General Principles of

Mercantile Law
Commercial Transaction Foreign Currency Deposit Act (R.A. No.
(2003) 6426), including its punitive provisions,
A “Commercial transaction” is defined
refers to foreign currency deposits accounts
as ...... It is not essential that at least one
constituted within the Philippines. It has no
party to the commercial transaction be a
application at all to accounts, even though
merchant. What is essential is that the
they are banks, opened and constituted
transaction evince an intent to engage in Banks: Secrecy of Bank Deposits; Garnishment
abroad.
commerce
Joint or trade.
Account (2004)
(2000)
A joint account is a transaction of merchants
No. CDC's complaint is not meritorious. It
where other merchants agree to contribute
was held in
the amount of capital agreed upon, and
China Banking Corporation v. Ortega, 49
participating in the favorable or unfavorable Banks; Classifications of Banks (2002)
SCRA 355 (1973)
resultsAccount
Joint thereofvs.in Partnership
the proportion they may Any peso
four deposits
(4) of themayfollowing six (6)andclasses of
that be garnished
the depositary bank can comply with the Law of
determine.
(2000) banks identified in the General Banking
The following are the distinctions between 2002, of to garnishment
wit:
order without violating
joint account and partnership: 1 Universal Banks
the Law on the Secrecy of–Bank
These are those
Deposits.
which used to be called expanded
Execution is the goal of litigation as commercial
it is
(1) A partnership has a firm name while a banks and the operations of which are now
joint account has none and is conducted in its fruit. Garnishment is part of the
primarily governed
execution by theservice
process. Upon Generalof Banking
the
the name of the ostensible partner. Law of 2002. They can exercise the powers of
notice of garnishment on the bank where
(2) While a partnership has juridical an investment house and invest
the defendant deposited funds, such in non-allied
personality and may sue or be sued under enterprises.
funds become They
parthave
of thethe highest
subject matter
its firm name, a joint account has no capitalization
of litigation. requirement.
juridical personality and can sue or be sued 2 Commercial Banks – These are
onlyWhile
(3) in thea name of the ostensible
partnership has a commonpartner.
fund, ordinary or regular commercial banks, as
a joint account has none. distinguished from a universal bank. They have
a lower capitalization requirement than
(4) While in a partnership, all general
universal banks and cannot exercise the powers
partners have the right of management, in a
of an investment house and invest in non-allied
joint account, the ostensible partner
enterprises.
manages
(5) its business
While operations.
liquidations of a partnership 3 Thrift Banks – These banks (such as
may, by agreement, be entrusted to a partner savings and mortgage banks, stock savings and
or partners, in a joint account liquidation loan associations, and private development
thereof can only be done by the ostensible banks) may exercise most of the powers and
partner.
Theory of Cognition vs. Theory of Manifestation functions of a commercial bank except that
(1997) they cannot, among others, open current or
Under the theory of cognition, the
check accounts without prior Monetary Board
acceptance is considered to effectively bind
approval, and they cannot issue letters of
the offeror only from the time it came to his
credit. Their operations are governed primarily
knowledge. Under the theory of
by the Thrift Banks Act of 1995 (RA 7906).
manifestation, the contract is perfected at
4 Rural Banks – these are those which
the moment when the acceptance is declared
are organized primarily to extend loans and
or made by the offeree.
other credit facilities to farmers, fishermen or
farm families, as well as cooperatives,
No. CDC's complaint is not meritorious. It was held
merchants, and private and public employees
in
China Banking Corporation v. Ortega, 49 SCRA 355and whose operations are primarily governed
that peso deposits may be garnished and the
(1973)
