Escolar Documentos
Profissional Documentos
Cultura Documentos
Mercantile Law
Questions Asked
More Than Once
(QuAMTO 2016)
*Bar questions are arranged per topic and were selected based on
their occurrence on past bar examinations from 1990 to 2015.
ACADEMICS COMMITTEE
KATRINA GRACE C. ONGOCO MANAGING EDITOR
Q: Explain the nature of Letters of Credit as a Q: X Corporation entered into a contract with PT
financial devise (2012) Construction Corporation for the latter to construct
and build a sugar mill within six (6) months. They
A: A letter of credit is a financial device developed by agreed that in case of delay, PT Construction
merchants as a convenient and relatively safe mode of Corporation will pay X Corporation P100,000 for
dealing with sales of goods to satisfy the seemingly every day of the delay. To ensure payment of the
irreconcilable interests of a seller, who refuses to part agreed amount of damages, PT Construction Corp.
with his goods before he is paid, and a buyer, who wants secured from Atlantic Bank a confirmed and
to have control of the goods before paying. The use of irrevocable letter of credit which was accepted by X
credits in commercial transactions serves to reduce the Corporation in due time. One week before the
risk of nonpayment of the purchase price under the expiration of the six (6) month period, PT
contract for the sale of goods and to reduce the risk of Construction Corp. requested for an extension of
nonperformance of an obligation in a non-sale setting time to deliver claiming that the delay was due to
(Transfield Philippines Inc. vs. Luzon Hydro Corp., the fault of X Corporation. A controversy as to the
November 22, 2004). cause of delay which involved the workmanship of
the building ensued. The controversy remained
Q: Is the Uniform Customs and Practice for unsolved. Despite the controversy, X Corporation
Documentary Credits of the International Chamber presented a claim against Atlantic Bank by executing
of Commerce applicable to commercial letters of a draft against the letter of credit.
credit issued by a domestic bank even if not
expressly mentioned in such letters of credit? What a. Can Atlantic Bank refuse payment due to the
is the basis for your answer? (2015) unresolved controversy? Explain.
b. Can X Corporation claim directly from PT
A: Yes, the Supreme Court held that the observance of Construction Corp.? Explain. (2008)
the Uniform Customs and Practice in the Philippines is
justified by Article 2 of the Code of Commerce which A:
enunciates that in the absence of any particular a. Altantic Bank cannot refuse to pay X Corporation.
provision in the Code of Commerce, commercial This is because of the Doctrine of Independence
transaction shall be governed by usage and customs which provides that the obligation of the issuing
generally observed (Bank of the Philippine Islands v. De bank to pay the beneficiary does not depend on the
Reny Fabric Industries, Inc. 35 SCRA 253). fulfillment or non-fulfillment of the contract
supporting the letter of credit. The only instance
Parties to a Letter of Credit where Atlantic Bank can refuse payment is when X
Corporation wasn’t able to strictly comply with the
Q: Explain the three (3) distinct but intertwined conditions set forth in the letter of credit.
contract relationships that are indispensable in a b. X Corporation may directly claim from PT
letter of credit transaction. (2002) Construction Corporation. A letter of credit by itself
does not come into operation without a contract
A: The following are the three (3) distinct relationships supporting it. It is not a contract that can stand on
arising from a letter of credit: its own, it needs a supporting contract. It is merely
an alternative recourse and does not in any way
1. Issuing Bank and the Applicant/Buyer/Importer prevent the beneficiary from directly claiming from
– The applicant has the obligation to pay what the the applicant (Transfield Phils. Inc. vs. Luzon Hydro
issuing bank has paid to the beneficiary with the Corporation, G.R. No. 146717, Nov 22, 2004).
cost and interest on the letter of credit. Their
relationship is governed by the terms of the Q: ABC Company filed a Petition for Rehabilitation
application and agreement for the issuance of letter with the Court. An Order was issued by the Court, (1)
of credit by the bank. staying enforcement of all claims, whether money or
2. Issuing Bank and the otherwise against ABC Company, its guarantors and
Beneficiary/Seller/Exporter – The issuing bank is sureties not solidarily liable with the company; and
the one who undertakes to pay the beneficiary upon (2) prohibiting ABC Company from making
strict compliance of the latter to the requirements payments of its liabilities, outstanding as of the date
set forth in the letter of credit. of the filing of the Petition. XYC Company is a holder
3. Applicant and Beneficiary – The applicant is the of an irrevocable Standby Letter of Credit which was
one who procures the letter of credit and obliges previously procured by ABC Company in favor of
himself to reimburse the issuing bank upon receipt XYC Company to secure performance of certain
of the documents of title while the beneficiary is the obligations. In the light of the Order issued by the
one who, in compliance with the contract of sale, Court, can XYC Company still be able to draw on
ships the goods to the buyer and delivers the their irrevocable Standby Letter of Credit when due?
documents of title and draft to the issuing bank to Explain your answer. (2012)
recover payment for the goods. The relationship
between them is governed by the law on sales if it is A: XYC Company, the beneficiary of the standby letter of
a commercial letter of credit but if it is a stand-by credit, can draw on the letter of credit despite filing of
letter of credit it is governed by the law on petition for corporate rehabilitation. The liability of the
obligations and contract. bank that issued the letter of credit is primary and
solidary. Being solidary, the claims against them can be
1
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
TRUST RECEIPTS Q: Delano Cruz is in default in the payment of his
existing loan from BDP Bank. To extend and
Definition/Concept of a Trust Receipt Transaction restructure this loan, Delano agreed to execute a
trust receipt in the bank’s favor covering the iron
Q: C contracted D to renovate his commercial pellets Delano imported from China one year
building. D ordered construction materials from E earlier. Delano subsequently succeeded in selling
and received delivery thereof. The following day, C the iron pellets to a smelting plant, but the proceeds
went to F Bank to apply for a loan to pay the went to the payment of the separation benefits of his
construction materials. As security for the loan, C employees who were laid off as he reduced his
was made to execute a trust receipt. One year later, operations.
after C failed to pay the balance on the loan, F Bank
charged with violation of the Trust Receipts Law. When the extended loan period expired without any
significant payment from Delano (not even to the
a. What is a Trust Receipt? extent of the proceeds of the sale of the iron pellets),
b. Will the case against C prosper? Reason briefly BDP Bank consulted you to on how to proceed
(2007) against Delano. The bank is contemplating the filing
of estafa pursuant to the provisions of PD 115 (Trust
A: Receipts Law) to force Delano to turn in at least the
a. A trust receipt is a written or printed document proceeds of the sale of the iron pellets.
signed by the entrustee in favor of the entruster
containing terms and conditions substantially Would you, as bank counsel and as officer of the
complying with the provision of PD 115 whereby court, advise the bank to proceed with its
the bank as entruster releases the goods to the contemplated action? (2013)
possession of the entrustee but retain ownership
thereof while the entrustee may sell the goods and A: I will not advise BDP Bank to file a criminal case for
apply the proceeds for the full payment of his estafa against Delano. Delano received the iron pellets
liability to the bank (Sec. 3 (j), Trust Receipts Law). he imported one year before the trust receipt was
executed. As held by the Supreme Court, where the
It is also defined as a document in which is execution of a trust receipt agreement was made after
expressed a security transaction, where under the the goods covered by it had been purchased by and
lender, having no prior title in the goods on which delivered to the entrustee and the latter as a
the lien is to be given, and not having possession consequence acquired ownership to the goods, the
which remains in the borrower, lends his money to transaction does not involve a trust receipt but a simple
the borrower on security of the goods, which the loan even though the parties denominated the
borrower is privileged to sell clear of lien on transaction as one of trust receipt.
agreement to pay all or part of the proceeds of sale
to the lender. The term is specifically applied to a Loan/Security Feature
written instrument whereby a banker having
advanced money for purchase of imported Ownership of the Goods, Documents and Instruments
merchandise and having taken title in his own name, under a Trust Receipt
delivers possession to an importer on agreement in
writing to hold the merchandise in trust for the Q: Delano Cruz is in default in the payment of his
banker till he is paid. existing loan from BDP Bank. To extend and
restructure this loan, Delano agreed to execute a
Finally, a document executed between an entrustor trust receipt in the bank's favor covering the iron
and an entrustee, under which the goods are pellets Delano imported from China one year
released to the latter who binds himself to hold the earlier. Delano subsequently succeeded in selling
goods in trust, or to sell or dispose of the goods with the iron pellets to a smelting plant, but the proceeds
the obligation to turn over the proceeds to the went to the payment of the separation benefits of his
entrustor to the extent of the entrustee’s obligation employees who were laid off as he reduced his
to him, or if unsold, to return the same. operations.
When the extended loan period expired without any
b. The case of estafa against C will not prosper. PD 115 significant payment from Delano (not even to the
does not apply in this case because the proceeds of extent of the proceeds of the sale of the iron
the loan are used to renovate C’s commercial pellets),BDP Bank consulted you on how to proceed
building. Trust receipts transactions are intended to against Delano. The bank is contemplating the filing
aid in financing importers and retail dealers who do of estafa pursuant to the provisions of Pres. Decree
not have sufficient funds or resources to finance the No. 115 (Trust Receipts Law) to force Delano to tum
importation or purchase of merchandise, and who in at least the proceeds of the sale of the iron pellets.
may not be able to acquire credit except through Would you, as bank counsel and as an officer of the
utilization, as collateral, of the merchandise court, advise the bank to proceed with its
imported or purchased. The transactions contemplated action? (2007, 2013)
contemplated under the Trust Receipts Law mainly
involved acquisition of goods for the sale thereof. A: I will not advise BDP Bank to file a criminal case for
The transaction is properly called a simple loan with estafa against Delano. Delano received the iron pellets
the trust receipt merely as a collateral or security he imported one year before the trust receipt was
for the loan (Ng vs. People G.R. No. 173905, April 23, executed. As held by the Supreme Court, where the
2010 citing Samo vs. People, G.R. No. L-17603-04, May execution of a trust receipt agreement was made after
31, 1962; Consolidated Bank and Trust Corporation the goods covered by it had been purchased by and
vs. Court of Appeals, 356 SCRA 671) delivered to the entrustee and the latter as a
3
A: No. Lack of intent to defraud is immaterial to the A: No. It is the obligation of the entrustee, CCC Car, Inc.
prosecution for estafa under Trust Receipts Law. The to receive the proceeds of the sale of the goods covered
mere failure to account or to return gives rise the crime by the trust receipts in trust for the entruster and to
which is a malum prohibitum. turn over the same to him to the extent of the obligation
(Sec. 4, Trust Receipts Law).
Q: A. Maine Den, Inc. opened an irrevocable letter of
credit with Fair / Bank, in connection with Maine Q: Tom Cruz obtained a loan of P1M from XYZ Bank
Den, Inc.’s importation of spare parts for its textile to finance his purchase of 5,000 bags of fertilizer. He
mills. The imported parts were released to Maine executed a trust receipt in favor of XYZ Bank over
Den, Inc. after it executed a trust receipt in favor of the 5,000 bags of fertilizer. Tom Cruz withdrew the
Fair Bank. When Maine Den, Inc. was unable to pay 5,000 bags from the warehouse to be transported to
its obligation under the trust receipt, Fair Bank sued Lucena City where his store is located. On the way,
Maine Den, Inc. for estafa under the Trust Receipts armed robbers took from Tom Cruz the 5,000 bags
Law. The court, how dismissed the suit. Was the of fertilizer. Tom Cruz now claims that his obligation
dismissal justified? Why or why not? (2015) to pay the loan to XYZ Bank is extinguished because
the loss was not due to his fault. Is Tom Cruz
A: The dismissal of the complaint for estafa is justified. correct? Explain. (2008)
Under recent jurisprudence, the Supreme Court held
that transactions referred to in relation to trust receipts A: Tom Cruz is not correct in contending that his
mainly involved sales and if the entruster knew even obligation to pay the loan to XYZ Bank is extinguished.
before the execution of the alleged trust receipt Sec. 10 of P.D. 115, Trust Receipts Law, provides that the
agreement that the goods subject of the trust receipt loss of goods, documents or instruments which are the
were never intended by the entrustee for resale or for subject of a trust receipt, pending their disposition,
the manufacture of items to be sold, the agreement is irrespective of whether or not it was due to the fault or
not a trust receipt transaction but a simple loan, negligence of the entrustee, shall not extinguish his
notwithstanding the label. In this case, the object of the obligation to the entruster for the value thereof.
trust receipt, spare parts for textile mills, was for the use Therefore, the entrustee cannot be relieved of their
of the entrustee and never intended for sale. As such, the obligation to pay the loan in favor the bank.
transaction is a simple loan (Ng v. People, GR No. 173905,
April 23, 2010; Land Bank v. Perez, GR No. 166884, June Q: Will the corporate officers of CCC Car, Inc. be held
13, 2012 and Hur Ting Yang v. People, GR No. 195117, liable under the circumstances? Explain your
Aug. 14, 2013). answer. (2012)
B. Will the principle of res perit domino apply in A: Yes. Failure of the entrustee to turn over the proceeds
trust receipt transaction? of the sale of the goods shall constitute the crime of
estafa. If the violation is committed by a juridical entity,
A: No. This is because the loss of the goods, documents the penalty shall be imposed upon the directors, officers,
or instruments which are the subject of a trust receipt employees or other officials or persons therein
pending their disposition, irrespective of whether or not responsible for the offense, without prejudice to the civil
it was due to the fault or negligence of the entrustee, liabilities arising from the criminal offense. Hence, the
shall not extinguish the entrustee’s obligation to the corporate officers are criminally liable for the violation
entruster for the value thereof. Also, while the entruster of the law being the human agent responsible for the
is made to appear as owner of the goods covered by the same (Sec. 13, Trust Receipts Law).
trust receipt, such ownership is only a legal fiction to
enhance the entruster’s security interest over the goods. Remedies Available
(Section 10 of PD 115; Rosario Textile Mills Corp v. Home
Bankers Savings and Trust Company, 462 SCRA 88) Warehouseman’s Lien
4
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
Q: Alex deposited goods for which Billy, A: It is a written contract for the payment of money
warehouseman, issued a negotiable warehouse which is intended as a substitute for money and passes
receipt wherein the goods were deliverable to Alex from one person to another as money, in such a manner
or order. Alex negotiated the receipt to Caloy. as to give a holder in due course the right to hold the
Thereafter, Dario, a creditor secured judgment instrument free from defenses available to prior parties.
against Alex and served notice of levy over the goods (Sundiang, Aquino, Reviewer in Commercial Law, p.5, 5th
on the warehouseman edition) For an instrument to be considered as a
negotiable one, it must comply with Section 1 of the
a. To whom should the warehouseman deliver Negotiable Instruments Law, to wit:
goods upon demand?
b. Would you answer be the same if the a. It must be in writing and signed by the maker or
warehouseman issued a non-negotiable drawer;
warehouse receipt? (2007) b. Must contain an unconditional promise or order to
pay a sum certain in money;
A: c. Must be payable on demand, or at a fixed or
a. Billy should deliver the goods to Caloy. Under the determinable future time;
Warehouse Receipts Act, the goods covered by the d. Must be payable to order or to bearer; and
negotiable receipt cannot be attached or levied upon e. Where the instrument is addressed to a drawee, he
directly by the creditor. The creditor must resort to must be named or otherwise indicated therein with
attaching or levying the receipt itself, not the goods, reasonable certainty.
while in the possession of the debtor, Alex. Since
Alex has already negotiated it to Caloy, Dario cannot A negotiable instrument is characterized by negotiability
anymore attach or levy the goods under the (capability of being transferred from one person to
warehouse receipt. another so as to make him a holder who is entitled to the
b. A non-negotiable warehouse receipt is transferred payment thereof) and its accumulation of secondary
thru simple assignment. Since Alex negotiated it contracts resulting from indorsements at the back
instead of having it assigned, the conveyance of the thereof.
warehouse receipt to Caloy is not valid; hence, Alex
is still the owner of the said goods. Dario could now Q: Distinguish a negotiable document from a
attach or levy the goods. negotiable instrument (2005)
Q: Jojo deposited several cartons of goods with SN A: A negotiable instrument is a written contract which is
Warehouse Corporation. The corresponding intended as a substitute for money like promissory
warehouse receipt was issued to the order of Jojo. notes and bill of exchange while a negotiable document
He endorsed the warehouse receipt to EJ who paid is a commercial instrument with limited negotiability
the value of goods deposited. Before EJ could but they have been held to be non-negotiable in the
withdraw the goods, Melchor informed SN technical sense because they do not have the requisites
Warehouse Corporation that the goods belonged to under the Negotiable Instruments Law (De Leon, The
him and were taken by Jojo without his consent. Philippine Negotiable Instruments Law, p.8, 2010 edition).
Melchor wants to get the goods, but EJ also wants to Furthermore, a negotiable document actually stands for
withdraw the same. the goods it covers while in a negotiable instrument, the
subject matter is a sum certain in money. Moreover, a
a. Who has a better right to the goods? Why? negotiable instrument is capable of accumulating
b. If SN Warehouse Corporation is uncertain as to secondary contracts resulting from indorsements at the
who is entitled to the property, what is the back thereof while a negotiable document is not,
proper recourse of the corporation? Explain. especially considering that indorsement of the latter
(2005) does not result in liability of the endorser when the
depositary, like the warehouseman, fails to comply with
A: his duty to deliver the things or goods deposited and
a. EJ has better right to the goods. The goods are covered by the warehouse receipt by the depositary.
covered by a negotiable warehouse receipt which Also, a negotiable instrument is either a bill of exchange
was indorsed to EJ for value. The negotiation to EJ or promissory note while a negotiable document has
was not impaired by the fact that Jojo took the goods various forms such as but not limited to bill of lading,
without the consent of Melchor, as EJ had no notice stock certificates, warehouse receipts and pawn tickets.
of such fact. Moreover, EJ is in possession of the
warehouse receipt and only he can surrender it to Q: Which of the following stipulations or features of
the warehouseman (Sec. 8, Warehouse Receipts a promissory note (PN) affect or do not affect its
Law). negotiability, assuming that the PN is otherwise
b. Under the Sec. 17 of Act 2137, Warehouse Receipt negotiable? Indicate your answer by writing the
Law, SN Warehouse Corporation may file an action paragraph number of the stipulation or feature of
for interpleader and implead EJ and Melchor to the PN as shown below and your corresponding
determine who is entitled to the said goods. answer, either ―Affected or ―Not affected. Explain.
a. The date of the PN is ―February 30, 2002.
NEGOTIABLE INSTRUMENTS LAW b. The PN bears interest payable on the last day of
each calendar quarter at a rate equal to five
Requisites of Negotiability percent (5%) above the then prevailing 91-day
Treasury Bill rate as published at the beginning
Q: What is a negotiable instrument? Give the of such calendar quarter.
characteristics of a negotiable instrument (2005)
5
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
by then, Diana had already learned of her husband’s A:
dalliance. Does the illicit cause or consideration a. Yes. Date is not an essential requirement for the
adversely affect the negotiability of the bill? Explain. negotiability of an instrument as provided for in Sec.
