within six (6) tion 18, DPA)
months from the occurrence of the
claimed privacy violation or personal NB Any two of these rights should suffice
data breach, or thirty (30) days from to get full credit.
the last communique with the personal
information controller or concerned en- B.14.
tity, whichever is earlier.
ABC Corp. is a company which shares are
7. The right to rectify. The data subject has listed in the Philippine Stock Exchange. In 2015,
the right to dispute the inaccuracy or error 25% of ABC Carp's shareholdings were acquired
in the personal data and have the personal by XYZ, Inc., while 40% of the same were acquired
information controller correct it immedi- by RST, Inc., both of which are non-listed private
ately and accordingly, unless the request is corporations. Meanwhile, the remaining 35% of
vexatious or otherwise unreasonable. If the ABC Corp's shareholdings are held by the public.
personal data has been corrected, the per-
sonal information controller shall ensure In 2018, or three years (3) after it acquired its
the accessibility of both the new and the 25% stake in ABC Corp., XYZ Inc. sought to obtain
retracted information and the simultaneous an additional 12% shareholding in ABC Corp. by
receipt of the new and the retracted infor- purchasing some of the shares owned by RST, Inc.
2019 BAR EXAtv'ilNi>.TiON 407
406 BA'< Q &A 'N COMMER.CIAL LAW
therein. The new acquisition will not, however, shares of JKL, Inc. because of the tip disclosed to
result in XYZ, Inc. gaining majority control of ABC him by Mr. P.
Corp. 's Board.
a) Is the information disclosed by Mr. P to
Is XYZ, Inc. required to conduct a tender of- Mr. B considered as material nonpublic
fer? Explain. (3%) information for purposes of insider trad-
ing? Explain. (2%)
XYZ is not required to conduct a tender offer
While purchase of equity securities covering 35% of Yes, the information that the corporation has
the public company is subject to mandatory tender just been awarded a P5 billion construction contract
offer, the equity securities should have been ac- by a reputable private company is material non-
quired during a 12 month period (Rule 19.2). In this public information. It has not been generally dis-
case, the additional 12% equity stake to bring XYZ's closed to the public and would likely affect the mar-
acquisition to 37% was acquired after 3 years from ket price of the security after being disseminated to
the first purchase transaction. It is when the acqui- the public or would be considered by a reasonable
sition would result in ownership of over fifty percent person important under the circumstances in de-
(50%) of the total outstanding equity securities of a termining his course of action whether to buy, sell or
public company, that the acquirer shall be required hold the security. (Section 27.2 of the SRC)
to make a tender offer regardless of the time he ac-
quired the shares that brought his equity stake to b) Should Mr. P and Mr. B be held liable for
over 50% of the public company. insider trading? Explain. (3%)
P is liable for insider trading because he bought

B.15.
shares of the company, thru his brokeL while in the
Mr. P, the president of JKL, Inc. which shares possession of material non-public information.
are listed in the Philippine Stock Exchange, was B is also liable for insider trading. B became an
notified that the corporation has just been insider after having received by communication a
awarded a P5,000,000.0000.00 construction con- material non-public information from P, who as
tract by a reputable private company. Before this President of JKL is an actual insider. (Sections 3.8
information could be disclosed to the public, Mr. P and 27 of SRC). B is liable because he bought the
called his stockbroker to purchase 20,000 shares of shares of JKL while in the possession of material
JKL, Inc. He also mentioned the transaction to his non-public information.
brother, Mr. B. Mr. B, who was not involved at all
in the business of JKL, Inc., arso brought 50,000
408 BAR Q & A IN COMMERCIAL LAW .
The dollar savings account with Bank D. how-