by the Rural Banks Act of 1992 (RA 7353).
depositary bank can comply with the order
5 Cooperative Banks – these are those
of garnishment without violating the Law on
which are organized primarily to provide
the Secrecy of Bank Deposits. Execution is
financial and credit services to cooperatives
the goal of litigation as it is its fruit.
and whose operations are primarily governed
Garnishment is part of the execution
by the Cooperative Code of the Philippines (RA
process. Upon service of the notice of
6938).
garnishment on the bank where the
6 Islamic Banks – these are those which
defendant deposited funds, such funds
are organized primarily to provide financial and
become part of the subject matter of
credit services in a manner or transaction
litigation.
consistent with the Islamic Shari’ah. At
present, only the Al Amanah Islamic Investment
Bank of the Philippines has been organized as
an Islamic Bank.
 Mercantile Law Bar Examination Q & A Banking Law
Banks; Conservator vs. Receiver
(2006) Banks: Applicability: Foreign Currency Deposit Act
The Conservator is appointed for a period & Secrecy of Bank Deposits (2005)
not exceeding one (1) year, to take charge of
the assets, liabilities, and the management
of a bank or a quasi-bank in a state of
continuing inability, or unwillingness to
maintain a condition of liquidity deemed
adequate to protect the interest of
depositors and creditors. On the other hand,
the Receiver is appointed to manage a bank
or quasi-bank that is unable to pay its
liabilities in the ordinary course of business,
or has insufficient realizable assets to meet
its liabilities, or cannot continue in business
without probable losses to its depositors or
creditors; or has willfully violated a final
cease and
Banks; desist order,
Insolvency; involving acts or
Requirements
transactions
(1997) amounting to fraud or a
Before
dissipationthe of
Monetary
the assetsBoard can institution.
of the declare a
bank insolvent, order it closed
The main purpose of the Receiver and forbid
is it
to
from doing further business
recommend the rehabilitation or liquidation in the
Philippines,
of the bank. the following basic
requirements
1 must be complied with
There must be an examination by the by the
BSP , to wit:
head of the Department of Supervision or
his examiners or agents into the condition of
the bank.
2 The examination discloses that the
condition of the bank is one of insolvency, or
that its continuance in business would
involve probable loss to creditors or
depositors.
3 The head of said Department shall
inform in writing the Monetary Board of
such facts.
4 Upon finding said information or
statement to be true, the Monetary Board
shall appoint a receiver to take charge of the
assets Restrictions
Banks; and liabilities
on of the bank.
Loan Accommodations
5
(2002) Within 60 days, the Monetary Board
Any two (2) of the following limits or
shall determine and confirm if the bank is
restrictions
1.SBL Rules on (i.e.,
loan Single
and credit transactions
insolvent, and–public Borrower’s
interest requires, Limit)
to
which
rules may be extended by banks,
by theas part of
orderarethethose promulgated
liquidation of the bank. Bangko
the safeguards
Sentral against
ng Pilipinas, upon imprudent banking,
the authority of
to wit:
Section 35 of the General Banking Law of
2000, which regulate the total amount of
loans, credit accommodations and
guarantees that may be extended by a bank
to any person, partnership, association,
corporation or other entity. The rules seek to
protect a bank from making excessive loans
to a single borrower by prohibiting it from
lending beyond a specified ceiling.
2. DOSRI Rules – These rules promulgated
by the BSP, upon authority of Section 5 of the
General Banking Law of 2000, which
regulate the amount of credit
accommodations that a bank may extend to
its directors, officers, stockholders and their
related interests (thus, DOSRI). Generally, a
bank’s credit accommodations to its DOSRI
must be in the regular course of business
and on terms not less favorable to the bank
than those offered to non-DOSRI borrowers.
 Mercantile Law Bar Examination Q & A (