(2009) 1 of the NIL.
b. No. Since the year is not determined, the time for
A: No. The illicit cause or consideration does not payment is not determinable
adversely affect the negotiability of the bill, especially in c. Yes. When the name of the payee does not purport
the hands of a holder in due course. Under Sec. 1 of the to be the name of any person, the law provides in
NIL, the bill of exchange is a negotiable instrument. Sec. 9d of the NIL that the maker or drawer intends
Every negotiable instrument is deemed prima facie to the same to be payable to bearer, hence the
have been issued for valuable consideration, and every instrument qualifies as a negotiable instrument
person whose signature appears thereon is deemed to d. No. When the bill is addressed to two or more
have become a party thereto for value. payees in the alternative, the law provides in Sec.
128 of the NIL that it is conditional and therefore
Q: TRUE or FALSE. A document, dated July 15, 2009, non-negotiable. The objection to the drawers being
that reads: “Pay to X or order the sum of P5,000.00 in the alternative or in succession is the difficulty in
five days after his pet dog, Sparky, dies. Signed Y.” is a determining the exact date of dishonor of the bill
negotiable instrument. (2009) inasmuch as it cannot be said that the bill is
dishonored until all of the drawers have dishonored
A: True. The document is subject to a term and not a it and if the presentment takes place for a period
condition. The dying of the dog is a day which is certain covering several days when the last dishonor is
to com. Therefore, the order to pay is unconditional, in made, the first drawee who dishonored it may have
compliance with Section 1 of the NIL. already been released from his secondary liability
due to the lapse of time before notice of dishonor
Q: Antonio issued the following instrument: was made by the holder. Notice of dishonor could
not have been made earlier by the holder since
August 10, 2013 there is still a remaining drawee, who has not yet
Makati City dishonored it.
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
course under the Negotiable Instruments Law. compelled to pay it. The forged signature is
Who is correct and why? unnecessary to presume the juridical relation
b. Can the payee in a promissory note be a “holder between or among the parties prior to the forgery
in due course” within the meaning of the and the parties after the forgery. Moreover, the only
Negotiable Instruments Law (Act 2031)? Explain party who can raise the defense of forgery against a
your answer (2000) holder in due course is the person whose signature
is forged.
A: b. Only B and C can be held liable by F. According to
a. Since the negotiable instrument is still incomplete Section 67, when a person puts his signature on a
and has not yet been delivered, PN is correct in bearer instrument as a form of indorsement, he
dishonoring the said instrument. Sec. 15 of Act 2031 becomes subject to all liabilities of an indorser. D
provides that where an incomplete instrument has cannot be held liable as an indorser because his
not been delivered, it will not, if completed and signature is forged by E--hence, there was no
negotiated without authority, be a valid contract in consent from D. The forged signature is deemed
the hands of any holder, as against any person inoperative and no right can arise out of it.
whose signature was placed thereon before However, the effect of being inoperative affects only
delivery. Thus, under this section, it is a real defense the signature which is the product of forgery. It will
that can even be interposed against a holder in due not deem to affect other signatures subscribed with
course. knowledge and voluntariness. Therefore, B and C
b. The Supreme Court in the case of De Ocampo vs are liable as indorsers.
Gatchalian, G.R. No.L-15126, Nov. 30, 1961, a payee
may be a holder in due course provided that he was Q: A issued a promissory note payable to B or
able to establish the conditions entitling him to be a bearer. A delivered the note to B. B indorsed the
holder in due course. note to C. C placed the note in his drawer, which was
stolen by the janitor X. X indorsed the note to D by
Indorsement by Minor or Corporation forging C's signature. D indorsed the note to E who
in turn delivered the note to F, a holder in due
Q: X makes a promissory note for P10,000 payable course, without indorsement. Discuss the individual
to A, a minor, to help him buy school books. A liabilities to F of A, B and C. (2001, 1997)
endorses the note to B for value, who in turn
endorses the note to C. C knows A is a minor. If C A: A is primarily and unconditionally liable to F as the
sues X on the note, can X set up the defenses of maker of the promissory note. Section 60 provides that,
minority and lack of consideration? (1998, 1989) by making the instrument, the maker obliges himself to
pay according to the tenor of the instrument. He is liable
A: Yes. C is not a holder in due course. The promissory to both payee and subsequent holder in due course.
note is not a negotiable instrument, as it does not Despite the presence of the special indorsements on the
contain any word of negotiability, that is, order or note, these do not detract from the fact that a bearer
bearer, or words of similar meaning or import. instrument, like the promissory note in question, is
Accordingly, the transferee merely steps into the shoes always negotiable by mere delivery, until it is indorsed
of the transferor and, being merely a successor-in- restrictively “For Deposit Only”
interest, has no right greater than that of the transferor.
Not being a holder in due course, C is to subject such B as a general indorser is secondarily liable to F. By
personal defenses of minority and lack of consideration. placing his signature on the bearer instrument, he
warrants that the instrument is genuine and in all
Forgery respects what it purports to be; that he has good title to
it; that all prior parties had capacity to contract; that he
Q: A delivers a bearer instrument to B. B then has no knowledge of any fact which would impair the
specially indorses it to C and C later indorses it in validity of the instrument or render it valueless; that at
blank to D. E steals the instrument from D and, the time of indorsement, the instrument is valid and
forging the instrument of D, succeeds in subsisting; and that on due presentment, it shall be
"negotiating" it to F who acquires the instrument in accepted or paid, or both, according to its tenor, and that
good faith and for value. if it be dishonored and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof
a. If for any reason, the drawee bank refuses to to the holder, or to any subsequent indorser who may be
honor the check, can F enforce the instrument compelled to pay.
against the drawer?
b. In case of the dishonor of the check by both the C, however, cannot be held liable because the signature
drawee and the drawer, can F hold any of B, C purporting to be his is a product of forgery. C can raise
and D liable secondarily on the instrument? the defense of forgery since it his signature that was
(1997) forged.
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
the request. She affixed her signature on a piece of
Q: On June 1, 1990, A obtained a loan of ₱100,000 paper with the assurance of Brad that he will just fill
from B, payable not later than December 20, 1990. B it up later. Brad then filled up the blank paper,
required A to issue him a check for that amount to making a promissory note for the amount of
be dated December 20, 1990. Since he does not have P100,000.00. He then indorsed and delivered the
any checking account, A, with the knowledge of B, same to Pete who accepted the note as payment of
requested his friend, C, President of Saad Banking the debt. What defense or defenses can Señorita
Corporation (Saad) to accommodate him. C agreed, Isobel set up against Pete? Explain. (2005)
he signed a check for the aforesaid amount dated
December 20, 1990, drawn against Saad’s account A: Señorita Isobel can set-up both real and personal
with the ABC Commercial Banking Co. The By-laws defenses against Pete, who cannot claim to be a holder
of Saad requires that checks issued by it must be in due course because he knew of the compulsion used
signed by the President and the Treasurer or the upon Señorita Isobel, thus :
Vice-President. Since the Treasurer was absent, C
requested the Vice-President to co-sign the check, a. the real defenses available are incompleteness of
which the latter reluctantly did. The check was the instrument because Señorita Isobel only signed
delivered to B. The check was dishonoured upon on a blank piece of paper, duress amounting to
presentment on due date for insufficiency of funds. forgery, alteration of the holder by changing the
amount to a higher figure; and
a. Is Saad liable on the check as an accommodation b. the personal defenses of fraud in inducement
party? incompleteness when the paper was delivered, and
b. If it is not, who then, under the above facts, lack of consideration.
is/are liable? (1991)
Q: For the purpose of lending his name without
A: receiving value therefor, Pedro makes a note for
a. No, Saad is not liable as an accommodation party ₱20,000 payable to the order of X, who in turn
because the issue or indorsement of negotiable negotiates it to Y, the latter knowing that Pedro is
paper by a corporation without consideration and not a party for value.
for the accommodation of another is ultra
vires. Hence, one who has taken the instrument with a. May Y recover from Pedro if the latter
knowledge of the accommodation nature thereof interposes the absence of consideration?
cannot recover against a corporation where it is b. Supposing under the same facts, Pedro pays the
only an accommodation party. While it may be said Php20,000 may he recover the same
legally possible for a corporation whose business is amount from X? (1998)
to provide financial accommodations in the ordinary
course of business, such as one given by a financing A:
company, to be an accommodation party, this a. Yes, Y may recover from Pedro. Section 29 of the NIL
situation, however, is not the case at bar. provides that a person who has signed the
b. Considering that both the President and the Vice- instrument as maker, drawer, acceptor, or indorser,
President were signatories to the accommodation, without receiving value therefor, and for the
they themselves can be subject to the liabilities of purpose of lending his name to some other person is
accommodation parties to the instrument in their liable on the instrument to a holder for value,
personal capacity (Crisologo-Jose v. CA, 177 SCRA notwithstanding the fact that such holder at the
594). time of taking the instrument knew him to be only
an accommodation party. Pedro, being an
Q: Nora applied for a loan of Php100,000 with BUR accommodation maker of a note, may thus be held
Bank. By way of accommodation, Nora’s sister, primarily and unconditionally liable therefor.
Vilma, executed a promissory note in favour of BUR b. Yes, Pedro may recover from X. When the
Bank. When Nora defaulted, BUR bank sued Vilma, accommodation party makes payment to the holder
despite its knowledge that Vilma received no part of of the note, he has the right to sue the
the loan. May Vilma be held liable? Explain. (1996) accommodated party for reimbursement, since the
relation between them is in effect that of principal
A: Yes, Vilma may be held liable. A person who has and surety, the accommodation party being the
signed the instrument as maker, drawer, acceptor, or surety. Thus, after paying the holder, Pedro may
indorser, without receiving value therefor, and for the seek reimbursement from X, the accommodated
purpose of lending his name to some other person is party.
liable on the instrument to a holder for value,
notwithstanding the fact that such holder at the time of Q: Susan Kawada borrowed P500,000 from XYZ
taking the instrument knew him to be only an Bank which required her, together with Rose Reyes
accommodation party. Thus, as an accommodation who did not receive any amount from the bank, to
maker, Vilma is primarily and unconditionally liable on execute a promissory note payable to the bank, or
the promissory note to BUR Bank, a holder for value. its order on stated maturities. The note was
executed as so agreed. What kind of liability was
Q: Brad was in desperate need of money to pay his incurred by Rose, that of an accommodation party or
debt to Pete, a loan shark. Pete threatened to take that of a solidary debtor? Explain. (2003)
Brad’s life if he failed to pay. Brad and Pete went to
see Señorita Isobel, Brad’s rich cousin, and asked A: Rose incurs the liability of an accommodation party
her if she could sign a promissory note in his favor since she executed the promissory without receiving
in the amount of P10,000.00 to pay Pete. Fearing value therefor and for the purpose of lending his name
11
that Pete would kill Brad, Señorita Isobel acceded to to Susan Kawada, the accommodated party. Nonetheless,
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QuAMTO for MERCANTILE LAW (1991-2015)
Q: How does the “shelter principle” embodied in the a. Whether as second indorser and holder of the
Negotiable Instruments Law operate to give rights of crossed check, is it a holder in due course?
a holder-in-due course to a holder who does not b. Whether Po’s defense of lack of consideration as
have the status of a holder-in-due course? Briefly against Jose is also available as against Excel?
explain. (2008) (1994, 1995)
know from you as counsel: will the complaint prosper? Explain (1996)
Q: What is a crossed check? What are the effects of Marlon thereupon sues LYRIC Bank which in turn
crossing a check? Explain. (2005) files a third-party complaint against YAMAHA Bank.
Discuss the respective rights and liabilities of the
A: A crossed check is a check with two parallel lines two banks. (2010)
written diagonally on the left top portion of the check.
The effects of crossing a check are: the check may not be A: Since the money market placement of Marlon is in the
encashed but only deposited in the bank; the check may nature of a loan to Lyric Bank, and since he did not
be negotiated only once to one who has an account with authorize the release of the money market placement to
a bank; and the act of crossing the check serves as a Ingrid, the obligation of Lyric Bank to him has not been
warning to the holder that the check has been issued for paid. Lyric Bank still has the obligation to pay him.
a definite purpose so that he must inquire if he has
received the check pursuant to that purpose, otherwise Since Yamaha Bank indorsed the check bearing the
he is not a holder in due course. The act of crossing a forged endorsement of Marlon and guaranteed all
check serves as a warning to the drawee bank that endorsements, including the forged endorsement, when
payment must be made to the right party; otherwise the it presented the check to Lyric Bank, it should be held
bank has no authority to use the drawer's funds liable to it. However, since the issuance of the check was
deposited with the bank. To be assured that it will avoid attended with the negligence of Lyric Bank, it should
any mistake in paying to the wrong party, banks adopted share the loss with Yamaha Bank on a 50% basis.
the policy that crossed checks must be deposited in the
payee's account. When withdrawal is made, the banks Q: Distinguish an irregular indorser from a general
can be sure that they are paying to the right party. indorser. (2005)
A: Yes. As a general rule, the drawee is not liable under A: Yes, the bank should recredit the full amount of the
the check because there is no privity of contract check to the account of Pancho, considering that the
between XYZ Marketing, as payee, and ABC Bank as the check was payable to the account of Pancho. Considering
drawee bank. However, if the action taken by the bank is that the check was payable to Bong and Gerard jointly,
an abuse of right which caused damage not only to the the indorsement of Gerard was necessary to negotiate
issuer of the check but also to the payee, the payee has a the check pursuant to Sec. 41 of the NIL, to wit: Where
cause of action under quasi-delict. an instrument is payable to the order of 2 or more
14
b. Is it proper for the drawee bank to dishonor the payees or indorsees who are not partners, all must
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QuAMTO for MERCANTILE LAW (1991-2015)
indorse unless the one indorsing has authority to an obligation by another which substitutes the same.
indorse for the others. Since Bong forged the signature First, novation must be explicitly stated and declared in
of Gerard without authority, the indorsement was unequivocal terms as novation is never presumed.
wholly inoperative. Secondly, the old and the new obligation must be
incompatible on every point.In the instant case, there
Presentment for Payment was no express agreement that the holder’s acceptance
of the replacement check will discharge the drawer and
Q: endorser from liability. Neither is there incompatibility
A. AB issued a promissory note for P1,000 payable because both checks were given precisely to terminate a
to CD or his order on September 15, 2002. CD single obligation arising from the same transaction.
indorsed the note in blank and delivered the
same to EF. GH stole the note from EF and on Checks
September 14, 2002 presented it to AB for
payment. When asked by AB, GH said CD gave Q: Pua filed a complaint for a sum of money against
him the note in payment for two cavans of rice. the Spouses James. In the complaint, Pua prayed that
AB therefore paid GH P1,000 on the same date. the defendants pay Pua the amount of P8.5 M
On September 15, 2002, EF discovered that the covered by a check. Pua asserts that defendants
note of AB was not in his possession and he went owed him a sum of money way back in 1988 for
to AB. It was then that EF found out that AB had which the Spouses James gave him several checks.
already made payment made payment on the The checks, however, had all been dishonored and
note. Can EF still claim payment from AB? Why? Pua has not been paid the amount of the loan plus
B. As a sequel to the same facts narrated above, EF, the agreed interest. In 1996, the Spouses James
out of pity for AB who had already paid P1,000to approached Pua to get the computation of their
GH, decided to forgive AB and instead go after liability including the 2% compounded interest.
CD who indorsed the note in blank to him. Is CD After bargaining to lower the amount of their
still liable to EF by virtue of the indorsement in liability, the Spouses James gave Pua a postdated
blank? Why? (2002) check bearing the discounted amount of P8.5 M. Like
the 1988 checks, the drawee bank likewise
A: dishonored this check. To prove his allegations, Pua
A. Since the instrument became a bearer instrument, submitted the original copies of the 17 checks issued
EF could no longer claim payment from AB. EF is not by Caroline in 1988 and the check issued in 1996,
a holder of the promissory note. To make the Manilatrust Check No. 750. The Spouses James, on
presentment for payment, it is necessary to exhibit the other hand, completely denied the existence of
the instrument, which EF cannot do because he is the debt asserting that they had never approached
not in possession thereof. Pua to borrow money in 1988 or in 1996. They
B. No, because CD negotiated the instrument by assert, instead, that Pua is simply acting at the
delivery. instance of his sister, Lilian, to file a false charge
against them using a check left to fund a gambling
Discharge of Negotiable Instrument business previously operated by Lilian and Caroline.
Decide. (2014)
Q: Bong bought 300 bags of rice from Ben for
P300,000. As payment, Bong indorsed to Ben a BPI A: The 17 original checks, completed and delivered to
check issued by Baby in the amount of P300,000. Pua, are sufficient by themselves to prove the existence
Upon presentment for payment, the BPI check was of the loan obligation of Spouses James to Pua. In
dishonored because Baby’s account from which it Pacheco v. CA, the Court has expressly recognized that a
was drawn has been closed. To replace the check “constitutes an evidence of indebtedness” and is a
dishonored check, Bong indorsed a crossed DBP veritable “proof of an obligation.” Hence, it can be used
check issued also by Baby for P300,000. Again, the “in lieu of and for the same purpose as a promissory
check was dishonored because of insufficient funds. note.” In fact, in the seminal case of Lozano v. Martinez,
Ben sued Bong and Baby on the dishonored BPI the Court pointed out that a check functions more than a
check. Bong interposed the defense that the BPI promissory note since it not only contains an
check was discharged by novation when Ben undertaking to pay an amount of money but is an “order
accepted the crossed DBP check as replacement for addressed to a bank and partakes of a representation
the BPI check. Bong cited Section 119 of the NIL that the drawer has funds on deposit against which the
which provides that a negotiable instrument is check is drawn, sufficient to ensure payment upon its
discharged “by any other act which will discharge a presentation to the bank.” The Court reiterated this rule
simple contract for the payment of money.” Is Bong in Lim v. Mindanao Wines and Liquour Galleria stating “a
correct? (2014) check, the entries of which are in writing, could prove a
loan transaction.” This is the very same principle
A: No. Bong is not correct. While Section 119 of the NIL in underpin Sec. 24 of the NIL which provides that “every
relation to Article 1231 of the Civil Code provides that negotiable instrument is deemed prima facie to have
one of the modes of discharging a negotiable instrument been issued for a valuable consideration; and every
is by any other act which will discharge a simple person whose signature appears thereon to have
contract for the payment of money, such as novation, the become a party for value.” Consequently, the case should
acceptance by the holder of another check which be decided in favor of Pua and against Spouses James.
replaced the dishonored bank check did not result to
novation. Q: A criminal complaint for violation of BP22 was
filed by Foton Motors, an entity engaged in the
There are only 2 ways which indicate the presence of business of car dealership, against Pura Felipe with
15
novation and thereby produce the effect of extinguishing the office of the City Prosecutor of Quezon City. The
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luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
3. When made in good faith, and upon reasonable notorious negligence on the part of the crew
grounds of belief in its necessity to avoid a peril; members as to exempt the heirs from claiming
or under the employee’s compensation. The fund used
4. When made in good faith, for the purpose of for payment of claims is derived from the State
saving human life or relieving another vessel in Insurance Fund, which, upon payment, will be
distress. reimbursed by the employer.