B.16.
ever, can not be garnished. Except in case of written
Mayor J has two (2) bank accounts; 1. A Peso consent of depositor or in case of court order for vio-
lation of the Anti-Money Laundering law, foreign
savings account with Bank P; and 2. A U.S. Dollar
currency deposits are exempt from garnishment un-
savings account with Bank D.
der RA 6426. (GSIS vs. Court of Appeals, G.R.
In 2018, 1'4ayor J's former business partner, 189206, June 8, 2011)
Mr. K, filed a civil case for collection of sum of
money against him. b) Assuming that the prosecution in the
criminal case sought from the court an
In the same year, a criminal case for Direct inquiry of Mayor J's bank accounts in
Bribery under the Revised Penal Code was filed Bank P and Bank D, may a bank inquiry
against Mayor J. It was alleged in the information
order be issued? Explain. (2.5%)
that in exchange for the expeditious approval of
various permits and licenses, Mayor J received Yes, the bank inquiry order may be issued be-
kickbacks which amounts were deposited to his cause one of the exceptions to the rule prohibiting
bank accounts. disc::losure of Philippine currency bank deposits is if
the money deposited is the subject matter of litiga-
a) In the event Mayor J is held ultimately li- tion. The foreign currency deposits, on the other
able in the civil case filed by Mr. K, may hand, are exempt from court order under RA. 6426
Mayor J's bank accounts in Bank P and
Bank D be subject to garnishment? Ex-
B.17.
plain. (2.5%)
Several public officials were charged before
The peso savings account of Mayor J with Bank
P may be garnished. The prohibition against exami- tp.e Sandiganbayan for violation of the Anti-Graft
nation or inquiry into bank deposits under RA 1405 and Corrupt Practices Act involving the anoma-
is not a bar to 'the garnishment of the deposit be- lous award of a multi-billion contract to Corpora-
cause the disclosure is only incidental to the. execution Z. The Information alleged that each of the
tion process and there is nothing in the records of accused received kickbakcs from Corporation Z in
Congress that would indicate that Phil Currency exchange for the dispensation of certain bidding
back deposits .are beyond the reach of judgment requirements, and the said kickbacks were depos-
creditor. (China Bank vs. Ortega, G.R. No. L-34964, ited to the accused's ·respective bank accounts in
January 31, 1973) the Philippines. Upon request of the Office of the
Ombudsman, the Compliance and Investigation
Staff of the Anti-Money Laundering Council
410 BAR Q & .A. IN COivlMERCIAL LAW
2019 BAR EXAMINATiON 4~1
(AMLC) conducted an intelligence database

search. The search revealed that there were remit- activities under AMLA (Section 11 of RA 9160, as
tances to the bank accounts of the accused with amended) (Subido Pagente Certeza, Mendoza and
six (6) different banks. Binay Law Offices vs. Court of Appeals, G.R. No.
216914, December 6, 2016)
a) May the AMLC examine the bank ac-
counts of the accused-public officials B.18.
even without. seeking a prior court order?
Explain. (2.5%) Mrs. T maintained a checking account with
Bank U. While Mrs. T was abroad. she left her
The AMLC can not examine the bank accounts checkbook inside her drawer, which she kept un-
of the accused-public officials without seeking a der lock and key. However, Mrs. T's long-time sec-
prior court order. Under the Anti-Money Laundering retary, Ms. S, knew where the checkbook was
law, the AMLC needs to obtain a bank inquiry 0.rder hidden. Ms. S then broke the lock on the office
from the Court of Appeals to inquire into funds and drawer, took one of Mrs. T's blank checks, and
deposits if there is probable cause they relate to succeeded to encash P200, 000.00 from Bank U by
unlawful activity under AMLA. Bank inquiry order is imitating Mrs. T's signature. As soon as Mrs. T re-
not necessary only if the predicate crime is any of turned from abroad and discovered the incident.
hijacking, kidnapping, terrorism, murder, arson and She immediately reported the matter to Bank U,
violation of the Dangerous Drugs Law (Section 11 of seeking that the transaction be reversed. How-
RA 9160, as amended). In the present case, the ever, the bank refused, contending that Mrs. T
predicate crime, graft and corrupt practice act, does should bear the loss arising from the forgery.
not fall within the exception.
a) Is the imitation of Mrs. T's signature con-
b) May a court order be issued ex parte for sidered as a material alteration under the
the freezing of the bank accounts of the Negotiable Instruments Law? Explain.
accused-public officials upon application (2.5%).
of the AMLC? If so, in what instance may
this be done and which court can issue No. Section 125 of the Negotiable Instruments
such order? Explain. (2.5%) Law provides that there is material alteration of an
instrument in case of any alteration of date; the sum
Yes, the AMLC may apply for a freeze order payable; time or place of payment; number or rela-
with the Court of Appeals. It must establish the ex- tions of the parties;· the medium or currency in
istence of probable cause that the funds and depos- which payment is to be made; or which adds a place
its it wants to freeze relate to any of the unlawful of payment where no place of paymen': is specified;
or any other change or addition which alters the ef-
412 BAR Q&A :N COMMERCIAL LAW
2019 BAR EXAMINAT:ON 413
feet of the instrument in any respect is a material