Banks; Secrecy of Bank Deposits; Garnishment 3. No commercial bank shall make any
(2001) loan or discount on the security of shares of
No. The notice of garnishment served on a
its own capital stock.
bank at the instance of a creditor is not Banks; Safety Deposit Box;
covered by the Law on Secrecy of Bank Liability
Deposits. Garnishment is just a part of the The bank is liable, based on the decisions of
process of execution. The moment a notice of the Supreme Court in CA Agro-Industrial
garnishment is served on a bank and there Development Corp. v. Court of Appeals, 219
exists a deposit by the judgment debtor, the SCRA 426 (1993) and Sia v. Court of Appeals,
bank is directly accountable to the sheriff, 222 SCRA 24 (1993). In those cases, the
for the benefit of the judgment creditor, for Supreme Court ruled that the renting out of
the whole amount of the deposit. In such safety deposit boxes is a "special kind of
Legal Tender
event, the amount of the deposit becomes, in deposit" wherein the bank is the depositary.
(2000)
No. The
effect, a salesgirl’s understanding
subject of the litigation. that coins In the absence of any stipulation prescribing
are not legal tender is not correct. Coins are the degree of diligence required, that of a
legal tender in amounts not exceeding fifty good father of a family is to be observed by
pesos for denominations from twenty five the depositary. Any stipulation exempting
centavos and above, and in amounts not the depositary from any liability arising from
exceeding twenty pesos for denominations the lossSecrecy
of the of
thing
Bankdeposited
Deposit; would be void
ten centavos and less. Banks; Exceptions
for being
(2006) contrary to law and public policy.
The
The exceptions
deposit boxto is the BankinSecrecy
located the bank Law are
the
1. following:
premises and is under the absolute
Special or general examination of acontrol
of the authorized
bank, bank. by the Bangko Sentral ng
Pilipinas' Monetary Board, in connection
with a bank fraud or serious irregularity.
2. Examination by an independent
Auditor, hired by the Bank and for the
Bank's exclusive use.
3. Disclosure with the Depositor's written
permission.
1 In case of Impeachment.
2 In cases of Bribery or dereliction of
duty by a Public Officer, upon order of a
competent court.
3 In cases of money deposited/invested
which, in turn, is the subject of Litigation,
4. upon DOSRI
orderLoans: Loans with
of a competent their Banks
Court.
of Bank
4 Directors, Officers, Stockholders and
related interests.
5 Loans in excess of 5% of the Bank's
Capital & Surplus
6 The Borrower waived his right as
regards the Secrecy of Bank Deposits
5. 7 Violation of the Anti-Graft and
Corrupt Practices Act.
6. Coup d' etat Law (RA 6968,
Oct 24,1990).
7. BIR Commissioner's authority to verify
a decedent's Gross Estate and a taxpayer's
request for a compromise agreement due to
incapacity to pay his tax liability.
8. Foreign Currency Deposits by foreign
lenders & investors under PDs 1034.
9. Violations of the Anti-Money
Laundering Law.
10. When the State exercises/invokes its
Police Power.
 Bulk Sales Law; Obligation of the Vendor
(2001)
A must prepare an affidavit stating the
names of all his creditors, in this case, X, Y,
and Z, their addresses, the amount of their
credits and their maturity. A should give the
affidavit to B who, in turn, should furnish a
copy to each creditor and notify the
creditors that there is a proposed bulk sale
in order
The to enable
recourse of X,the
Y, latter
and Z to
is protect their
to question
interests.
the validity of the sale from A to B so as to
recover the goods and merchandise to
satisfy their credits.
Corporation Law
BOD: Election of Aliens as members
(2005)
Yes, just as long as sixty percent (60%) of the
Board of Directors are Filipinos.
Corporations that are sixty percent (60%)
Bulk Sales Law owned by Filipinos can engage in the
business of exploration, development and
Bulk Sales Law; Covered Transactions utilization of natural resources. (Art. XII,
(2006) Sec. 2, 1987 Constitution) The election of
1) The sale involves all fixtures and
equipment, not in the ordinary course of aliens as members of the Board Of Directors
trade and the regular prosecution of engaging in partially-nationalized activities
business of Stanrus, Inc. (Sec 2 Act 3952, as is allowed in proportion to their allowable
The sale by sheriff at public sale is not a sale
amended) participation or share in the capital of such
by a merchant. Section 8 of the Bulk Sales entities. (Sec.
BOD; 2-A, Anti-Dummy Law)
Compensation
Law itself provides that it has no application Nothing in the facts shows that more than
(1991)
The
fortystockholder
percent (40%) as aofvalid and legal
the Board ground
of Directors
to executors, administrators, receivers,
to
areobject to the payment to the directors of a
foreigners.
assignees in insolvency, or public officers,
bonus equivalent to 15% of the company’s
acting under process. The Bulk Sales Law
net income. The law provides that the total
only applies to the sale or encumbrance of a
annual compensation of the directors, in the
merchant of goods, merchandise or
Bulk Sales Law;done
Exclusions preceding year, cannot exceed 10% of the
commodity "in bulk" as defined by the
(1993) company’s
BOD; net income
Interlocking before income tax
Directors
Law itself.
1) The requirements of the Bulk Sales Law (Sec 30 Corp Code).
(1995)
Chito Santos is a director of both Platinum
must be complied with. The seller delivers Corporation and Kwik Silver Corporation. He
to the purchaser a list of his creditors and owns 1% of the outstanding capital stock of
the purchaser in turn notifies such creditors Platinum and 40T of Kwik. Platinum plans to
of the proposed sale at a stipulated time in enter into a contract with Kwik that will
advance.
2) If the sale and transfer is made a) by the make both companies earn very substantial
vendor, mortgagor, transferor or assignor profits. The contract is presented at the
who produces and delivers a written waiver 1. In orderboard
respective that the contract
meetings ofwill not be and
Platinum
of the provisions of the Bulk Sales Law from Kwik.voidable, what conditions will have to be
his creditors as shown by verified statement; complied with? Explain.
and b) by a vendor, mortgagor, transferor or 2. If these conditions are not met, how
assignor who is an executor, administrator, may this
SUGGESTED contract be ratified? Explain.
ANSWER:
receiver, assignee in insolvency, or public
officer acting under judicial process, the sale 1. At the meeting of the BOD of Platinum to
Bulk Sales Law; Obligation of the Vendor approve the contract, Chito would have to
or transfer is not covered by the Bulk Sales
(1995) make sure that
Law.is a sale of the stock of goods, fixtures
This a) his presence as director at the
and entire business, not in the ordinary meeting is not necessary to constitute a
course of business or trade of the vendor. quorum for is
such
b) his vote not meeting;
necessary for the
Before receiving from the vendee any part of
approval of the contract; and c) the
the purchase price, the vendor must deliver
contract is fair and reasonable under the
to such vendee a written statement, duly
circumstances.
sworn, of the names and addresses of all
creditors to whom said vendor may be
indebted, together with the amount of
indebtedness due or owing, on account of
the goods, fixtures or business subject
matter of the bulk sale.
Mercantile Law Bar Examination Q & A (1990-2006)