Q: On October 30, 2007, M/V Pacific, a Philippine Q: Paolo, the owner of an ocean-going vessel, offered
registered vessel owned by Cebu Shipping Company to transport the logs of Constantino from Manila to
(CSC), sank on her voyage from Hongkong to Manila. Nagoya. Constantino accepted the offer, not knowing
Empire Assurance Company (Empire) is the insurer that the vessel was manned by an irresponsible crew
of the lost cargoes loaded on board the vessel which with deep-seated resentments against Paolo, their
were consigned to Debenhams company. After it employer. Constantino insured the cargo of logs
indemnified Debenhams, Empire as subrogee filed against both perils of the sea and barratry. The logs
an action for damages against CSC. were improperly loaded on one side, thereby
causing the vessel to tilt on one side. On the way to
a. Assume that the vessel was seaworthy. Before Nagoya, the crew unbolted the sea valve of the vessel
departing, the vessel was advised by the causing water to flood the ship hold. The vessel
Japanese Meteorological Center that it was safe sank. Constantino tried to collect from the insurance
to travel to its destination. But while at sea, the company which denied liability, given the
vessel received a report of a typhoon moving unworthiness of both the vessel and its crew.
within its general path. To avoid the typhoon, Constantino countered that he was not the owner of
the vessel changed its course. However, it was the vessel and he could therefore not be responsible
still at the fringe of the typhoon when it was for conditions about which he was innocent. Is the
repeatedly hit by huge waves, foundered and insurance company liable? (2010)
eventually sank. The captain and the crew were
saved except three (3) who perished. Is CSC A: No, the insurance company is not liable because there
liable to empire? What principle of maritime law is an implied warranty in every marine insurance that
is applicable? Explain. the ship is seaworthy whoever is insuring the cargo,
b. Assume the vessel was not seaworthy as in fact whether it be the shipowner or not. There was a breach
its hull had leaked, causing flooding in the of warranty, because the logs were improperly loaded
vessel, will your answer be the same? Explain. and the crew was irresponsible. It is the obligation of the
c. Assume the facts in question (b). Can the heirs of owner of the cargo to look for a reliable common carrier
the three (3) crew members who perished which keeps its vessel in seaworthy condition.
recover from CSC? Explain fully. (2008)
Life Insurance
A:
a. The principle of limited liability will apply because Q: Juan de la Cruz was issued Policy No. 8888 of the
the exclusively real and hypothecary nature of Midland Life Insurance Co. on a whole life plan for
maritime law operates to limit the liability of the P20,000 on August 19, 1989. Juan is married to
ship owner to the value of the vessel, earned Cynthia with whom he has three legitimate children.
freightage and proceeds of the insurance, if any “ No He, however, designated Purita, his common-law
vessel, No liability,” expresses in a nutshell the wife, as the revocable beneficiary. Juan referred to
limited liability rule (Monarch Ins. Co v. CA, June Purita in his application and policy as the legal wife.
2008). The total destruction of the vessel Three (3) years later, Juan died. Purita filed her
extinguishes maritime lien as there is no longer any claim for the proceeds of the policy as the
res to which it can attach. In this case, the ship was designated beneficiary therein. The widow, Cynthia,
seaworthy. It exercised extraordinary diligence also filed a claim as the legal wife. To whom should
when it changed its course to avoid the typhoon but the proceeds of the insurance policy be awarded?
unfortunately, it was hit by huge waves and sank. (1998)
Since the vessel sank at no fault by CSC, it cannot be
held liable by virtue of “No vessel, no liability rule.” A: The estate is entitled to claim for the proceeds of the
b. No. The insurance company is not liable for loss if insurance policy. As a general rule, the insured may
the vessel is not seaworthy (Madrigal, Tiangco designate anyone he wishes to be his/her beneficiary.
Company v. Hanson, Orth, and Stevenson, Inc. (1958) However, Art. 2012 of the Civil Code, which applies
103 Phil.345, at p.350) A ship is seaworthy if it is suppletorily to the Insurance Code, provides that any
reasonably fit to perform the service and to person who is forbidden from receiving any donation
encounter the ordinary perils of the voyage under Art. 739 cannot be named beneficiary of a life
contemplated by the parties to the policy (Sec. 114, insurance policy by the person who cannot make any
ICP). In this case, there was a leak in the hull of the donation to him, according to said article. Art. 739
ship making it unseaworthy; thereby, insurance specifically bars the donations as between persons who
company is exempt from liability. were guilty of adultery or concubinage. Since Purita is a
c. Yes. Although the proximate cause of death of the common-law wife of Juan, she falls squarely in to this
crew members is their negligence in not attending category therefore she is disqualified to receive
to the ship’s seaworthiness which is their duty to do insurance proceeds and when this happens, the estate of
so and the company cannot be blamed for the acts the deceased is the one entitled to the proceeds (Insular
imputable to its employees’ negligence; however, Life Assurance Company, Ltd. v. Capronia Ebrado, G.R. No.
they can claim against the employee’s compensation L-44059, Oct. 28, 1977).
because the accident causing their death occurred
17
during the course of employment and there was no Q: Jacob obtained a life insurance policy for P1 M
b. Is Aban entitled to claim the proceeds under the gave rise to the liability of the insurer under its
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
policy. In other words, where an insurance policy vehicle is later returned, there is theft—there being
insures directly against liability, the insurer’s intent to gain as the use of the thing unlawfully taken
liability accrues immediately upon the occurrence of constitutes gain, or (2) when there is taking of a vehicle
the injury or event upon which the liability depends. by another person without the permission or authority
b. The insurer cannot be held solidarily liable with from the owner thereof.
Cesar. The liability of the insurer is based on
contract while that of Cesar is based on tort. If the Q: On February 21, 2013, Barrack entered into a
insurer were solidarily liable with Cesar, it could be contract of insurance with Matino Insurance
made to pay more than the amount stated in the Company involving a motor vehicle. The policy
policy. This would, however, be contrary to the obligates Matino to pay Barrack the amount of
principles underlying insurance contracts. On the P600,000 in case of loss or damage to said vehicle
other hand, if the insurer were solidarily liable with during the period covered, which is from February
Cesar and it is made to pay only up to the amount 26, 2013 to February 26, 2014. On April 16, 2013, at
stated in the insurance policy, the principles about 9:00am, Barrack instructed his driver, JJ, to
underlying solidary obligations would be violated. bring the motor vehicle to a nearby auto shop for
tune-up. However, JJ no longer returned and despite
Q: X was riding a suburban utility vehicle (SUV) diligent efforts to locate the said vehicle, the efforts
covered by a comprehensive motor vehicle liability proved futile. Resultantly, Barrack promptly notified
insurance (CMVLI) underwritten by FastPay Matino of the said loss and demanded payment of
Insurance Company when it collided with a speeding the insurance proceeds of P600,000. In a letter
bus owned by RM Travel, Inc. the collision resulted dated July 5, 2013. Matino denied the claim,
in serious injuries to X; Y, a passenger of the bus; reasoning as stated in the contract that “the
and Z, a pedestrian waiting for a ride at the scene of company shall not be liable for any malicious
the collision. The police report established that the damage caused by the insured, any member of his
bus was the offending vehicle. The bus had a CMVLI family or by a person in the insured’s service. Is
policy issued by Dragon Insurance Corporation, X, Y Matino correct in denying the claim? (2014)
and Z jointly sued RM Travel and Dragon Insurance
for indemnity under the Insurance Code of the A: No. Matino is not correct in denying the claim. An
Philippines. The lower court applied the “no-fault” insurance company cannot deny a claim by the owner of
indemnity policy of the statute, dismissed the suit a motor vehicle who insured it against loss or damage
against RM Travel, and ordered Dragon insurance to because the driver he employed stole it. Matino cannot
pay indemnity to all three plaintiffs. Do you agree invoke the provision excluding malicious damages
with the court’s judgment? Explain. (2000) caused by a person in the service of the insured. In
common ordinary usage, loss means failure to keep
A: No. The cause of action of Y is based on the contract of possession, while malicious damage is damage resulting
carriage, while that of X and Z is based on torts. The from the willful act of the driver. Words which have
court should not have dismissed the suit against RM different meanings shall be understood in the sense
Travel. The court should have ordered Dragon Insurance which is most in keeping with the nature and object of
to pay each of X, Y, and Z to the extent of the insurance the insurance contract. If a stipulation admits several
coverage, but whatever amount is agreed upon in the meanings, is should be understood as bearing the
policy should be answered first by RM Travel and the meaning which is most adequate to render it effectual. It
succeeding amount should be paid by Dragon Insurance may be shown that the words have a local, technical or
up to the amount of the insurance coverage. The excess peculiar meaning and were so used and understood by
of the claims of X, Y and Z, over and above such the parties.
insurance coverage, if any, should be answered or paid
by RM Travel. Insurable Interest
Q: On May 26, 201, Jess insured with Jack Insurance Q: BD has a bank deposit of half a million pesos.
his 2014 Toyota Corolla sedan under a Since the limit of the insurance coverage of the PDIC
comprehensive motor vehicle insurance policy for is only 1/10 of BD’s deposit, he would like some
one year. On July 1, 2014, Jess’ car was unlawfully protection for the excess by taking out an insurance
taken. Hence, he immediately reported the theft to against all risk or contingencies of loss arising from
the Traffic management Command (TMC) of the PNP, any unsound or unsafe banking practices including
which made Jess accomplish a complaint sheet as unforeseen adverse effects of the continuing crisis
part of its procedure. In the complaint sheet, Jess involving the banking and financial sector in the
alleged that a certain Silat took possession of the Asian region. Does BD have an insurable interest
subject vehicle to add accessories and within the meaning the Insurance Code of the
improvements thereon. However, Silat failed to Philippines? (2000)
return the subject vehicle within the agreed 3-day
period. As a result, Jess notified Jack of his claim for A: Yes. BD has insurable interest in his bank deposit. In
reimbursement of the value of the vehicle under the case of loss of said deposit, more particularly to the
insurance policy. Jack refused to pay claiming that extent of the amount in excess of the limit covered by
there is no theft as Jess gave Silat lawful possession the PDIC Act, BD will be damnified. He will suffer
of the car. Is Jack correct? (2014) pecuniary loss of P400,000, that is, his bank deposit of
half a million pesos minus P100,000 which is the
A: No. Jack is not correct. The “theft clause” of a maximum amount recoverable from the PDIC.
comprehensive motor vehicle insurance policy has been
interpreted by the Court in several cases to cover Q: Distinguish insurable interest in property
situations like (1) when one takes the motor vehicle of insurance from insurable interest in life insurance.
19
to receive the proceeds from IS’ insurance coverage The contract of sale was already perfected and Novette
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
acquired interest thereon although the goods have yet to building against fire with three (3) insurance
be delivered. companies for the following amounts:
Northern Insurance Corp. – P20 Million
Double Insurance and Over Insurance Southern Insurance Corp. - P30 Million
Eastern Insurance Corp. – P50 Million
Q: Distinguish co-insurance from re-insurance? 1. Is the owner’s taking of insurance for the
(1994) building with three (3) insurers valid? Discuss.
2. The building as totally razed by fire. If the
A: Co-insurance is the percentage in the value of the owner decides to claim from the Eastern
insured property which the insured himself assumes or Insurance Corp. only P50 Million, will the claim
undertakes to act as insurer to the extent of the prosper? (2008)
deficiency in the insurance of the insured property.
Reinsurance is where the insurer procures a third party, A:
called the reinsurer, to insure him against liability by 1. Yes. When there is double insurance and over
reason of such original insurance. Basically, a insurance results, the insured can claim in case of loss
reinsurance is an insurance against liability which the only up to the agreed valuation or up to the full
original insurer may incur in favor of the original insurable value from any, some or all insurers, without
insured prejudice to the insurers ratably apportioning the
payments. The insured can also recover before or after
Q: M/V Pearly Shells, passenger and cargo vessel, the loss, from both insurers the excess premium he has
was insured for P40,000,000.00 against paid (Sec 94, ICP). What is prohibited is over insurance
“constructive total loss.” Due to a typhoon, it sank wherein there is only one insurer, where the insured
near Palawan. Luckily, there was no casualties, only takes insurance beyond the value of his insurable
injured passengers. The shipowner sent a notice of interest. In this case, there is no over insurance because
abandonment of his interest over the vessel to the the insurable interest in each insurance policy availed of
insurance company which then hired professionals by the owner did not exceed the value of the property.
to afloat the vessel for P900,000.00. When re- Double insurance resulting to over insurance is allowed
floated, the vessel needed repairs estimated at provided that the beneficiary can claim only up to the
P2,000,000.00. The insurance company refused to full insurable value from any, some or all insurers as in
pay the claim of the shipowner, stating that there the case at bar.
was “no constructive total loss.” (2005) 2. Yes. The owner may demand indemnity from Eastern
1. Was there “constructive total loss” to entitle the Insurance alone since the valued policy covers the total
shipowner to recover from the insurance company? amount of the loss incurred by the property insured. Sec.
Explain. 94 clearly provides that in case of double insurance, the
2. Was it proper for the shipowner to send a notice owner may recover from any, two or all of the insurers
of abandonment to the insurance company? Explain provided that the total amount that he will recover does
3. When does double insurance exist? not exceed his loss.
4. What is the nature of liability of the several
insurers in double insurance? Q: X borrowed from CCC Bank. She mortgaged her
house and lot in favor of the bank. X insured her
A: house. The bank also got the house insured.
1. No. A constructive total loss is one which gives the
insured the right to abandon (Sec. 131, ICP). a. Is this double insurance? Explain your answer.
Abandonment of the thing insured may be availed of if b. Is this legally valid? Explain your answer.
the loss is more than three-fourths of its value or the c. In case of damage, can X and CCC Bank
expense to recover it from peril (Sec 139, ICP). In this separately claim for the insurance proceeds?
case, the constructive loss claimed by the shipowner (2012)
pertains to the vessel. The expenses for refloating and
estimated repairs did not amount to three-fourths of the A:
value of the vessel , hence, there is no constructive total a. No. Double insurance exists where the same person
loss to speak of. is insured by several insurers separately, in respect
2. No. The case did not qualify as one for total to the same subject and interest. In the case at hand,
constructive loss. Deduced from the facts of the case, the the insurance was acquired separately by X and CCC
loss incurred during the peril did not amount to three- Bank. There is therefore no double insurance as
fourths of its value. As provided in Sec. 139, contemplated upon by law (Sec. 93, Insurance Code).
abandonment may be availed of if the loss is more than b. Yes. Double insurance is not prohibited unless there
three-fourths of its value or the expense to recover it is a stipulation to the contrary. A person may
from peril. therefore procure two or more insurances to cover
3. Sec. 93 of the Insurance Code provides that double his property. However, double insurance may lead
insurance exists where the same person is insured by to over insurance which is prohibited by law.
several insurers separately, in respect to the same c. Yes. The insurable interest of X, as a mortgagor, and
subject and interest. CCC Bank, as a mortgagee, is separate and distinct
4. In double insurance, the insurers are considered as from each other. Therefore they may insure the
co-insurers. Each one is bound to contribute ratably to property to the extent that they may be damnified
the loss in proportion to the amount for which he is by a contemplated peril. As such, X and CCC Bank
liable under his contract. This is known as the “principle may separately claim for the insurance proceeds
of contribution” or “contribution clause” (Sec. 94 [e]). that they obtained from the property insured to the
extent of their insurable interest thereon.
Q: Terrazas de Patio Verde, a condominium building
21
Q: To secure a loan of P10 M, Mario mortgaged his A: St. Peter Manufacturing Company is entitled to
building to Armando. In accordance with the loan recover for the loss from Stable Insurance Company.
arrangements, Mario had the building insured with Stable Insurance Company granted a credit term to pay
First Insurance Company for P10 M, designating the premiums. This is not against the law, because the
Armando as the beneficiary. Armando also took standing business practice of allowing St. Peter
insurance on the building upon his own interest Manufacturing Company to pay the premiums after 60
with Second Insurance Company for P5 M. The or 90 days, was relied upon in good faith by SPMC.
building was totally destroyed by fire, a peril Stable Insurance Company is in estoppel (UCPB General
insured against under both insurance policies. It Insurance Company, Inc. v. Masagana Telemart, Inc., 356
was subsequently determined that the fire had been SCRA 307, 2001).
intentionally started by Mario and that in violation
of the loan agreement, he had been storing Q: The Peninsula Insurance Company offered to
inflammable materials in the building. insure Francis' brand new car against all risks in the
sum of P1 Million for 1 year. The policy was issued
a. How much, if any, can Armando recover from with the premium fixed at P60,000.00 payable in 6
either or both insurance companies? months. Francis only paid the first two months
installments. Despite demands, he failed to pay the
A: Armando can receive P5 M from Second Insurance subsequent installments. Five months after the
Company. As mortgagee, he had an insurable interest in issuance of the policy, the vehicle was carnapped.
the building. Armando cannot collect anything from First Francis filed with the insurance company a claim for
Insurance Company. First Insurance Company is not its value. However, the company denied his claim on
22
liable for the loss of the building. First, it was due to a the ground that he failed to pay the premium
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QuAMTO for MERCANTILE LAW (1991-2015)
resulting in the cancellation of the policy. Can Why or why not? (2010)
Francis recover from the Peninsula Insurance
Company? (2006) A: The insurer is not liable under the insurance policy.
Under Art 1249 of the Civil Code, the delivery of a check
A: Yes. As a general rule, no policy is binding unless the produces the effect of payment only when it is encashed.
premiums thereof have been paid. However, one of the The loss occurred on April 5, 2010. When the check was
exceptions is when there is an agreement allowing the deposited, it was returned on April 10, 2010, for
insured to pay the premium in installments and partial insufficiency of funds. The check was honored only after
payment has been made at the time of loss. In the case at Enrique deposited additional funds with the bank.
hand Francis already paid two installments at the time Hence, it did not produce the effect of payment.
of the loss and as such may recover on the policy
(Makati Tuscany Condominium Corp. v. CA, G.R. No. Q: On September 25, 2013, Danny Marcial (Danny)
95546, Nov. 6, 1992). Furthermore, the contention of the procured an insurance on his life with a face value of
insurer that the failure to pay premium resulted in the P5 M from RN Insurance Company (RN), with his
cancellation of the policy is not tenable since no policy of wife Tina Marcial (Tina) as sole beneficiary. On the
insurance shall be cancelled except upon notice thereof same day, Danny issued an undated check to RN for
to the insured (Sec. 64, Insurance Code). the full amount of the premium. On October 1, 2013,
RN issued the policy covering Danny’s life insurance.
Q: Alfredo took out a policy to insure his commercial On October 5, 2013, Danny met a tragic accident and
building against fire. The broker for the insurance died. Tina claimed the insurance benefit, but RN was
company agreed to give a 15-day credit within which quick to deny the claim because at the time of
to pay the insurance premium. Upon delivery of the Danny’s death, the check was not yet encashed and
policy on May 15, 2006, Alfredo issued a postdated therefore the premium remained unpaid. Is RN
check payable on May 30, 2006. On May 28, 2006, a correct? Will your answer be the same if the check is
fire broke out and destroyed the building owned by dated October 15, 2013? (2014)
Alfredo.