alteration. cast. In order to appease the apparent dismay of
most of the guests who will miss their flight back
The imitation of Mrs. T's signature is not con- to Manila, the boat captain of one of LMN, Inc. 's
sidered as a material alteration under the Negotia- motorized boats decided to push through with its
ble Instruments Law but one of forgery. trip back to the city. Shortly after the boat sailed,
the storm hit and the winds and waves became
a) Is bank U contention tenable? Explain. stronger, causing engine trouble to the boat. Un-
(2.5%)
fortunately, the boat capsized and sanlt, resulting
in the death of one of the passengers, Mr. X.
The contention of Bank U is not tenable. A
forged signature is wholly inoperative and no right This prompted Mr. X's heirs to file a complaint
can be acquired under such forged signature (Sec- for damages against LMN, Inc., which they alleged
tion 23 of the NIL). In case of forgery of ,the drawer's to be a common carrier. In its defense, LMN, Inc.
signature, as in the present case, the loss shall be maintained that it is not a common carrier be-
borne by the drawee bank. It should restore the ac- cause its boats are not available to the general
count of the depositor correspbnding to the amount public but only ferry resort guests and employees.
of the check deducted from its account. The drawee
bank is supposed to be familiar with the signature a} May LMN, Inc. be considered a common
of the drawer as its customer and shall be consid- carrier? Explain. (3%)
ered negligent for not detecting the forgery (San
Carlos Milling Co. vs. BPI, 59 Phil. 59) LMN is a common carrier. Common carrier are
persons engaged in the business of transporting or
Also, by accepting the instrument, the drawee- carrying passengers or goods or both, by land, air
acceptor is bound to have acknowledged the genu- and water, offering their services to the public, for
ineness of the drawer's signature (Section 62 NIL) compensation. The test does not make a distinction
whether the carrying is done as the principal or as
B.19. an auxiliary activity or that the carriage was peri-
odic, occasional, episodic or unscheduled or has lim-
LMN, Inc. operates a beach resort in a se- ited clientele. It is not necessary that the transporta-
cluded island off the coast of Puerto Princesa City, tion services be offered to the General public. Offer-
Palawan. It operates three (3) motorized boats to ing the services even to a narrow segment of the
ferry its guests from the city proper to the island public suffices (Spouses Cruz vs. Sun Holidays, G.R.
resort and vice versa. During one rainy morning, No. 186312, June 29, 2010) Thus, the fact that the
the guests were informed that the ferry services transportation services are offered only to the
for that day were cancelled due to a storm fore-
414 BAR Q&A IN COMMERCiAL LAW
guests of the beach resort is immaterial. Transporta-

tion is an integral part of LMN's business. Bank C then informed Bank I of the payment
made pursuant to the letter of credit. Thereafter,
b) Assuming LMN, Inc. is a common carrier, Bank C transmitted the documents presented by F
may it be absolved from liability on the Corp. to Bank I and sought to be reimbursed from
ground of fortuitous event? Explain. (2%) the amount it paid to F Corp.
Bank I, however, refused to reimburse Bank C
No. For such defense to be tenable, the force
for the reason that it received an e-mail coming
majeure must have been the proximate and only
from Mr. P that the latter will not make any pay-
cause of the loss. And the carrier should have exer-
cised due diligence to prevent or minimize the loss, ment to Bank I in relation to the letter of credit
before, during and after the occurrence of the inci- because the products shipped to him by F Corp
dent (Spouses Cruz, ibid.). The carrier must likewise were of substandard quality.
not be guilty of delay. LMN can not validly invoke
a) Is Bank I's refusal to reimburse Bank C
force majeure because it was guilty of contributory
warranted? Explain. (3%)
negligence in continuing with the ferry services de-
spite the storm.
Bank I's refusal to reimburse Bank C i.s war-
ranted. Under the doctrine of independence, as long
B.20. as the stipulated documents are presented. the issu-
ing bank has the obligation to pay even if the buyer
F Corp., a corporation engaged in the export should later on refuse payment. The obligation to
of fertilizers, entered into a sale of its products pay on the part of the issuing bank does not depend
with Mr. P. In its relation, Bank C, F Corp's bank, on the fulfillment or non-fulfillment ofthe main con-
received an irrevocable letter of credit, payable on tract underlying the letter of credit but simply upon
sight, issued by Bank I for the account of its client. submission of the stipulated documents. To allow
Mr. P, in the amount of Pl,000,000.00 to cover the Bank I to refuse to honor the Letter of Credit simply
purchase price of the sale. In the letter of credit, because it could not collect first from Mr. P, the
Bank C was designated as the confirming bank. buyer, is to countenance a breach of the Independ-
ence Principle. (The Hongkong & Shanghai Banki..."Jg
After being presented the required documents Corporation, Limited vs. National Steel Corporation
under the letter of credit, Bank C issued in favor of and Citytrust Banking Corporation (Now Bank of the
F Corp. a cashier's check in the amount of Philippine Islands), G ..R. No. 183486, February 24,
Pl,000,000.00.
2016)
416 BAR Q & 'A IN COMMERCIAL LAW
b) Assuming that the documents submitted