A: No. RN is not correct. After the issuance of the check
a. May Alfredo recover on the insurance policy? by Danny for the full amount of the premium, the
b. Would your answer in a) be the same if it as unconditional delivery of an insurance policy of RN to
found that the proximate cause of the fire was an Danny corresponding to the terms of the application
explosion and that fire was but the immediate ordinarily consummates the contract, and the policy as
cause of the loss and there is no excepted peril delivered becomes the final contract between the
under the policy? parties. Where the parties, so intend, the insurance
c. If the fire was found to have been caused by becomes effective at the time of the delivery of the
Alfredo’s own negligence, can he still recover on policy notwithstanding the fact that the check was not
the policy? (2007) yet encashed. My answer will still be the same even if
the check is dated October 15, 2013 since an
A: acknowledgment in a policy of the receipt of premium is
a. Yes, Alfredo may recover on the policy. It is valid to conclusive evidence of its payment for the purpose of
stipulate that the insured will be granted credit making the policy binding.
term for the payment of premium. Payment by
means of a check which was accepted by the insurer, Q: Will an insurance policy be binding even if the
bearing a date prior to the loss, would be sufficient. premium is unpaid? What if it were partially paid?
The subsequent effects of encashment retroact to (2015)
the date of the check.
b. Yes, recovery under the insurance contract is A: As a general rule, the insurance policy is not valid and
allowed if the cause of the loss was either the binding unless the premium thereof has been paid. This
proximate or the immediate cause as long as an is the cash and carry rule under the Insurance Code.
excepted peril, if any, was not the proximate cause Premium is the consideration for the undertaking of the
of the loss. insurer to indemnify the insured against a specified
c. Yes, mere negligence on the part of the insured will peril. There are exceptions, however, one of them is
not prevent recovery under the insurance policy. when there is an agreement allowing the insured to pay
The law merely prevents recovery when the cause the premium in installments and partial payment has
of loss is the willful act of the insured, alone or in been made at the time of the loss (Makati Tuscany
connivance with others. Condominium Corporation v. CA, 215 SCRA 463).
the insurer liable under the insurance coverage? the insured need not die of the disease he failed to
limited by the policy made without the consent of the certificate of public convenience or franchise to do
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QuAMTO for MERCANTILE LAW (1991-2015)
business as a common carrier. On the return trips to a due regard for all the circumstances (Article 1755 of
Alegria, he loads his trucks with various the Civil Code).
merchandise of other merchants in Alegria and the
neighboring municipalities of Badian and Ginatilan. Liabilities of Common Carriers
He charges them freight rates much lower than the
regular rates. In one of the return trips, which left Q: Peter so hailed a taxicab owned and operated by
Cebu City at 8:30 p.m. 1 cargo truck was loaded with Jimmy Cheng and driven by Hermie Cortez. Peter
several boxes of sardines, valued at P100th, asked Cortez to take him to his office in Malate. On
belonging to one of his customers, Pedro Rabor. the way to Malate, the taxicab collided with a
While passing the zigzag road between Carcar and passenger jeepney, as a result of which Peter was
Barili, Cebu, which is midway between Cebu City and injured i.e. he fractured his left leg. Peter sued
Alegria, the truck was hijacked by 3 armed men who Jimmy for damages, based upon a contract of
took all the boxes of sardines and kidnapped the carriage, and Peter won. Jimmy wanted to challenge
driver and his helper, releasing them in Cebu City the decision before the SC on the ground that the
only 2 days later. trial court erred in not making an express finding as
to whether or not Jimmy was responsible for the
Pedro Rabor sought to recover from Alejandro the collision and, hence, civilly liable to Peter. He went
value of the sardines. The latter contends that he is to see you for advice. He went to see you for advice.
not liable therefore because he is not a common What will you tell him. Explain (1990)
carrier under the Civil Code. If you were the judge,
would you sustain the contention of Alejandro? A: I will advise Jimmy to desist from challenging the
(1991) decision. The action of Peter being based in culpa
contractual, the carrier’s negligence is presumed upon
A: If I were the Judge, I would hold Alejandro as having the breach of contract. The burden of proof instead
engaged as a common carrier. A person who offers his would lie in Jimmy to establish that despite an exercise
services to carry passengers or goods for a fee is a of utmost diligence the collision could not have been
common carrier regardless of whether he has a avoided.
certificate of public convenience or not, whether it is his
main business or incidental to such business, whether it Q: Marites, a paying bus passenger, was hit above
is scheduled or unscheduled service, and whether he her left eye by a stone hurled at the bus by an
offers his services to the general public or to a limited unidentified bystander as the bus was speeding
few (De Guzman v CA GR 47822, December 27, 1988). through the National Highway. The bus owner’s
personnel lost no time in bringing Marites to the
Q: X has a Tamaraw FX among other cars. Every provincial hospital where she was confined and
other day during the workweek, he goes to his office treated. Marites wants to sue the bus company for
in Quezon City using his Tamaraw FX and picks up damages and seeks your advice whether she can
friends as passengers at designated points along the legally hold the bus company liable. What will you
way. His passengers pay him a flat fee for the ride, advise her? (1994)
usually P20 per person, one way. Although a lawyer,
he never bothered to obtain a license to engage in A: As counsel, I will advise her that the company is not
this type of income-generating activity. He believes liable. As a general rule, if the death or injury was due to
that he is not a common carrier within the purview a cause beyond the control of the carrier, it will not be
of the law. Do you agree with him? Explain. (2000) liable to the passenger. However, it must do everything
in its power to try to prevent any passenger from getting
A: No. I do not agree with X. A common carrier holds hurt. Article 1763 provides that although a common
himself out to the public as engaged in the business of carrier is responsible for the death or injuries suffered
transporting persons or property from place to place, for by a passenger on account of the willful acts or
compensation, offering his services to the public negligence of other passengers, such is not applicable in
generally. The fact that X has a limited clientele does not this case. The driver has no control over the situation. It
exclude him from the definition of a common carrier. happened while the bus was speeding through the
The law does not make any distinction between one national highway and such event occurred haphazardly,
whose principal business activity is the carrying of without any contributory negligence on the part of the
persons or goods or both, and the one who does such carrier nor even if extraordinary diligence be exercised,
carrying only as an ancillary activity or in the local the same would not prevent the event from happening
idiom, as a “sideline”. because such is independent and out of control of the
driver. More to the point, the carrier cannot be faulted
Diligence Required of Common Carriers and be liable for damages because it immediately
responded to the injury suffered by the passenger.
Q: Are common carriers liable for injuries to Furthermore, as held in the case of Pilapil v. CA, there is
passengers even if they have observed ordinary no showing that any such incident previously happened
diligence and care? Explain. (2015) so as to impose an obligation on the part of the
personnel of the bus company to warn the passengers
A: Yes, common carriers are liable to injuries to and to take the necessary precaution. Such hurling of a
passengers even if the carriers observed ordinary stone constitutes fortuitous event in this case. The bus
diligence and care because the obligation imposed upon company is not an insurer of the absolute safety of its
them by law is to exercise extra-ordinary diligence. passengers.
Common carriers are bound to carry the passengers
safely as far as human care and foresight can provide, Q: M. Dizon Trucking entered into hauling contract
using the utmost diligence of very cautious persons with with Fairgoods Co whereby the former bound itself
25
12:10p.m. It turned out that the ticket was CTC can also raise against all the plaintiffs the defense
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QuAMTO for MERCANTILE LAW (1991-2015)
that the collision was due exclusively to the negligence fiction is used as a shield to perpetrate fraud, to
of the driver of UTI, and this constitutes a fortuitous defeat public convenience, or to avoid a clear legal
event, because there was no concurrent negligence on obligation, this fiction shall be disregarded and the
the part of its own driver. CTC can also raise against individuals composing it will be treated identically.
Samuel the defense that he was engaged in a seriously
illegal act at the time of the collision, which can render In the case at bar, Sonnel was negligent in not
him liable for damages on the basis of quasi-delict. installing a protective net atop the sidewalk before
the beginning of the construction work. Since the
Since UTI had no pre-existing contractual relationship company had no more account and property in its
with any of the plaintiffs, it can raise the defense that it name, the heirs can rightfully pursue the claim
exercised due diligence in the selection and supervision against the owner instead. The doctrine of separate
of its driver, that the collision was due exclusively to the personality cannot be invoked to avoid liability,
negligence of the driver of CTC, and that Samuel was much more when it is used to perpetuate an
committing a seriously illegal act at the time of the injustice.
collision.
b. I shall raise the affirmative defense of contributory
c. Will a suit for breach of contract of carriage filed negligence. The proximate cause of death is the
by Romeo, Samuel, Teresita, and Uriel against violation of the taxi driver of traffic rules and
CTC prosper? Explain. regulations when it drove offroad to avoid heavy
traffic. The lumber that fell from the building was
A: Romeo cannot sue for breach of contract of carriage. only the immediate cause of death of the victims. I
A stowaway like Romeo, who secures passage by fraud, will further substantiate my defense by invoking the
is not a passenger. principle that my client, Sonnel Construction, had
exercised due diligence in the selection and
Samuel and Teresita cannot sue for breach of contract of supervision of its employees.
carriage. The elements in the definition of a passenger
are: an undertaking of a person to travel in the c. Yes. Both taxicab owner and driver may be held
conveyance provided by the carrier and an acceptance liable based on breach of contract of carriage and
by the carrier of the person as a passenger. Samuel did negligence in the selection and supervision of
not board the bus to be transported but to commit employees for quasi-delict. The driver can be held
robbery. Teresita did not board the bus to be criminally liable for reckless imprudence resulting
transported but to accompany the driver while he was to homicide. He can also be held liable for damages
performing his work under quasi-delict as provided in Article 2180— an
employer may be held solidarily liable for the
Uriel can sue for breach of contract of carriage. He was a negligent act of his employee. Hence, in this case, the
passenger although he was being transported taxicab owner is exempted from liability while the
gratuitously, because he won a free riding pass in a raffle taxi cab driver is liable solely and personally for
held by CTC. criminal prosecution.
Q: X took a plane from Manila bound for Davao via Q: A bus of GL Transit on its way to Davao stopped to
Cebu where there was a change of planes. X arrived enable a passenger to alight. At that moment,
in Davao safely but to his dismay, his two suitcases Santiago who had been waiting for a ride, boarded
were left behind in Cebu. The airline company the bus. However, the bus driver failed to notice
assured X that the suitcases would come in the next Santiago who was still standing on the bus platform,
flight but they never did. X claimed P2,000.00 for the and stepped on the accelerator. Because of the
loss of both suitcases, but the airline was willing to sudden motion, Santiago slipped and fell down
pay only P500.00 because the airline ticket suffering serious injuries. May Santiago hold GL
stipulated that unless a higher value was declared, Transit liable for breach of contract of carriage?
any claim for loss cannot exceed P250 for each piece Explain (1996)
of luggage. X reasoned out that he did not sign the
stipulation and in fact had not even read it. X did not A: Yes, Santiago may hold GL Transit liable for breach of
declare a greater value despite the fact that the clerk contract of carriage. It was the duty of the driver, when
had called the attention to the stipulation in the he stopped the bus, to do no act that would have the
ticket. (1998) effect of increasing the peril to a passenger such as
Santiago while he attempting to board the same. When a
A: X is bound by the stipulation written in the ticket bus is not in motion there is no necessity for a person
because he consented to the terms and conditions who wants to ride the same to signal his intention to
thereof from the moment he availed the services of the board. A public utility bus, once it stops, is in effect
carrier. The fact that he did not sign the ticket and he making continuous offer to bus riders. It is the duty of
was not able to declare the true value of his luggage is common carriers of passengers to stop heir conveyances
not a valid claim in order for the carrier to pay for the while they are doing so. Santiago, by stepping and
value of the lost luggage. As a general rule, the liability of standing on the platform of the bus is already
the common carrier shall not exceed the stipulation in a considered as a passenger and is entitled to all the rights
contract of carriage even if the loss or damage results and protection pertaining to a contract of carriage
from the carrier’s negligence (Eastern and Australian (Dangwa Trans. Co. v. CA, Oct. 7, 1991).
Shipping Co. v. Great American Insurance Co., G.R. No. L-
37604). However, it is subject to an exception as when Q: Discuss the “kabit system” in land transportation
the shipper or owner of the goods declares a greater and its legal consequences (2005)
value and pays corresponding freight (Art. 1749). X,
therefore is entitled to P500 for the two pieces of A: The “kabit system” is an agreement whereby a person
luggage lost. who has been granted a certificate of convenience
allows another person who owns motor vehicles to
Baggage in Possession of Passengers operate under such franchise for a fee. It has been
identified as one of the root causes of the prevalence of
Q: Marino was passenger on a train. Another graft and corruption in the government transportation
passenger, Juancho, had taken a gallon of gasoline offices. It is recognized as a contract which is against
placed in a plastic bag into the same coach where public policy and therefore void and inexistent under
Marino was riding. The gasoline ignited and Art. 1409 (Lita Enterprises, Inc. v. IAC, G.R. L-64693, April
exploded causing injury to Marino who filed a civil 27, 1984). As a consequence, both the owner of the
suit for damages against the railway company certificate of public convenience and the actual owner of
claiming that Juancho should have been subjected to the motor vehicle should be held jointly and severally
inspection by its conductor. liable for damages to third persons as a consequence of
The railway company disclaimed liability resulting the negligent operation of the motor vehicle.
from the explosion contending that it was unaware
of the contents of the plastic bag and invoking the Q: Baldo is a driver of Yellow Cab Company under
right of Juancho to privacy. the boundary system. While cruising along the South
Expressway, Baldo’s cab figured in a collision, killing
a. Should the railway company be held liable for his passenger, Pietro. The heirs of Pietro sued
damages? Yellow Cab Company for damages, but the latter
b. If it were an airline company involved, would refused to pay to the heirs, insisting that it is not
your answer be the same? Explain briefly. liable because Baldo is not an employee. Resolve
(1992) with reasons. (2005)
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QuAMTO for MERCANTILE LAW (1991-2015)
Q: Procopio purchased an Isuzu passenger jeepney b. How will you handle the cases of the passenger
from Enteng, a holder of certificate of public run over by the ambulance and the airline
convenience for the operation of public utility plying employee allowed to hitch a free ride to Cagayan
the Calamba-Los Baños route. While Procopio de Oro? (2013)
continued offering the jeepney for public transport
services, he did not have the registration of the A:
vehicle transferred in his name. Neither did he a. A complaint for breach of contract of carriage can be
secure for himself a certificate of public convenience filed against Fil-Asia Air for failure to exercise
for its operation. Thus, per the records of the Land extraordinary diligence in transporting the
Transportation Franchising and Regulatory Board, passengers safely from their point of embarkation to
Enteng remained its registered owner and operator. their destination (Article 1755, Civil Code).
One day, while the jeepney was traveling
southbound, it collided with a ten-wheeler truck A complaint based on a quasi-delict can be filed
owned by Emmanuel. The driver of the truck against the pilots because of their fault and
admitted responsibility for the accident, explaining negligence (Article 2176, Civil Code). Fil-Asia Air can
that the truck lost its brakes. be included for negligence in the selection and
supervision of the pilots (Article 2180, Civil Code).
Procopio sued Emmanuel for damages, but the latter
moved to dismiss the case on the ground that A third cause of action may be a criminal
Procopio is not the real party in interest since he is prosecution for the reckless imprudence resulting in
not the registered owner of the jeepney. Resolve the homicide against two pilots. The airline will be
motion with reasons (2005) subsidiary liable for the civil liability only after the
pilots are convicted and found to be insolvent.
A: The motion to dismiss should be denied. In the case of
Lim vs. Court of Appeals, G.R. No. 125817, January 16, b. It is the driver of the ambulance and his employer
2002, the Supreme Court held that Procopio may sue for who should be held liable for damages, because a
damages against Emmanuel despite the existence of passenger was run over. This is in accordance with
kabit system because, (a) neither parties to the kabit Articles 2176 and 2180 of the Civil Code. There could
system is being held liable for damages; (b) the case also be a criminal prosecution for reckless
arose from the negligence of another vehicle using the imprudence resulting in homicide against the
public road to whom no representation, or ambulance driver and the consequent civil liability.
misrepresentation, as regards ownership and operation
of the passenger jeepney was made to whom such Since the airline employee was being transported
representation, or misrepresentation was necessary gratuitously, Fil-Asia Air was not required to
(Villanueva, Commercial Law Reviewer, 2009 ed.). exercise extraordinary diligence for his safety and
only ordinary care (Lara v. Valencia, 104 Phil. 65,
Q: Fil-Asia Air Flight 9I6 was on a scheduled 1958).
passenger flight from Manila when it crashed as it
landed at the Cagayan de Oro airport; the pilot Void Stipulations
miscalculated the plane's approach and undershot
the runway. Of the I50 people on board, ten (10) Q: Suppose A was riding on an airplane of a common
passengers died at the crash scene. carrier when an accident happened and A suffered
injuries. In an action by A against the common
Of the ten who died, one was a passenger who carrier, the latter claimed that:
managed to leave the plane but was run over by an
ambulance coming to the rescue. Another was an 1. There was a stipulation in the ticket issued to A
airline employee who hitched a free ride to Cagayan absolutely exempting the carrier from liability
de Oro and who was not in the passenger manifest. from the passenger’s death or injuries and
notices were posted by the common carrier
It appears from the Civil Aeronautics Authority dispensing with the extraordinary diligence of
investigation that the co-pilot who had control of the the carrier, and
plane's landing had less than the required flying and 2. A was given a discount on his plane fare thereby
landing time experience, and should not have been reducing the liability of the common carrier with
in control of the plane at the time. He was allowed to respect to A in particular. Are those valid
fly as a co-pilot because of the scarcity of pilots - defenses? (2001)
Philippine pilots have been recruited by foreign
airlines under vastly improved flying terms and A: No, these are not valid defenses because they are
wages so that newer and less trained pilots are contrary to law as they are in violation of the
being locally deployed. The main pilot, on the other extraordinary diligence required of common carriers.
hand, had a very high level of blood alcohol at the Article 1757 provides that responsibility of a common
time of the crash. carrier for the safety of passengers as required in
Articles 1733 and 1755 cannot be dispensed with or
You are part of the team that the victims hired to lessened by stipulation, by the posting of notices, by
handle the case for them as a group. In your case statements on tickets, or otherwise.
conference, the following questions came up:
Waiting for Carrier or Boarding of Carrier
a. Explain the causes of action legally possible
under the given facts against the airline and the Q: City Railways, Inc. (CRI) provides train service, for
pilots; whom will you specifically implead in a fee, to commuters from Manila to Calamba, Laguna.
29
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
Q: X Shipping Company spent almost a fortune in applicable provisions of the Code of Commerce?
refitting and repairing its luxury passenger vessel, (2000)
the MV Marina, which plied the inter-island routes of
the company from La Union in the north to Davao A: Yes. The contentions of Marina Navigation Company
City in the south. The MV Marina met an untimely are meritorious. The captain of MV Mariposa is guilty of
fate during its post-repair voyage. It sank off the negligence in ignoring the typhoon bulletins issued by
coast of Zambales while en route to La Union from PAGASA and in overloading the vessel. But only the
Manila. The investigation showed that the captain captain of the vessel MV Mariposa is guilty of negligence.
alone was negligent. There were no casualties in The shipowner is not. Therefore, the shipowner can
that disaster. Faced with a claim for the payment of invoke the doctrine of limited liability.
the refitting and repair, X Shipping Company
asserted exemption from liability on the basis of the Accidents and Damages in Maritime Commerce
hypothecary or limited liability rule under Article
587 of the Code of Commerce. Is X Shipping General Average
Company’s assertion valid? Explain. (2000)
Q: MV SuperFast, a passenger-cargo vessel owned by
A: No, the assertion of X Shipping Company is not valid. SF Shipping Company plying the inter-island routes,
The total destruction of the vessel does not affect the was on its way to Zamboanga City from the Manila
liability of the shipowner for repairs on the vessel port when it accidentally, and without fault or
completed before its loss. negligence of anyone on the ship, hit a huge floating
object. The accident caused damage to the vessel
Q: Under a charter party, XXO Trading Company and loss of an accompanying crated cargo of
shipped sugar to Coca-Cola Company through SS passenger PR. In order to lighten the vessel and save
Negros Shipping Corp., insured by Capitol Insurance it from sinking and in order to avoid risk of damage
Company. The cargo arrived but with shortages. to or loss of the rest of the shipped items (none of
Coca-Cola demanded from Capitol Insurance Co. which was located on the deck), some had to be
P500.000 in settlement for XXO Trading. The MM jettisoned. SF Shipping had the vessel repaired at its
Regional Trial Court, where the civil suit was filed, port of destination. SF Shipping thereafter filed a
"absolved the insurance company, declaring that complaint demanding all the other cargo owners to
under the Code of Commerce, the shipping agent is share in the total repair costs incurred by the
civilly liable for damages in favor of third persons company and in the value jettisoned cargoes. In
due to the conduct of the carrier's captain, and the answer to the complaint, the shippers’ sole
stipulation in the charter party exempting the contention was that, under the Code of Commerce,
owner from liability is not against public policy. each damaged party should bear its or his own
Coca-Cola appealed. Will its appeal prosper? Reason damage and those that did not suffer any loss or
briefly. (2004) damage were not obligated to make any
contribution in favor of those who did. Is the
A: No. The appeal of Coca-Cola will not prosper. Under shippers contention valid? Explain. (2000)
Article 587 of the Code of Commerce, the shipping agent
is civilly liable for damages in favor of third persons due A: No, the shippers’ contention is not valid. The owners
to the conduct of the carrier's captain, and the shipping of the cargo jettisoned, to save the vessel from sinking
agent can exempt himself therefrom only by abandoning and to save the rest of the cargoes, are entitled to
the vessel with all his equipment and the freight he may contribution. The jettisoning of said cargoes constitute
have earned during the voyage. On the other hand, general average loss which entitles the owners thereof
assuming there is bareboat charter, the stipulation in the to contribution from the owner of the vessel and also
charter party exempting the owner from liability is not from the owners of the cargoes saved. SF Shipping is not
against public policy because the public at large is not entitled to contribution/reimbursement for the cost of
involved (Home Insurance Co. v. American Steamship repairs on the vessel from the shippers.
Agencies, Inc., 23 SCRA25, 1968).
Q: GTSI operates a fleet of cargo vessels plying
Liability for Acts of Captain interisland routes. One of its vessels, MV Donna
Juana, left the port of Manila for Cebu laden with,
Q: MV Mariposa, one of five passenger ships owned among other goods, 10,000 television sets consigned
by the Marina Navigation Company, sank off the to Romualdo, a TV retailer in Cebu.
coast of Mindoro while en route to Iloilo City. More
than 200 passengers perished in the disaster. When the vessel was about 10 nautical miles away
Evidence showed that the ship captain ignored from Manila, the ship captain heard on the radio that
typhoon bulletins issued by PAGASA during the 24- a typhoon which, as announced by PAG-ASA, was on
hour period immediately prior to the vessel’s its way out of the country, had suddenly veered back
departure from Manila. The bulletins warned all into Philippine territory. The captain realized that
types of sea crafts to avoid the typhoon’s expected MV Dona Juana would traverse the storm’s path, but
path near Mindoro. To make matters worse, he took decided to proceed with the voyage. True enough,
more load than was allowed for the ship’s rated the vessel sailed into the storm. The captain ordered
capacity. Sued for damages by the victim’s surviving the jettison of the 10,000 television sets, along with
relatives, Marina Navigation Company contended: some other cargo, in order to lighten the vessel and
(1) that its liability, if any, had been extinguished make it easier to steer the vessel out of the path of
with the sinking of MV Mariposa; and (2) that the typhoon. Eventually, the vessel, with its crew
assuming it had not been so extinguished, such intact, arrived safely in Cebu. (2009)
liability should be limited to the loss of the cargo.
31
Are these contentions meritorious in the context of a. Will you characterize the jettison of
A: Romualdo has a cause of action for his lost TV sets Q: AA entered into a contract with BB thru CC to
against the shipowner and the owners of the cargoes transport ladies’ wear from Manila to France with
saved by the jettison. The jettison of the TV sets resulted transshipment at Taiwan. Somehow the goods were
in a general average loss, entitling Romualdo to not loaded at Taiwan on time. Hence, when the
indemnity for the lost TV sets. goods arrived in France, they arrived “off-season”
and AA was paid only for 1⁄2 the value by the buyer.
Q: What are the types of averages in marine AA claimed damages from the shipping company
commerce? (2010) and its agent. The defense of the respondents was
prescription. Considering that the ladies’ wear
A: The types of averages are particular and general suffered “loss value”, as claimed by AA, should the
average. Particular averages include all expenses and prescriptive period be one year under the COGSA, or
damages caused to the vessel or to the cargo which did 10 years under the Civil Code? Explain briefly.
not inure to the common benefit and profit of all the (2004, 2010)
persons interested in the vessel and the cargo. General
averages include all damages and expenses which are A: The applicable prescriptive period is 10 years under
deliberately caused to save the vessel, its cargo, or both the Civil Code. The 1-year prescriptive period under the
at the same time, from real and known risk. COGSA applies in cases of loss or damage to the cargo.
The term “loss” as interpreted by the Supreme Court in
Q: An importer of Christmas toys loaded 100 boxes Mitsui O.S.K. Lines, contemplates a situation where no
of Santa Clause talking dolls aboard a ship in Korea delivery at all was made by the carrier of the goods
bound for Manila. With the intention of smuggling because the same had perished or gone out of commerce
1⁄2 of his cargo, he took a bill of lading for only 50 deteriorated or decayed while in transit. In the present
boxes to save the more precious cargo. Is the case, the shipment of ladies’ wear was actually
importer entitled to receive any indemnity for delivered. The “loss of value” is not the total loss
average? (2010) contemplated by the COGSA.
A: No. The importer is not entitled to receive any Q: On December 1, 2010, Kore A Corporation
indemnity for average. In order that the goods jettisoned shipped from South Korea to LT Corporation in
may be included in the general average and the owner Manila some 300,000 sheets of high-grade special
be entitled to indemnity, it is necessary that their steel. The shipment was insured against all risk by
existence on board be proven by means of the bill of NA Insurance (NA). The carrying vessel arrived at
lading. the Port of Manila on January 10, 2011. When the
shipment was discharged, it was noted that 25,000
Collisions sheets were damaged and in bad order. The entire
shipment was turned over to the custody of ATI, the
Q: Two vessels figured in a collision along the Straits arrastre operator, on January 21, 2011 for storage
of Guimaras resulting in considerable loss of cargo. and safekeeping, pending its withdrawal by the
The damaged vessels were safely conducted to the consignee’s authorized customs broker, RVM.
Port of Iloilo. Passenger A failed to file a maritime
protest. B. a non-passenger but a shipper who On January 26 and 29, 2011, the subject shipment
suffered damage to his cargo, likewise did not file a was withdrawn by RVM from the custody of ATI. On
maritime protest at all January 29, 2011, prior to the withdrawal of the last
batch of the shipment, a joint inspection of the cargo
a. What is a maritime protest? was conducted per the Request for bad Order Survey
b. Can A and B successfully maintain an action to (RBO) dated January 28, 2011. The examination
recover losses and damages arising from the report showed that 30,000 sheets of steel were
collision? Reason Briefly. (2007) damaged and in bad order.
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QuAMTO for MERCANTILE LAW (1991-2015)
A: NA Insurance is correct. ATI should be ordered to pay A: If Dianne will set up a separate corporation, her
NA Insurance notwithstanding the lapse of the one year liability for its obligations and losses will be limited to
prescriptive period for filing a suit under the COGSA. the amount of her subscription in the absence of
The term “carriage of goods” under Section 1 in COGSA, showing that there is a ground to disregard its separate
covers the period from the time when the goods are juridical personality. If she were to operate a single
loaded to the time when they are discharged from the proprietorship, her liability for its debts and losses will
ship infer that the period of time when the goods have be unlimited.
been discharged from the ship and given to the custody
of the arrastre operator is not covered by the COGSA. The formation and the operation of a corporation
The COGSA does not mention that an arrastre operator require a great deal of paper work and record-keeping.
may invoke the prescriptive period of one year; hence, it This is not the situation in the case of a single
does not cover the arrastre operator. proprietorship.
Q: What is the nationality of a corporation organized Q: Nine individuals formed a private corporation
and incorporated under the laws of a foreign pursuant to the provisions of the Corporation Code
country, but owned 100% by Filipinos? (1998) of the Philippines. Incorporator S was elected
director and president—general manager. Part of
A: Under the control test of corporate nationality, this his emolument is a Ford Expedition, which the
foreign corporation is of Filipino Nationality. corporation owns. After a few years. S lost his
Where there are grounds for piercing the veil of corporate positions but he refused to return the
corporate entity, that is, disregarding the fiction, the motor vehicle claiming that as a stockholder with a
corporation will follow the nationality of the controlling substantial equity share, he owns that portion of the
members or stockholders, since the corporation will corporate assets now in his possession. Is the
then be considered as one and the same. contention of S valid? Explain. (2000)
Corporate Juridical Personality A: No. the contention of S is not valid. The Ford
Expedition is owned by the corporation. The
Doctrine of Separate Juridical Personality corporation has a legal personality separate and distinct
from that of its stockholder. What the corporation owns
Q: As a result of perennial business losses, a is its own property and not property of any stockholder
corporation’s net worth has been wiped out. In fact, even how substantial the equity share that stockholder
it is now in negative territory. Nonetheless, the owns.
stockholders did not like to give up.
Q: Nelson owned and controlled Sonnel Construction
Creditor-banks, however, do not share the Company. Acting for the company, Nelson contracted
confidence of the stockholders and refuse to grant the construction of a building. Without first
more loans. installing a protective net atop the sidewalks
adjoining the construction site, the company
Assuming that the corporation continues to operate proceeded with the construction work. One day a
even with depleted capital, would the stockholders heavy piece of lumber fell from the building. It
or the managers be solidarily liable for the smashed a taxicab which at that time had gone
obligations incurred by the corporation? Explain. offroad and onto the sidewalk in order to avoid the
(1999) traffic. The taxicab passenger died as a result.
A: No. As a general rule, the stockholders or the If you were the counsel for Sonnel Construction, how
managers cannot be held solidarily liable for the would you defend your client? What would be your
obligations incurred by the corporation. The corporation theory? (2008)
has a separate and distinct personality from that of the
stockholders and managers. The latter are presumed to A: If I were the counsel for Sonnel Construction
be acting in good faith in continuing the operation of the Company, I will argue that the proximate cause of the
corporation. The obligations incurred by the corporation death of the victim is the gross negligence of the taxicab
are those of the corporation which alone is liable driver. The latter drove the taxicab offroad and onto the
therefor. However, when the corporation is already sidewalk in order to avoid the traffic. Furthermore, I will
insolvent, the directors and officers become trustees of argue that assuming that Nelson was negligent, he alone
the business and assets of the corporation for the benefit should be sued as the Sonnel Coonstruction Company
of the creditors and are liable for negligence or has a separate and distinct personality. Nelson’s
mismanagement. controlling interest in Sonnel Construction Company
does not justify the piercing of the corporate veil.
Q: Marulas Creative Technology Inc., an e-business
enterprise engaged in the manufacture of computer Q: In an action for collection of a sum of money, the
multimedia accessories, rents an office and store RTC of Makati City issued a decision finding D-
space at a commercial building owned by X. being a Securities, Inc. liable to Rehouse Corporation for
start-up company, Marulas enjoyed some leniency in P10 M. Subsequently, the writ of execution was
its rent payment; but after 3 years, X put a stop to it issued but returned unsatisfied because D-Securities
and asked Marulas president and general manager, had no more assets to satisfy the judgment. Rehouse
34
Y, who is a stockholder, to pay back rentals moved for an Alias Writ of Execution against
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Fairfield Bank (FB), the parent company of D- Q: Plaintiffs filed a collection action against “X”
Securities. FB opposed the motion on the grounds Corporation. Upon execution of the court’s decision,
that it is a separate entity and that it was never “X” Corporation was found to be without assets.
made party to the case. The RTC granted the motion Thereafter plaintiffs filed an action against its
and issued the Alias Writ of Execution. In its present and past stockholder “Y” Corporation which
Resolution, the RTC relied on the following facts: owned substantially all of the stocks of “X”
499,995 out of the 500,000 outstanding shares of Corporation. The two corporations have the same
stocks of D-Securities are owned by FB; FB had board of directors and “Y” Corporation financed the
actual knowledge of the subject matter of litigation operations of “X” Corporation. May “Y” Corporation
as the lawyers who represented D-Securities are be held liable for the debts of “X” Corporation? Why?
also the lawyers of FB. As an alter ego, there is no (2001)
need for a finding of fraud or illegality before the
doctrine of piercing the veil of corporate fiction can A: Yes, “Y” Corporation may be held liable for the debts
be applied. The RTC ratiocinated that being one and of “X” Corporation. The doctrine of piercing the veil of
the same entity in the eyes of the law, the service of corporate fiction applies to this case. The two
summons upon D-Securities has bestowed corporations have the same board of directors and “Y”
jurisdiction over both the parent and wholly-owned corporation owned substantially all of the stocks of “X”
subsidiary. Is the RTC correct? (2014) Corporation, which facts justify the conclusion that the
latter is merely an extension of the personality of the
A: No, the RTC is not correct. The court must have first former, and that the former controls the policies of the
acquire jurisdiction over the corporation(s) involved latter. Added to this is the fact that “Y” Corporation
before its or their separate personalities are controls the finances of “X” Corporation which is merely
disregarded; and the doctrine of piercing the veil of an adjunct, business conduit or alter-ego of “Y”
corporate entity can only be raised during a full-blown Corporation.
trial over a cause of action duly commenced involving
parties duly brought under the authority of the court by Q:
way of service of summons or what passes as such A. What is the doctrine of "piercing the veil of
service. corporate entity?"
B. To what circumstances will the doctrine apply?
Recovery of Moral Damages (2006)
Q: How does one pierce the veil of corporate fiction? a. Who can be incorporators? Who can be
(2004) subscribers?
b. What are the differences between an
A: The veil of corporate fiction may be pierced by incorporator and a subscriber, if there are any?
proving in court that the notion of legal entity is being c. Who are qualified to become members of the
used to defeat public convenience, justify wrong, protect board of directors of the corporation?
fraud, or defend crime or the entity is just an instrument d. Who are qualified to act as Treasurer of the
or alter ego or adjunct of another entity or person. company?
35
Q: Guetze and his wife have 3 chidren: Neymar, 25, A: Yes, the SEC should accept the Articles of
who is now based in Rio de Janeiro, Brazil; Muelter, Incorporation. If the Articles of Incorporation
23, who has migrated to Munich, Germany; and substantially comply with the statute and all other
James, 21, who resides in Bogota, Colombia. Neymar requirements are met, the SEC has no discretion, but
and Muelter have since renounced their Philippine may be compelled by mandamus to file them. The
citizenship in favor of their country of residence. discretion exercised by SEC does not extend to the
Nearing 70 years old, Guetze decided to incorporate merits of an application for incorporation, although it
36
his business in Binondo, Manila. He asked his wife may be exercised as to matters of form.
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Adoption of By-Laws supply the corporation with its meat
and poultry requirements.
Amendment or Revision b. The Board of Directors of XL Foods Corporation
declared and paid cash dividends without
Q: The proposed Amended By-laws of CXT Inc., a approval of the stockholders.
corporation listed in the Makati Stock Exchange, c. XL Foods Corporation guaranteed the loan of its
contain the following provisions: sister company XL Meat Products, Inc. (2002)
its President Jose Cruz, whereby the latter would states that the competitor company lies within the
loan agreement with any financial institution or plus cost and expenses. (Sec 43) Stocks become
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luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
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delinquent 30 days from the due date specified in those conferred by the Code or by its articles of
the contract of subscription or in the date stated in incorporation and except such as are necessary or
the call made by the board (Sec 67). In this case, the incidental to the exercise of the powers so conferred.
cash dividend is not yet delinquent. Ace Cruz, When the corporation does an act or engages in an
therefore can claim the entire cash dividend payable activity which is outside of its express, implied or
on December 1, 2008. incidental powers set out in its articles of incorporation,
b. No. No certificate of stock shall be issued to a the act is deemed to be ultra vires.
subscriber until the full amount of subscription
together with interest and expenses (in case of By the Board of Directors
delinquent shares), if any is due, has been paid (Sec
64).Clearly, since Ace Cruz did not pay the full Q: When is there an ultra vires act on the part of (b)
subscription yet, the certificate of stock shall not be the board of directors. (2009)
issued to him.
A: When the Board engages in an activity or enters into a
Q: On September 15, 2007, XYZ Corporation issued contract without the ratificatory vote of the
to Paterno 800 preferred shares with the following stockholders in those instances where the Corporation
terms: Code so requires such ratificatory vote, such as when the
corporation is made to invest in another corporation or
“The Preferred Shares shall have the following rights, engage in a business which is not in pursuit of its
preferences, qualifications, and limitations, to wit: primary purpose, the board resolution not ratified by
1. The right to receive a quarterly dividend of 1% stockholders owning or representing at least 2/3 of the
cumulative participating; outstanding capital stock would make the transaction
2. These shares may be redeemed, by drawing of void, as being ultra vires.
lots, at any time after 2 years from date of issue,
at the option of the Corporation; x x x.” By the Officers
Today, Paterno sues XYZ Corporation for specific Q: When is there an ultra vires act on the part of (c)
performance, for the payment of dividends on, and the corporate officers. (2009)
to compel the redemption of, the preferred shares,
under the terms and conditions provided in the A: When a corporate officer enters into a contract on
stock certificates. Will the suit prosper? Explain. behalf of the corporation without having been so
(2009) expressly or impliedly authorized by the board of
Directors, even when the act or contract falls within the
A: No. the suit will not prosper. Paterno cannot compel corporation’s express, implied or incidental power, then
XYZ Corporation to pay dividends, which have to be the unauthorized act of the corporate officer is deemed
declared by the Board of Directors and the latter cannot to be ultra vires.
do so, unless there are sufficient unrestricted retained
earnings. Otherwise, the corporation will be forced to Q: YKS Trading filed a complaint for specific
use its capital to make said payments in violation of the performance with damages against the PWC
trust fund doctrine. Likewise, redemption of shares Corporation for failure to deliver cement ordered by
cannot be compelled. While the certificate allows such plaintiff. In its answer, PWC denied liability on the
redemption, the option and discretion to do so are ground, inter alia, that YKS has no personality to
clearly vested in the Corporation. sue, not being incorporated, and that the President
of PWC was not authorized to enter into a contract
Q: DEF Corporation has retained surplus profits in with plaintiff by the PWC Board of Directors, hence
excess of 100% of its paid in capital stock. However, the contract is ultra vires. YKS Trading replied that
it is unable to declare dividends, because it had it is a sole proprietorship owned by YKS, and that
entered into a loan agreement with a certain the President of PWC had made it appear in several
creditor wherein the declaration of dividends is not letters presented in evidence that he had authority
allowed without the consent of such creditor. If DEF to sign contracts on behalf of the Board of Directors
Corporation cannot obtain this consent; will it be of PWC. Will the suit prosper or not? Reason briefly.
justified in not declaring dividends to its (2014)
stockholders? Explain. (2015)
A: Yes, the suit will prosper. As the sole proprietorship,
A: Yes. Stock corporations are prohibited from retaining the proprietor of YKS Trading has the capacity to act and
surplus profits in excess of 100% of their paid-in capital the personality to sue PWC. It is not necessary for YKS
stock except among others, when the corporation is Trading to be incorporated before it can sue. On the
prohibited under any loan agreement with any financial other hand, PWC is stopped from asserting that its
institution or creditor; whether local or foreign, from President had no authority to enter into the contract,
declaring dividends without the consent of the creditor considering that, in several of PWC’s letters, it had
and such consent has not been secured (Section 43 of the clothed its President with apparent authority to deal
Corporation Code). with YKS Trading.