by F Corp. were proven to be actually
forged but were nonetheless accepted by
Bank C as sufficient, may Bank I refuse
Bank C's claim for reimbursement? Ex-
plain. (2%)
Yes, Bank I may refuse Bank C's claim for reim-

bursement if the documents submitted by F Corp.
were proven to be actually forged but were nonethe-
less accepted by Bank C as sufficien~.
Under the fraud exception principle, the benefi-
ciary of the letter of credit should not be entitled to
payment if the following elements are present: a)
there is fraud on the part of the beneficiary, b) the
fraud constitutes fraudulent abuse of the independ-
ent purpose of the letter of credit and not only fraud
under the main agreement, c) irreparable injury
might follow if beneficiary is paid. The forged docu-
ments qualify as fraud sufficient to prevent payment
to F Corporation by Bank C and the right to reim-
bursement by Bank C from Bank I. (Transfield Phil-
ippines vs. Luzon Hydro Corporation, 443 SCRA 307)
£0(.Q.

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BARQ&A

DEAN NILO T. DIVINA

DEAN NILO T. DIVINA

ALL RIGHTS RESERVED 2009 BAR EXAMINATION ............................................... 1

2019 BAR EXAMINATION ............................................ 381

Dean Nilo T. Divina

2009 BAR EXAMINATION

TRUE or FALSE. Answer TRUE if the statement is

[a] The Denicola Test in intellectual property

True. ,Applying the Denicola Test in Brandir In-

business which is contrary to the purpose and na-

offered, was available only to persons 50 to 75

III Yes. The issuance of a cover note resulted in the

tion's express, implied or incidental

the obligors. (Great Asian Sales Corporation vs. Answer:

Answer: curred; Teresita, the bus driver's mistress who

XVIII [b J What, if any, are the valid defenses that

Under the Securities Regulation Code, what is

Under the Margin Trading Rule, no registered

e. Receive other types of deposits. as

Answer: a. Accumulating the savings of deposi-

business engaged in agriculture, ser- Answer:

eration paid with interest thereon, less the amount

V B. Enumerate three (3) stipulations that are

The following stipulations are prohibited in

trial design. Thus, a container of goods which has

no separate legal personality from Dianne, as pro-

Answer: The insurer is liable under the insurance policy.

Constantino tried to collect from the insur-

A. Monaliza filed a complaint against Valen- Answer:

No. Monaliza cannot sue Valentino for violation XIV

B. What are the types of averages in marine

Dr. Nobel discovered a new method of treat-

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

Answer: (C) the lien in his favor.

(C) asking the agent about the extent of such Answer:

Answer: (B) book value.

(A) Yes, because the insurance policy covered

(23) X, Co., a partnership, is composed of A Answer:

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

(29) X came up with a new way of present- Answer:

(A) No, because it is a mere system or method. (C) subsequent indorser.

(32) X constituted a chattel mortgage on a

(A) probable losses (A) non-negotiable instrument.

(B) inevitable losses (B) promissory note.

(C) possible losses (C) letter of credit.

(D) a slight chance of losses (D) check.

(A) probable losses (B) promissory note.

(B) N. as indorser to 0 (39) E received goods from T for display and

(BJ No, since his breach of the trust receipt

(C) secondary creditor. (A) voidable.

Answer: (A) Yes, since D is the principal debtor.

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

(A) already knows of the dishonor and it makes Answer:

(C) Yes, since the rules do not discriminate