Q: When is there an ultra vires act on the part of (a) A: By the doctrine of apparent authority, the corporation
the corporation. (2009) will be estopped from denying the agent’s authority if it
knowingly permits one of its officers or any other agent
A: Under Sec. 45 of the Corporation Code, no corporation to act within the scope of an apparent authority and it
39
shall possess or exercise any corporate power except holds him out to the public as possessing the power to
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luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
allowed in proportion to their allowable participation or solidarily liable with the corporation, or when they
share in the capital of such entities (Sec. 2-A, Anti are made, by a specific provision of law, to
Dummy Law) Nothing in the facts shows that more than personally answer for the corporate action.
forty percent (40%) of the Board of Directors are
foreigners. Q: Bell Philippines, Inc. (BelPhil) is a public utility
company, duly incorporated and registered with the
Q: A, B, C, D, E, are all duly elected members of the Securities and Exchange Commission. Its authorized
Board of Directors of XYZ Corporation. F, the general capital stock consists of voting common shares and
manager, entered into a supply contract with an non-voting preferred shares, with equal par values
American firm. The contract was duly approved by of P100.00/share. Currently, the issued and
the Board of Directors. However, with the outstanding capital stock of BelPhil consists only of
knowledge and consent of F, no deliveries were common shares shared between Bayani Cruz, a
made to the American firm. As a result of the non- Filipino with 60% of the issued common shares, and
delivery of the promised supplies, the American firm Bernard Fleet, a Canadian, with 40%.
incurred damages. The American firm would like to To secure additional working fund, BelPhil issued
file a suit for damages. The American firm would preferred shares to Bernard Fleet equivalent to the
like to file a suit for damages. Can the American firm currently outstanding common shares. A suit was
sue: filed questioning the corporate action on the ground
that the foreign equity holdings in the company
a. The members of the Board of Directors would now exceed the 40% foreign equity limit
individually, because they approved the allowed under the Constitution for public utilities.
transaction? Rule on the legality of Bernard Fleet's current
b. The corporation? holdings. (2013)
c. F, the general manager, personally, because the
non-delivery was with his knowledge and A: The holding of Bernard Fleet equivalent to the
consent? outstanding common shares is illegal. His holdings of
d. Explain the rules on liabilities of a corporation preferred shares could not exceed 40%. Since the
for the act of its corporation officers and the constitutional requirement of 60% Filipino ownership of
liabilities of the corporate officers and Board of the capital of public utilities applies not only to voting
Directors of a corporation acting in behalf of the control but also to beneficial ownership of the
corporation. (2012) corporation, it should also apply to the preferred shares.
Preferred shares are also entitled to vote in certain
A: corporate matters (Gamboa v. Teves, 682 SCRA 397,
a. No, in approving the transaction, the directors were 2012). The state shall develop a self-reliant and
not acting in their personal capacities but rather on independent national economy effectively controlled by
behalf of XYZ Corporation exercising the powers of Filipinos (Article II, Sec. 19, 1987 Constitution). The
the corporation and conducting its business. The effective control here should be mirrored across the
problem contains no facts that would indicate that board on all kinds of shares.
the directors acted otherwise.
b. Yes. The Board approved the supply contract and Tenure, Qualifications and Disqualifications of
the General Manager entered into the contract, both Directors or Trustees
of them acting on behalf of the XYZ Corporation.
c. Yes, F could be sued in his personal capacity Q: Your client Dianne approaches you for legal
because he knowingly consented to the non-delivery advice on putting up a medium-sized restaurant
of the promised supplies contrary to the contract business that will specialize in a novel type of
that was duly approved by the Board of Directors. cuisine. As Dianne feels that the business is a little
The problem does not indicate any circumstance risky, she wonders whether she should use a
that would excuse or favorably explain the action of corporation as the business vehicle, or just run it as
F. a single proprietorship. She already has an existing
d. A corporation would be liable for the acts of its corporation that is producing meat products
Board of Directors and officers if the said acts were profitably and is also considering the alternative of
performed by them in accordance with the powers simply setting up the restaurant as a branch office of
granted to them under the Corporation Code, the the existing corporation. (2010)
articles of incorporation and by-laws of the
corporation, the laws and regulations governing the a. If you advise your client to use a corporation,
business of, or otherwise applicable to, the what officer position must the corporation at
corporation, and, in the case of officers, the least have?
resolution approved by the Board of Directors.
A: The corporation must have at least 4 directors. It
As the directors have a personality separate from must also have a president, treasurer, and a secretary.
that of the corporation, they would be personally
liable only if they acted willfully and knowingly vote b. What particular qualifications, if any, are these
for or assent to a patently unlawful act of the officers legally required topossess under the
corporation, or when they are guilty of gross Corporation Code?
negligence or bad faith in directing the affairs of the
corporation, or when they acquire any personal or A: Every director must own at least 1 share of the capital
pecuniary interest in conflict with their duty as stock of the corporation, which must be recorded in his
directors, which acts result in damages to the name on the books of the corporation, and a majority of
corporation, its stockholders or other persons, when the directors must be residents of the Philippines. The
41
of the 13th month bonus, purchase of an office stockholder or member at his place of residence as
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shown on the books of the corporation and deposited to affairs. Aside from documents and contracts, the
the addressee in the post office with postage prepaid, or corporation also submitted in evidence records of
served personally. the officers’ U.S. Dollar deposits in several banks
overseas – Boston Bank, Bank of Switzerland, and
Q: The stockholders of People Power Inc (PPI) Bank of New York.
approved two resolutions in a special stockholders’
meeting: For their part, the officers filed a criminal complaint
against the directors of Hi Yielding Corporation for
1. Resolution increasing the authorized capital violation of Republic Act No. 6426, otherwise known
stock of PPI; and as the Foreign Currency Deposit Act of the
2. Resolution authorizing the BOD to issue, for cash Philippines. The officers alleged that their bank
payment, the new shares from the proposed deposits were illegally disclosed for want of court
capital stock increase in favor of outside order, and that such deposits were not even the
investors who are non-stockholders. subject of the case against them. (2014)
The foregoing resolutions were approved by a. Will the complaint filed against the directors of
stockholders representing 99% of the total Hi Yielding Corporation prosper? Explain.
outstanding capital stock. The sole dissenter was b. Was there a violation of Bank Secrecy Deposits
Jimmy Morato who owned 1% of the stock. Law (Republic Act No.1405)? Explain.
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QuAMTO for MERCANTILE LAW (1991-2015)
Q: Dennis subscribed to 10,000 shares of XYZ remedies within the corporation, and did not have to
Corporation with a par value of 100 per share. make a demand on the Board of Directors for the latter
However, he paid only 25% of the subscription or to sue. Here, such a demand would be futile, since the
P250,000. No call has been made on the unpaid directors who comprise the majority (namely, BB, CC,
subscription. DD and EE) are the ones guilty of the wrong complained
of. Second, AA appears to be stockholder at the time the
How many shares is Dennis entitled to vote at the alleged misappropriation of corporate funds. Third, the
annual meeting of the stockholders of XYZ? suit is brought on behalf and for the benefit of MOP
Corporation. In this connection, it was held in Conmart
a. 10,000 shares; (Phils.) Inc. v. SEC, 198 SCRA 73 (1991) that to grant to
b. 2,500 shares; the corporation concerned the right of withdrawing or
c. 100 shares; dismissing the suit, at the instance of the majority
d. 0 shares; stockholders and directors who themselves are the
e. None of the above. (2013) persons alleged to have committed the breach of trust
against the interest of the corporation would be to
A: a) 10,000 shares emasculate the right of minority stockholders to seek
redress for the corporation. Filing such action as a
Remedial Rights derivative suit even by a lone stockholder is one of the
protections extended by law to minority stockholders
Derivative Suit against abuses of the majority.
Stockholder X questioned the election of the new a. Who shall preside at the meeting of the
directors, initially, through a letter-complaint directors?
addressed to the board, and later when his letter- b. Can Ting, a stockholder, who did not attend the
complaint went unheeded), through a derivative suit stockholders' annual meeting in Manila,
filed with the court. He claimed that the vacancy in question the validity of the corporate
the board should be filled up by the vote of the resolutions passed at such meeting?
stockholders of Greenville Corporation. Greenville c. Can the same stockholder question the validity
Corporation's directors defended the legality of of the resolutions adopted by the BOD at the
their action, claiming as well that Stockholder X's meeting held in Makati? (1993)
derivative suit was improper. Rule on the issues
raised. (2013) A:
a. Section 54 of the Code provides that it is the
A: The remaining directors cannot elect new directors to President who shall preside over the directors'
fill in the two vacancies. The board of directors may fill meeting, unless the by-laws provide otherwise.
up vacancy only if the ground is not due to expiration of However, in practice it is the Chairman who
term, removal or increase in the number of board seats. presides because the President only reports to the
In this case, the term of the two directors expired after Chairman. Only in the absence of a Chairman can a
one year. They remained in office in a hold-over period President preside over directors meetings.
is not part of their term. The vacancies should be filled b. No. Sec. 51 provides that the annual stockholders’
up by election by the stockholders (Valle Verde Country meeting shall be held in the city or municipality
Club, Inc. v. Africa, 598 SCRA 202, 2009). where the principal office is located. For this
purpose, the law also provides that Metro Manila is
The derivative suit was improper. In a derivative suit, considered a city or municipality. Since the principal
the corporation, not the individual stockholder, must be office or business of MIC is Pasig, Metro Manila, the
the aggrieved party and that the stockholder is suing on holding of the annual stockholder’s meeting in
behalf of the corporation. What stockholder X is Manila is proper.
asserting is his individual right as a stockholder to elect c. No. Ting cannot question the validity of corporate
the two directors. The case partake more of an election resolutions passed in the BOD meeting because
contest under the rules on intra-corporate controversy Section 53 of the Code does not require that the
(Legaspi Towers 300, Inc. v. Muer, 673 SCRA 453, 2012). meeting must held within the city or municipality
where the principal office of the corporation is
Q: A, B, C, D and E were members of the 2003-2004 located. The directors' meeting can be held
Board of Directors of FLP Corporation. At the anywhere in or outside the Philippines.
election for the 2004-2005 Board of Directors, not
one of them was elected. They filed in court a Q: Chito Santos is a director of both Platinum
derivative suit on behalf of FLP Corporation against Corporation and Kwik Silver Corporation. He owns
the newly-elected members of the Board of 1% of the outstanding capital stock of Platinum and
Directors. They questioned the validity of the 40T of Kwik. Platinum plans to enter into a contract
election as it was allegedly marred by lack of with Kwik that will make both companies earn very
quorum, and prayed for the nullification of the said substantial profits. The contract is presented at the
election. The 2004-2005 Board of Directors moved respective board meetings of Platinum and Kwik.
to dismiss the complaint because the derivative suit
is not proper. Decide. (2014) a. In order that the contract will not be voidable,
what conditions will have to be complied with?
A: The derivative suit is not proper. The parties-in- Explain.
interest are not the petitioners as stockholders, who b. If these conditions are not met, how may this
were members of the 2003-2004 Board of Directors of contract be ratified? Explain (1995)
FLP Corporation. The cause of action devolves on the
petitioners, not on FLP Corporation, which did not have A:
the right to vote. Hence, the complaint filed by A, B, C, D a. Under Section 32 of BP 68, the law provides that: a)
and E is a direct action by the petitioners, who were the the presence of such director or trustee in this case
members of the Board of Directors of the corporation Chito in the board meeting in which the contract
before the election, against respondents, who are the was approved was not necessary to constitute a
newly-elected Board of Directors. Under the quorum for such meeting; b) that the vote of such
circumstances, the derivative suit filed by petitioners in director or trustee was not necessary for the
behalf of FLP is improper. approval of the contract; c) that the contract is fair
and reasonable under the circumstances; and d)
Meetings that in case of an officer, the contract has been
46
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luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
the case at bar, Chito must make sure that the stock for the P1,000 paid-up shares so that he may
following conditions be met for in order that the have voting rights but the corporation refused. In
contract will not be voidable. the trial court, the judge resolved the case against
b. Under Section 32 of BP 68, the law provides that the stockholder, ruling that—“in the absence of
where any of the first two conditions set forth in the special agreement to the contrary, a subscriber for a
preceding paragraph is absent, in the case of a case certain number of shares of stock does not, upon
of a contract with a director or trustee, such payment of one-third of the subscription price,
contract may be ratified by the vote of the become entitled to the issuance of certificates for
stockholders representing at least 2/3 of the one-third of the number of shares subscribed for;
outstanding capital stock or of at least 2/3 of the the subscriber’s right consists only in equity
members in a meeting called for the purpose: entitling him to a certificate upon payment of the
Provided, that full disclosure of the adverse interest remaining portion of the subscription price.”
of the directors or trustees involved is made at such Comment on the said ruling, with reasons. (1975)
meeting: Provided, however, that the contract is fair
and reasonable under the circumstances. A: Although the general rule is as stated by the trial
court, the Supreme Court held in the case of Baltazar v.
NOTE: SEE section 33 as well on interlocking directors. Lingayen Gulf Eectric Power Co. that the stockholder was
entitled to the issuance of certificates of stock for the
Q: Leonardo is the Chairman and President, while 1000 shares paid by him. The court considered the fact
Raphael is a Director of NT Corporation. On one that it was the practice of this corporation to issue
occasion, NT Co, represented by Leonardo and A certificates of stock partially paid subscriptions by
Enterprises, a single proprietorship owned by applying the payment, not pro rata to each share, but as
Raphael, entered into a dealership agreement consideration for whole shares. The case therefore fell
whereby NT Co appointed A Enterprises as exclusive under the exception in the Fua Cun v. Summer case: “In
distributor of its products in Northern Luzon. Is the the absence of an agreement to the contrary.”
dealership agreement valid? Explain. (1996)
Commenting on the Fua Cun ruling, I would say that it is
A: The dealership agreement is valid PROVIDED the sound because a stockholder will feel bound to pay for
following conditions under Section 32 of BP 68 are all his subscription, lest all his shares be declared
complied with. The law provides that a contract of the delinquent if he fails to pay. Prorating the payment
corporation with one or more of its directors or trustees means that not one of his shares is fully paid, and any
or officers is voidable, at the option of such corporation, failure on his part to pay when demanded will render all
unless all the following conditions are present: 1) that his shares delinquent. On the other hand, if the Baltazar
the presence of such director or trustee in the board v. Lingyen case is followed in all cases, a stockholder, if
meeting in which the contract was approved was not he believes that the corporate business will be a failure,
necessary to constitute a quorum for such meeting; 2) will just let the other unpaid shares become delinquent.
that the vote of such director or trustee was not Anyway he has the certificate for his fully paid shares.
necessary for the approval of the contract; 3) that the
contract is fair and reasonable under the circumstances; These two cases can be reconciled by considering the
and 4) that in case of an officer, the contract has been Baltazar v. Lingayen Gulf case as an exception to the Fua
previously authorized by the board of directors Cun principle. In other words, as a general rule, partial
payment on a subscription of shares should be prorated
Capital Structure among all the shares and will not entitle the subscriber
to a certificate of stock representing the number of
Watered Stock shares which the partial payment can cover. He is
entitled to the certificate only upon full payment of his
Liability of Directors for Watered Stocks subscription. However, where the agreement between
the corporation and the subscriber is otherwise, or the
Q: What is “watered stock” and what is the legal corporation’s practice has been to so issue certificates
consequence of the issuance of such stock? (2015) instead of prorating payment, then the subscriber is
entitled to a certificate of stock representing the number
A: Watered stocks are stocks issued for a consideration of shares already paid for.
less than its par or issued value or for a consideration in
any form other than cash, valued in excess of its fair Stock and Transfer Book
value. Any director or officer of a corporation consenting
to the issuance of watered stocks or who, having Q: What is a stock and transfer book? (2009)
knowledge thereof, does not forthwith express his
objection in writing and file the same with the corporate A: A stock and transfer book is a book which records all
secretary shall be solidarily liable with the stockholder stocks in the name of the stockholders alphabetically
concerned to the corporation and its creditors for the arranged; the installments paid or unpaid on all stocks
difference between the fair value received at the time of for which subscription has been made and the date of
issuance of the stock and the par or issued value of the payment of any installment, a statement of every
same (Section 65 of the Corporation Code). alienation, sale or transfer of stock made, the date
thereof, and by and to whom made; and such other
Certificate of Stock entries as the by-laws may prescribe.
he then asked for the issuance to him of certificate of 000011. He entrusted the possession of said
A: No. Assuming that the shares were already Dissolution and Liquidation
transferred to “B”. “A” cannot claim the shares of stock
from “X” the certificate of stock covering said shares Q: The SEC approved the amendment of the Articles
have been duly endorsed by “A” and entrusted by him to of Incorporation of GHQ Corp shortening its
“B”. by his said acts “A” is now estopped from claiming corporate life to only 25 years in accordance with
said shares from “X”, a bona fide purchaser who relied Sec 120 of the Corp Code. As shortened, the
on the endorsement by “A” of the certificate of stock. corporation continued its business operations until
May 30, 1997, the last day of its corporate existence.
Q: Four months before his death, PX assigned 100 Prior to said date, there were a number of pending
shares of stock registered in his name in favor of his civil actions, of varying nature but mostly money
wife and his children. They then brought the deed of claims filed by creditors, none of which was
assignment to the proper corporate officers for expected to be completed or resolved within five
registration with the request for the transfer in the years from May 30, 1997. If the creditors had sought
corporation’s stock and transfer books of the your professional help at that time about whether or
assigned shares, the cancellation of the stock not their cases could be pursued beyond May 30,
certificates in PX’s name, and the issuance of new 1997, what would have been your advice? (2000)
stock certificates in the names of his wife and his
children as the new owners. The officers of the A: The cases can be pursued even beyond May 30, 1997,
Corporation denied the request on the ground that the last day of the corporate existence of GHQ Corp. The
another heir is contesting the validity of the deed of Corporation is not actually dissolved upon the
assignment. May the Corporation be compelled by expiration of its corporate term. There is still the period
mandamus to register the shares of stock in the for liquidation or winding up.
names of the assignees? Explain briefly. (2004)
Q: AAA Corporation is a bank. The operations of AAA
A: Yes. The corporation may be compelled by mandamus Corporation as a bank was not doing well. So, to
to register the shares of stock in the name of the avert any bank run, AAA Corporation, with the
assignee. The only legal limitation imposed by Section 63 approval of the Monetary Board, sold all its assets
of the Corporation Code is when the Corporation holds and liabilities to BBB Banking Corporation which
any unpaid claim against the shares intended to be includes all deposit accounts. In effect then, BBB
transferred. The alleged claim of another heir of PX is Corporation will service all deposits of all depositors
not sufficient to deny the issuance of new certificates of of AAA Corporation.
stock to his wife and children. It would be otherwise if
the transferee’s title to the shares has no prima facie a. Will the sale of all assets and liabilities of AAA
validity or is uncertain. Corporation to BBB Banking Corporation
automatically dissolve or terminate the
Q: Because of disagreement with the BOD and a corporate existence of AAA Corporation? Explain
threat by the BOD to expel her for misconduct and your answer.
inefficiency, Carissa offered in writing to resign as b. What are the legal requirements in order that a
President and member of the BOD, and to sell to the corporation may be dissolved? (2012)
company all her shares therein for P300,000.00 Her
offer to resign was ―effective as soon as my shares A:
are fully paid. At its meeting, the BOD accepted a. No. AAA Corporation is an artificial being created by
Carissa‘s resignation, approved her offer to sell back law and has a legal personality of its own. A
her shares of stock to the company, and promised to corporation does not owe its existence upon the
buy the stocks on a staggered basis. Carissa was presence of assets and properties. It can only be
informed of the BOD Resolution in a letter- dissolved in cases provided for by law. As such, AAA
agreement to which she affixed her consent. The Corporation will subsist regardless of the sale of all
Company‘s new President singed the promissory of its assets and liabilities to another corporation.
note. After payment P100,000 the company b. A corporation may be dissolved voluntarily, by
defaulted in paying the balance of P200,000. Carissa shortening of the corporate term and through
wants to sue the Company to collect the balance. If involuntary dissolution. In voluntary dissolution,
you were retained by Carissa as her lawyer, where the action for dissolution must be approved by
will you file the suit? A) Labor Arbiter; b) RTC; or c) majority of the directors or trustees and 2/3 of the
SEC? (2014) stockholders representing the outstanding capital
stock or members, publication requirement and
A: RTC has jurisdiction. Under Section 5.2 of the SRC, the filed with SEC which will issue certificate of
commission’s jurisdiction over all cases enumerated dissolution. If there are creditors affected, there
under Section 5 of PD 902-A is hereby transferred to the must be a hearing to hear the objections and claims
Courts of general jurisdiction or the appropriate of the creditors. In case of shortening of corporate
Regional Trial Court: Provided, That the Supreme Court term, through amendment of the AOI. In involuntary
in the exercise of its authority may designate the dissolution, through filing of a verified complaint
48
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
with the SEC based on any ground provided by law Q: Name 3 methods by which a stock corporation
or rules. may be voluntarily dissolved. Explain each method.
(2002)
Involuntary Dissolution
A: The 3 methods by which a stock corporation may be
By Expiration of Corporate Term voluntarily dissolved are:
1. Voluntary dissolution where no creditors are
Q: XYZ Corporation entered into a contract of lease affected. This is done by a majority vote of the
with ABC, Inc., over a piece of real estate for a term directors, and resolution of at least 2/3 vote of
of 20 years, renewable for another 20 years, stockholders, submitted to the SEC.
provided that XYZ’s corporate term is extended in 2. Voluntary dissolution where creditors are affected.
accordance with law. Four years after the term of This is done by a petition for dissolution which must
XYZ Corporation expired, but still within the period be filed with the SEC, signed by a majority of the
allowed by the lease contract for the extension of the members of the board of directors, verified by the
lease period, XYZ Corp. notified ABC Inc., that it is president or secretary, and upon affirmative vote of
exercising the option to extend the lease. ABC Inc. stockholders representing at least 2/3 of the
objected to the proposed extension, arguing that outstanding capital stock.
since the corporate life of XYZ Corp. had expired, it 3. Dissolution by shortening of the corporate term.
could no longer opt to renew the lease. XYZ Corp. This is done by amendment of the articles of
countered that withstanding the lapse of its incorporation.
corporate term it still has the right to renew the
lease because no quo warranto proceedings for Conveyance to a Trustee within a Three-Year Period
involuntary dissolution of XYZ Corp. has been
instituted by the Office of the Solicitor General. Q: The corporation, once dissolved, thereafter
Is the contention of XYZ Corp. meritorious? Explain continues to be a body corporate for three years for
briefly. (2004) purposes of prosecuting and defending suits by and
against it and of enabling it to settle and close its
A: XYZ Corporation’s contention is not meritorious. affairs, culminating in the final disposition and
Based on the ruling of the Supreme Court in Philippine distribution of its remaining assets. If the 3 year
National Bank v. CFI of Rizal, 209 SCRA (1992). XYZ extended life expires without a trustee or receiver
Corp. was dissolved ipso facto upon the expiration of its being designated by the corporation within that
original term. It ceased to be a body corporate for the period and by that time (expiry of the 3 year
purpose of continuing the business for which it was extended term), the corporate liquidation is not yet
organized, except only for purposes connected with its over, how, if at all, can a final settlement of the
winding up or liquidation. Extending the lease is not an corporate affairs be made? (1997)
act to wind up or liquidate XYZ Corp.’s affairs. It is
contrary to the idea of winding up the affairs of the A: The liquidation can continue with the winding up.
corporation. The members of the BOD can continue with the winding
of the corporate affairs until final liquidation. They can
Methods of Liquidation act as trustees or receivers for this purpose.
By the Corporation Itself Q: Pedro owns 70% of the subscribed capital stock
of a company which owns an office building. Paolo
Q: “X” Corporation shortened its corporate life by and Juan own the remaining stock equally between
amending its articles of incorporation. It has no them. Paolo also owns a security agency, a janitorial
debts but owns a prime property located in Quezon company and a catering business. In behalf of the
City. How would the said property be liquidated office building company, Paolo engaged his
among the five stockholders of said corporation? companies to render their services to the office
Discuss two methods of liquidation. (2001) building. Are the service contracts valid? Explain.
(2008)
A: The prime property of “X” Corporation can be
liquidated among the five stockholders after the A: No. This is a case of close corporation where the
property has been conveyed by the corporation to the provision on interlocking directors in open corporations
five stockholders, by dividing or partitioning it among also apply. As a general rule, the presence of interlocking
themselves in any two of the following ways: directors does not make the contract void or
unenforceable. It is further validated when there is no
1. By physical division or partition based on the fraud; the contract is fair and reasonable under the
proportion of the values of their stockholdings; or circumstances; the interest of the interlocking director
2. Selling the property to a third person and dividing in one corporation is substantial and his interest on the
the proceeds among the five stockholders in other corporation or corporations is merely nominal
proportion to their stockholdings; or and compliance with the requirement under Sec 32 in so
3. After the determination of the value of the property, far as the nominal corporation is concerned. In this case,
by assigning or transferring the property to one Pedro owns a substantial interest in both business
stockholder with the obligation on the part of said enterprise, parties to the contract in violation of the
stockholder to pay the other four stockholders the legal requirement that in order for a contract with
amount/s in proportion to the value of the interlocking directors be valid, there must only be
stockholding of each. substantial interests in one of the corporation he
represents and not in both. Pedro has substantial
interest in both businesses. He owns a substantial
49
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
corporation used as security of the loan availed by Q: What is the legal test for determining if an
the two erring Board of Directors. unlicensed foreign corporation is doing business in
c. Yes, under Section 145 of the Corporation Code, no the Philippines? (2002)
right or remedy in favor of or against any
corporation shall be removed or impaired either by A: The test is whether or not the unlicensed foreign
the subsequent dissolution of said corporation. No corporation has performed an act or acts that imply a
reason can be conceived why a suit already continuity of commercial dealings or arrangements, and
commenced by the corporation during its existence contemplate to that extent the performance of acts or
to proceed to final judgment and execution thereof works, or the exercise of some of the functions normally
because even a mere trustee (of a dissolved incident to, and in progressive prosecution of,
corporation), who, by fiction, merely continues the commercial gain or of the purpose and object of the
legal personality may commence a suit which can business corporation.
proceed to final judgment even beyond the 3-year
period of liquidation (Knecht v. United Cigarette Q: Give at least three (3) examples of the acts or
Corporation, 348 SCRA 48). activities that are specifically identified under our
foreign investment laws as constituting “doing
Non-Stock Corporations business” in the Philippines (2002)
Q: “X” company is a stock corporation composed of A: Any three (3) of the following acts or activities
the Reyes family engaged in real estate business. constitute “doing business” in the Philippines under our
Because of the regional crisis, the stockholders foreign investment laws:
decided to convert their stock corporation into a 1. Soliciting orders
charitable non-stock and non-profit association by 2. Opening offices by whatever name
amending the articles of incorporation. 3. Participating in the management, supervision or
control of any domestic entity
a. Could this be legally done? Why? 4. Entering into service contracts
b. Would your answer be the same if at the 5. Appointing representative or distributors, operating
inception, “X” company is a non-stock under the control of the foreign entity, who is
corporation? Why? (2001) domiciled in the Philippines or who stays in the
country for a period or periods totaling at least 180
A: days in any calendar year.
a. Yes, it can be legally done. In converting the stock
corporation to a non-stock corporation by a mere Isolated Transactions
amendment of the Articles of Incorporation, the
stock corporation is not distributing any of its assets Q: A foreign company has been exporting goods to a
to the stockholders. On the contrary, the Philippine company for several years now. When the
stockholders are deemed to have waived their right Philippine company failed to pay the latest
to share in the profits of the corporation which is a exportation, the foreign company sued to collect in
gain not a loss to the corporation. the Philippines. The Philippine company interposed
b. No, my answer will not be the same. In a non-stock the defense that the foreign company was doing
corporation, the members are not entitled to share business in the Philippines without a license; hence,
in the profits of the corporation because all present could not sue before a Philippine court. Is this
and future profits belong to the corporation. In defense tenable? Explain your answer. (2015)
converting the non-stock corporation to a stock
corporation by a mere amendment of the Articles of A: The defense is not tenable. The mere act of exporting
Incorporation, the non-stock corporation is deemed from one’s own country, without doing any specific
to have distributed an asset of the corporation—i.e. commercial act within the territory of the importing
its profits, among its members, without a prior country can not be deemed as doing business in the
dissolution of the corporation. Under Section 122, importing country. Thus, the foreign company may sue
the non-stock corporation must be dissolved first. in the Philippines despite lack of license to do business
in the Philippines (Van Zuiden Bros Ltd. v. GTVL
Foreign Corporations Manufacturing Industries 523 SCRA 233).
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
A lawyer should not only refrain from performing ABC and indirect control of Union Mines. Is the
unlawful acts. He should also desist from engaging in proposed acquisition by XYZ subject to the
unfair deceitful conduct to conceal form the buyer of the mandatory tender offer and when is it mandatory?
shares of the planned corporate rehabilitation. (2010)
Q: What is insider trading? (2015) A: Yes, the proposed acquisition is subject to mandatory
tender offer rule. A tender offer is a publicly announced
A: Insider trading is the buying or selling by securities intention by a person (acting alone or in concert with
by an insider while in the possession of a material non- other persons) to acquire shares of a public company. A
public information. tender offer is meant to protect minor stockholders
against any scheme that dilutes the share value of their
Protection of Investors investments. It gives them the chance to exit the
company under the same terms offered to the majority
Tender Offer Rule stockholders.
Q: What is tender offer? (2002) Under the SRC and its implementing rules, a mandatory
tender offer is required:
A: Tender offer means a publicly announced intention a. When at least 35% of the outstanding shares of a
by a person acting alone or in concert with other public company is to be acquired in one transaction
persons to acquire equity securities of a public company. or a series of transaction during a 12-month period,
It is also an offer by the acquiring person to stockholders or
of a public company for them to tender their shares b. Even if any acquisition is less than 35% threshold
therein on the terms specified in the offer. Tender offer but the result thereof is the ownership of more than
is in place to protect their minority shareholders against 51% of the total outstanding shares of a public
any scheme that dilutes the share value of any company. The mandatory offer rule also applies to
investments. It gives the minority shareholders the share acquisition meeting the threshold, which is
chance to exit the company under reasonable terms, done at the level of the holding or parent
giving them opportunity to sell their shares at the same corporation controlling a public company
price as those of the majority shareholders (CEMCO
HOLDINGS, INC. v. National Life Insurance Company, Inc. In this case, Union Mines is clearly a public company,
G.R. No. 171815, August 7, 2007). since it has a total asset of P60 M with 210 stockholders
holding at least 100 shares each. A public company is
Q: In what instances is a tender offer required to be defined as a corporation listed on the stock exchange, or
made? (2002) a corporation with assets exceeding P50 M and with 200
or more stockholders at least 200 of them holding not
A: It is required when: less than 100 share of such corporation.
1. Any person or group of persons acting in concert,
who intends to acquire thirty-five percent (35%) or XYZ’s acquisition of shares of Acme, Inc. and Golden Boy,
more of equity shares in a public company. They Inc., taken separately, does not reach 35% threshold. If
must however, disclose the intention to acquire the taken collectively, the two acquisitions total only 50%.
shares contemporaneously with the tender offer. However, when the acquisitions are added to XYZ’s
2. Any person or group of persons acting in concert, existing shares in Union Mines, they meet the more-
who intends to acquire thirty-five percent (35%) or than-51% threshold for mandatory tender offer.
more of equity shares in a public company in one or
more transactions within a period of twelve (12) Civil Liability
months, shall be required to make a tender offer to
all holders of such class for the number of shares so Q: Mr. and Mrs. Reyes invested their hard-earned
acquired within the said period. savings in securities issued by LEAD Bank. After
3. If any acquisition of even less than thirty-five discovering that the securities sold to them were not
percent (35%) would result in ownership of over registered with the SEC in violation of the Securities
fifty-one percent (51%) of the total outstanding Regulation Code, the spouses Reyes filed a complaint
equity securities of a public company, the acquirer for nullity of contract and for recovery of a sum of
shall be required to make tender offer for all the money with the RTC. LEAD Bank moved to dismiss
outstanding equity securities to all remaining the case on the ground that it is the SEC that has
stockholders of the said company at a price primary jurisdiction over actions involving
supported by a fairness opinion provided by an violations of the Securities Regulation Code. If you
independent financial advisor or equivalent third were the judge, how would you rule on the motion to
party. The acquirer in such a tender offer shall be dismiss? (2015)
required to accept any and all securities thereof.
A: The motion should be denied. Civil suits falling under
Q: Union Mines, Inc. has a total asset of P60 M with the SRC (like liability for selling unregistered securities)
210 stockholders holding at least 100 shares each. are under the exclusive original jurisdiction of the RTC
The company has two principal stockholders, ABC and hence, need not be first filed before the SEC unlike
which owns 60% of the shares of stock, and XYZ criminal cases, wherein the latter body exercises
which owns 17%. ABC in turn is owned to the extent primary jurisdiction (Pua vs Citibank, GR no. 180064,
of 21.31% by Acme, Inc.; 29.69% by Golden Boy, Inc; September 16, 2013).
9%by XYZ; and the rest by individual stockholders.
None of the parties is a publicly-listed company.
XYZ now proposes to buy Acme’s and Golden Boy’s
53
assets of a corporation under rehabilitation held under investment, the President of Z Bank entered into a
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
financing agreement with a group of investors for and the banks opposed the production of the bank
the completion of the construction of the 21-storey records of deposits on the ground that no such
building in exchange for a 10-year lease and the inquiry is allowed under the Law on Secrecy of Bank
exclusive option to purchase the building. Deposits (RA 1405 as amended). Is the opposition of
GP and the banks valid? Explain. (2000)
a. Is the act of the President valid? Why or why
not? A: Yes. The opposition is valid. GP is not a public official.
b. Will a suit to enforce the exclusive right of the The investigation does not involve one of the exceptions
investors to purchase the property prosper? to the prohibition against disclosure of any information
Reason briefly. (2007) concerning bank deposits under the Law on Secrecy of
Bank Deposits. The Committee conducting the
A: investigation is not a competent court or the
a. No, the bank president’s act is not valid. He had no Ombudsman authorized under the law involving such
authority to enter into the financing agreement. Z disclosure.
Bank was ordered closed and placed under
receivership. Control over the properties of Z Bank Q: The Law on Secrecy of Bank Deposits, otherwise
passed to the receiver. The appointment of a known as RA 1405, is intended to encourage people
receiver operates to suspend the authority of the to deposit their money in banking institutions and
bank and its officers over the bank’s assets and also to discourage private hoarding so that the same
properties, such authority being reposed in the may be properly utilized by banks to assist in the
receiver. economic development of the country. Is a notice of
b. No, the exclusive option granted to the investors, garnishment served on a bank at the instance of a
having been entered into by one without authority creditor of a depositor covered by the said law?
to do so, is unenforceable. The bank, therefore, State the reason(s) for your answer (2001)
cannot be compelled to sell the property. Under
Section 30 of the R.A. No. 7653, New Central Bank Act, A: No. The notice of garnishment served on a bank at the
the properties of Z Bank should be administered for instance of a creditor is not covered by the Law on
the benefit of its creditors. The property in question Secrecy of Bank Deposits. Garnishment is just a part of
can be disposed of only for the purpose of paying the process of execution. The moment a notice of
the debts of Z Bank. garnishment is served on a bank and there exists a
deposit by the judgment debtor, the bank is directly
Legal Tender Power accountable to the sheriff, for the benefit of the
judgment creditor, for the whole amount of the deposit.
Q: After many years of shopping in the Metro Manila In such event, the amount of the deposit becomes, in
area, housewife HW has developed the sound habit effect, a subject of the litigation.
of making cash purchases only, none on credit. In
one shopping trip to Mega Mall, she got the shock of Q: The Law on Secrecy of Bank Deposits provides
her shopping life for the first time, a store’s smart that all deposits of whatever nature with banks or
salesgirl refused to accept her coins in payment for a banking institutions are absolutely confidential in
purchase worth not more than P100. HW was paying nature and may not be examined, inquired or looked
P70 in 25-centavo coins and P25 in 10-centavo into by any person, government official, bureau or
coins. Strange as it may seem, the salesgirl told HW office. However, the law provides exceptions in
that her coins were not “legal tender”. Do you agree certain instances. Which of the following may not be
with the salesgirl in respect of her understanding of among the exceptions:
“legal tender”? Explain. (2000)
1. In cases of impeachment.
A: No. The salesgirl’s understanding that coins are not 2. In cases involving bribery
legal tender is not correct. Coins are legal tender in 3. In cases involving BIR inquiry.
amounts not exceeding P50 for denominations from 25- 4. In cases of anti-graft and corrupt practices.
centavos and above, and in amounts not exceeding P20 5. In cases where the money involved is the subject
for denominations 10-centavos and less. of litigation.
Law on Secrecy of Bank Deposits Explain your answer or choice briefly. (2004)
(R.A. No. 1405, as amended)
A: Under Section 6(F) of the National Internal Revenue
Q: GP is a suspected jueteng lord who is rumored to Code, the Commissioner of Internal Revenue can inquire
be enjoying police and military protection. The envy into the deposits of a decedent for the purpose of
of many drug lords who had not escaped the dragnet determining the gross estate of such decedent. Apart
of the law, GP was summoned to a hearing of the from this case, a BIR inquiry into bank deposits cannot
Committee on Racketeering and Other Syndicated be made. Thus, exception 3 may not always be
Crimes of the House of Representatives, which was applicable. Turning to exception 4, an inquiry into bank
conducting a congressional investigation ―in aid of deposits is possible only in prosecutions for unexplained
legislation on the involvement of police and military wealth under the Anti-Graft and Corrupt Practices Act,
personnel, and possibly even of local government according to the Supreme Court in the cases of Philippine
officials, in the illegal activities of suspected National Bank v. Gancayco, 15 SCRA 91 and Banco
gambling and drug lords. Subpoenaed to attend the Filipino Savings and Mortgage Bank v. Purisima, 161
investigation were officers of certain identified SCRA 576. However, all other cases of anti-graft and
banks with a directive to them to bring the records corrupt practices will not warrant an inquiry into bank
and documents of bank deposits of individuals deposits. Thus, exception 4 may not always be
55
mentioned in the subpoenas, among them GP. GP applicable. Like any other exception, it must be
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
A: ALTERNATIVE ANSWER: The legal relationship of the
1. Universal bank bank and its safety deposit box client is that of a lessor
and lessee.
A universal bank is a commercial bank with 2 additional
powers, namely: Q: Is a stipulation in the contract for the use of a
a. The power of an investment house; and safety deposit box relieving the bank of liability in
b. The power to invest in non-allied enterprises. connection with the use thereof valid? (2010)
A: The relationship between a commercial bank and its Single Borrower’s Limit
safety deposit box client is that of a bailee and bailor, the
bailment being for hire and mutual benefit. Q: What is the single borrower’s limit? (2015)
57
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
Patents isometric exercises. He comes to you for advice on
how he can have his discoveries protected. Can he
Patentable Inventions legally protect his new method of diagnosis, the new
medicine, and the new method of treatment? If no,
Q: Cezar works in a car manufacturing company why? If yes, how? (2010)
owned by Joab. Cezar is quite innovative and loves to
tinker with things. With the materials and part of A: Dr. Nobel can be protected by a patent for the new
the car, he was able to invent a gas-saving device medicine as it falls within the scope of Sec. 21 of the
that will enable cars to consume less gas. Francis, a Intellectual Property Code. But no protection can be
co-worker, saw how Cezar created the device and legally extended to him for the method of diagnosis and
likewise, came up with a similar gadget, also using method of treatment which are expressly non-
scrap materials and spare parts of the company. patentable.
Thereafter, Francis filed an application for
registration of his device with the Bureau of Patent. Non-Patentable Inventions
a. Is the gas-saving device patentable? Explain. Q: Supposing Albert Einstein were alive today and he
b. Assuming that it is patentable, who is entitled to filed with the Intellectual Property Office (IPO) an
the patent? What, if any, is the remedy of the application for patent for his theory of relativity
losing party? expressed in the formula E=mc2. The IPO
c. Supposing Joab got wind of the inventions of his disapproved Einstein's application on the ground
employees and also laid claim to the patents, that his theory of relativity is not patentable. Is the
asserting that Cezar and Francis were using his IPO's action correct? (2006)
materials and company time in making the
devices will his claim prevail over those of his A: Yes. Under the Intellectual Property Code,
employees (2005) discoveries, scientific theories and mathematical
methods, are classified to be as "non¬patentable
A: inventions." Eintein's theory of relativity falls within the
a. Yes, the gas-saving device is patentable. Sec. 21 of category of being a non-patentable "scientific
IPL provides that in order that a machine, product, theory"(Sec. 22, IPC as amended by R.A. 9502).
process or improvement of them may be patented it
must be new, it must involve an inventive step and it Rights Conferred by a Patent
must be industrially applicable. The invention is
new because it does not form part of prior art; Q: For years, Y has been engaged in the parallel
involves an inventive step and unquestionably importation of famous brands, including shoes
industrially applicable for it can be produced as carrying the foreign brand MAGIC. Exclusive
what Francis did though he used scrap materials distributor X demands that Y cease importation
instead. because of his appointment as exclusive distributor
b. Cezar is entitled to the patent. Sec 28 of IPL provides of MAGIC shoes in the Philippines. Y countered that
that the right to a patent belongs to the inventor, his the trademark MAGIC is not registered with the
heirs, or assigns. Further, in case the employee Intellectual Property Office as a trademark and
made the invention in the course of his employment therefore no one has the right to prevent its parallel
contract, the patent belongs to the employee, if the importation. Suppose the shoes are covered by a
inventive activity is not a part of his regular duties Philippine patent issued to the brand owner, what
even if he uses the time, facilities and materials of would your answer be? Explain. (2010)
the employer (Sec 30 (1)). In this case, Cezar is the
inventor. The inventive activity was not part of A: A patent for a product confers upon its owner the
Cezar’s regular duties despite the fact that he uses exclusive right of importing the product. The
the time, facilities and materials of the employer. importation of a patented product without authorization
Francis application, however, should be given of the owner of a patent constitutes infringement of the
priority under the “first to file” rule, subject to the patent. X can prevent the parallel importation of such
right of Cezar to have the application canceled shoes by Y without its authorization.
within three months from the decision as the
rightful inventor or to file an action to prove his Patent Infringement
priority to the invention within one year from
publication. Q: What is the doctrine of equivalents? (2015)
c. No. Sec. 30(1) explicitly provides that in case the
employee made the invention in the course of A: Under the doctrine of equivalents, infringement of
employment, the patent belongs to the employee, if patent occurs when a device appropriates a prior
the inventive activity is not part of his regular duties invention by incorporating its innovative concept and
even if he uses the time, facilities and materials of albeit with some modifications and change performs the
the employer. Joab’s assertion that Cezar and same function in substantially the same way to achieve
Francis used his materials and company’s time to the same result (Godines v. CA, 226 SCRA 338).
lay claim for patent cannot prevail over the clear
provision of the law. Trademarks
Q: Dr. Nobel discovered a new method of treating Q: Jinggy went to Kluwer University (KU) in
Alzheimer’s involving a special method of Germany for his doctorate degree (Ph.D.). He
diagnosing the disease, treating it with a new completed his degree with the highest honors in the
medicine that has been discovered after long shortest time. When he came back, he decided to set-
59
experimentation and field testing, and novel mental up his own graduate school in his hometown in
A: While RA 8293 removed the previous requirement of Q: S Development Corporation sued Shangrila
proof of actual use prior to the filing of an application for Corporation for using the “S” logo and the
registration of a mark, proof of prior and continuous use tradename “Shangrila.” The former claims that it
is necessary to establish ownership of trademark. Such was the first to register the logo and the tradename
ownership of the trademark confers the right to register in the Philippines and that it had been using the
the trademark. Since Chen owns the trademark as same in its restaurant business.
evidenced by its actual and continuous use prior to the
Clark Enterprises, then it is the one entitled to the Shangrila Corporation counters that it is an affiliate
registration of the trademark. The fact that Clark was of an international organization which has been
the first one to use the mark here in the Philippines will using such logo and tradename “Shangrila” for over
not matter. Chen’s prior actual use of the trademark 20 years.
even in another country bars Clark from applying for the
registration of the same trademark. Also, a mere However, Shangrila Corporation registered the
distributor does not own the trademark to the goods he tradename and logo in the Philippines only after the
distributes and his right over the trademark can not suit was filed.
60
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
a. Which of the two corporations has a better right necessary (Del Monte Corp. vs. CA, G.R. No. L-78325,
to use the logo and the tradename? Explain. January 25, 1990).
b. How does the international affiliation of
Shangrila Corporation affect the outcome of the Q: K-9 Corporation, a foreign corporation alleging
dispute? Explain. (2005) itself to be the registered owner of trademark “K-9”
and logo “K”, filed an Inter Partes case with the
A: Intellectual Property Office against Kanin
a. S Corporation. Sec. 122 of the IPC provides that the Corporation for the cancellation of the latter’s mark
rights in a trademark are acquired through valid “K-9” and logo “K.” During the pendency of the case
registration. Actual prior use in commerce in the before the IPO, Kanin Corporation brought suit
Philippines has been abolished as a condition for the against K-9 Corporation before the RTC for
registration of a trademark (Record of the Senate, infringement and damages. Could the action before
Vol. II, No. 29, 8 Oct.1996; Journal of the House of the RTC prosper? Why? (2003)
Representatives, No. 35. 12 Nov. 1996, 34).
b. Shangrila’s international affiliation shall result in a A: Yes, the action before the RTC can prosper. According
decision favorable to it. The Paris Convention to Sec. 151.2 of the IPC, the filing of a suit to enforce the
mandates that protection should be afforded to registered mark with the proper court or agency shall
internationally known marks as signatory to the exclude any other court or agency from assuming
Paris Convention, without regard as to whether the jurisdiction over a subsequently filed petition to cancel
foreign corporation is registered, licensed or doing the same mark. On the other hand, the earlier filing of
business in the Philippines. Shangrila’s separate petition to cancel the mark with the Bureau of Legal
personalities from their mother corporation cannot Affairs shall not constitute a prejudicial question that
be an obstacle in the enforcement of their rights as must be resolved before an action to enforce the rights
part of the Kuok Group of Companies and as official to same registered mark may be decided. The issues
repository, manager and operator of the subject raised before the different the IPO and the RTC are
mark and logo. Besides, R.A. No. 166 did not require different. The issue raised before the IPO is whether or
the party seeking relief to be the owner of the mark not the cancellation of the subsequent trademark is
but "any person who believes that he is or will be proper because of the prior ownership of the disputed
damaged by the registration of a mark or trade mark by K-9. While the issue raised before the RTC
name." (Shangri-la International Hotel Management pertains to infringement. Furthermore, an action for
v. Developers Group of Companies, Inc. G.R. No. infringement or unfair competition, as well as the
159938). remedy of injunction and relief for damages, is explicitly
and unquestionably within the competence and
Rights Conferred by Registration jurisdiction of ordinary courts (Shangri-la International
Hotel Management v. Makati Shangri-la Hotel and Resort
Q: For years, Y has been engaged in the parallel Inc., G.R. No. 111580. June 21, 2001).
importation of famous brands, including shoes
carrying the foreign brand MAGIC. Exclusive Unfair Competition
distributor X demands that Y cease importation
because of his appointment as exclusive distributor Q: In what way is an infringement of a trademark
of MAGIC shoes in the Philippines. Y countered that similar to that which pertains to unfair competition?
the trademark MAGIC is not registered with the (2003)
Intellectual Property Office as a trademark and
therefore no one has the right to prevent its parallel A: The similarity lies in both their ability to disrupt fair
importation. Who is correct? Why? (2010) competition amongst business enterprises and other
businesses. They can also create confusion, mistake, and
A: X is correct. His rights under his exclusive deception as to the minds of the consumers with regard
distributorship agreement are property rights entitled to the source or identity of their products or services
to protection. The importation and sale by Y of MAGIC due to its similarity in appearance or packaging.
shoes constitutes unfair competition. Registration of the
trademark is not necessary in case of an action for unfair Copyrights
competition.
Copyrightable Works
Infringement and Remedies
Q: What intellectual property rights are protected by
Q: What is the distinction between trademark the copyright? (1995)
infringement and unfair competition? (1996, 2015)
A: Copyright protects copyright or economic rights
A: The distinctions between infringement and unfair which consist of the exclusive right to carry out,
competition are the following: authorize, or prevent the following:
1. Infringement of trademark is the unauthorized use a. reproduction of the work or substantial portion of
of a trademark, whereas unfair competition is the the work;
passing off of one's goods as those of another. b. dramatization, translation, adaptation, bridgment,
2. In infringement of trademark fraudulent intent is arrangement or other transformation of the work;
unnecessary whereas in unfair competition c. the first public distribution of the original and each
fraudulent intent is essential. copy of the work by sale or other forms of transfer
3. In infringement of trademark the prior registration of ownership;
of the trademark is a prerequisite to the action, d. rental of the original or a copy of an audiovisual or
61
whereas in unfair competition registration is not cinematographic work, a work embodied in a sound
A: A:
a. The mural is owned by Solid. It commissioned the a. No. In the case of a work commissioned by a person
work and paid Mon and Steve Blanco P2M for the other than an employer of the author and who pays
mural. for it and the work is made in pursuance of the
b. Even though Solid owns the mural, the copyright of commission, the person who so commissioned the
the mural is jointly owned by Mon and Steve, unless work shall have ownership of work, but the
there is a written stipulation to the contrary (Sec. copyright thereto shall remain with the creator,
178.4, IPC). unless there is a written statement to the contrary.
(Sec 178.4, IPL) Thus, though Diario de Manila
Q: BR and CT are noted artists whose paintings are commissioned the work, it cannot be considered as
highly prized by collectors. Dr. DL commissioned its owner because it did not pay Eloise. Ownership
them to paint a mural at the main lobby of his new and copyright still belong to Eloise. Authorization is
hospital for children. Both agreed to collaborate on no longer needed to publish Diario de Manila in her
the project for a total fee of 2 million pesos to be anthology because Eloise has moral and economic
equally divided between them. It was also agreed rights over her works.
that Dr. DL had to provide all the materials for the b. The fact that Eloise was not paid, ownership over
62
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
upon the latter. She retains full moral and economic he purchased the painting from Bernie who
rights over it. represented himself as its painter and owner. Rudy
and the cafeteria operator immediately confronted
Q: In 1999, Mocha Warm, an American musician, had Bernie. While admitting that he did not do the
a hit rap single called Warm Warm Honey which he painting, Bernie claimed ownership of its copyright
himself composed and performed. The single was since he had already registered it in his name with
produced by a California record company, Galactic the National Library as provided in the Intellectual
Records. Many noticed that some passages from Property Code. Who owns the copyright to the
Warm Warm Honey sounded eerily similar to parts painting? Explain. (2013)
of Under Hassle, a 1978 hit song by the British rock
band Majesty. A copyright infringement suit was A: Rudy owns the copyright to the painting because he
filed in the United States against Mocha Warm by was one who actually created it (Sec. 178.1 of the IPC).
Majesty. It was later settled out of court, with His rights existed from the moment of its creation (Sec.
Majesty receiving attribution as co-author of Warm 172; Unilever Philippines (PRC) v. CA, 498 SCRA 334,
Warm Honey as well as share in the royalties. 2006). The registration of the painting by Bernie with
the National Library did not confer copyright upon him.
By 2002, Mocha Warm was nearing bankruptcy and The registration is merely for the purpose of completing
he sold his economic rights over Warm Warm Honey the records of the National Library (Section 191).
to Galactic Records for $10,000.
Doctrine of Fair Use
In 2008, Planet Films, a Filipino move producing
company, commissioned DJ Chef Jean, a Filipino Q: May a person have photocopies of some pages of
musician, to produce an original re-mix of Warm the book of Professor Rosario made without
Warm Honey for use in one of its latest films, Astig!. violating the copyright law? (1998)
DJ Chef Jean remixed Warm Warm Honey with a
salsa beat, and interspersed as well a recital of a A: Yes, a person may photocopy some of pages of
poetic stanza by John Blake, a 17th century Scottish Professor Rosario’s book for as long as it is not for public
poet. DJ Chef Jean died shortly after submitting the use or distribution and it does not copy the substantial
remixed Warm Warm Honey to Planet Films. text or “heart” of the book. It is considered as fair use of
the copyrighted work.
Prior to the release of Astig!, Mocha Warm learns of
the remixed Warm Warm Honey and demands that Q: In a written legal opinion for a client on the
he be publicly identified as the author of the difference between apprenticeship and learnership,
remixed song in all the CD covers and publicity Liza quoted without permission a labor law expert's
releases of Planet Films. comment appearing in his book entitled
"Annotations on the Labor Code." Can the labor law
a. Who are the parties or entities entitled to be expert hold Liza liable for infringement of copyright
credited as author of the remixed Warm Warm for quoting a portion of his book without his
Honey? Reason out your answers. permission? (2006)
b. Who are the particular parties or entities who
exercise copyright over the remixed Warm A: No. One of the limitations on copyright is the making
Warm Honey? Explain. (2008) of quotations from a published work if they are
compatible with fair use, provided that the source and
A: the name of the author, if appearing on the work, are
a. Mocha Warm, Majesty and Chef Jean are entitled to mentioned. The legal opinion made by Liza is consistent
be credited as authors of the remixed Warm Warm with fair use since the quoted part is merely used to
Honey, because it is their joint work. Mocha Warm explain a concept of law for the benefit of the client and
retained his moral right to be credited as an author not to defeat the rights of the author over his copyright
of the remixed Warm Warm Honey despite the sale (Sec. 184.1 (b), IPC).
of his economic rights to Galactic Records, because
his moral rights exist independently of his economic Copyright Infringement
rights. John Blake cannot be credited for the use of
his work because copyright extends only during the Q: The Victoria Hotel chain reproduces videotapes,
lifetime of the author and 50 years after his death. distributes the copies thereof to its hotels and
b. The copyright over the remixed Warm Warm Honey makes them available to hotel guests for viewing in
belongs to Galactic records, Majesty, and Chef Jean. the hotel guest rooms. It charges a separate nominal
The copyright of Mocha Warm belongs to Galactic fee for the use of the videotape player.
Records, because he assigned it to Galactic Records.
Majesty also has a copyright, because it is a co- a. Can the Victoria Hotel be enjoined for infringing
author. The copyright of Chef Jean belongs to him copyrights and held liable for damages?
even if his work was commissioned by Planet Firm, b. Would it make any difference if Victoria Hotel
because the copyright remained with him. does not charge any fee for the use of the
videotape? (1994)
Q: Rudy is a fine arts student in a university. He stays
in a boarding house with Bernie as his roommate. A:
During his free time, Rudy would paint and leave his a. Yes. Victoria Hotel may be held liable for infringing
finished works lying around the boarding house. copyrights of the said videotapes because the
One day, Rudy saw one of his works -an abstract reproduction and distribution thereof are not
painting entitled Manila Traffic Jam - on display at merely for private viewing. Instead, it was used as a
63
the university cafeteria. The cafeteria operator said means to gain extra profit by making it as an extra
has purchased 5 houses and lots for his children most of the commissions he generated into US
*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
QuAMTO for MERCANTILE LAW (1991-2015)
dollars, and deposited these in a foreign currency
account with Banco de Plata (BDP).
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