The provision in the amended by-laws Controversy; Intra-Corporate (1994)

2.disqualifying any relating

If the conditions stockholderto the who is also a
quorum The RTC has jurisdiction over this case
director or stockholder of
and required number of votes are not met, a competing
business from being electedbytothethevote
Board which involves intra-corporate controversy.
the contract must be ratified of of As of 2006, the applicable rule is that there
Directors of MS Corp is
stockholders representing at least 2/3 of thevalid. The
is a TRANSFERRED JURISDICTION under
outstanding capital stock in a meeting calledof
corporation is empowered to adopt a code
Sec. 5.2 of the SRC, the Commission’s
by-laws
for for its Furthermore,
the purpose. government not the inconsistent
adverse
with the Corp Code. Such disqualifying jurisdiction over all cases enumerated under
interest of Chito in the contract must be PD 902-A sec. 5 has been transferred to the
provisionand
disclosed is not inconsistent
the contract is fairwith
and the Corp
By-Laws;
Code. Validity; limiting qualifications of Courts of general jurisdiction or the
reasonable. (Secs. 32 and 33, BP 68) appropriate Regional Trial Court.
BOD members (2000)
The SC reiterated in the case of SMC vs.
SEC decided in April 11, 1979, that it is An intra-corporate controversy is a conflict
recognized by all authorities that 'every between stockholders, members or partners
corporation has the inherent power to adopt and the corporation, association or
by-laws 'for its internal government, and to partnership regarding the regulation of the
regulate the conduct and prescribe the corporation. The controversy must arise out
rights and duties of its members towards of intra-corporate or partnership relations of
itself and among themselves in reference to the parties; or between such corporation,
the management of its affairs.'" At common partnership or association and the State
law, the rule was "that the power to make insofar as it concerns their individual
and adopt bylaws was inherent in every franchises. It is further required that the
corporation as one of its necessary and dispute be intrinsically connected with the
inseparable legal incidents. And it is settled regulation of the corporation (Speed
throughout the United States that in the Distributing Corp., et al. v. Court of Appeals, et
absence of positive legislative provisions al, G.R. No. 149351, March 17, 2004; Intestate
Estate of Alexander T.Tyv. Court of Appeals, G.R.
limiting it, every private corporation has this
No. 112872, April 19, 2001).
inherent power as one of its necessary and
inseparable legal incidents, independent of
any specific enabling provision in its charter
or in general law, such power of self-
government being essential to enable the
corporation to accomplish the purposes of its
creation."

1. What are the remedies available to

Close Corporations;
Robert Deadlocks
under the Corp code to break the
(1995)
deadlock? Explain.
2. Are there any remedies to prevent the
paralyzation of the business available to
Robert under PD 902-A while the petition
to break the deadlock is pending
litigation? Explain.
SUGGESTED ANSWER:

1. Robert can petition the SEC to arbitrate

the dispute, with such powers as
provided in Sec 104 of the Corp Code.
2. The SEC can appoint a rehabilitation
receiver or a management committee.

Closed Corporation; Restriction; Transfer of shares

(1994)

In a close corporation, the restriction as to

the transfer of shares has to be stated/
annotated in the Articles of Incorporation,
the By-Laws and the certificate of stock. This
serves as notice to the person dealing with
such shares like Rafael in this case. With
such notice, he is bound by the pricing
stated in the By-laws.
 Mercantile Law Bar Examination Q & A

Corporation; Incorporation; Residency Requirements

(2006)
As a general rule, the stockholders or the
Not all directors and incorporators need to managers cannot be held solidarily liable for
be residents of the Philippines. Under the obligations incurred by the corporation.
Section 10 of the Corporation Code, only a The corporation has a separate and distinct
majority of the incorporators need to be personality from that of the stockholders or
residents of the Philippines. As provided in managers. The latter are presumed to be
Section 23 of the same Code, only a majority acting in good faith in continuing the
of the members operation of the corporation. The obligations
Corporation; Meetings;of BOD
the Board of Directors
& Stockholders
need to be residents of the Philippines. incurred by the corporation are those of the
(1993)
corporation which alone is liable therefor.
1) The President presides over the meeting However, when the corporation is already
of the directors, if there is no position of insolvent, the directors and officers become
Chairman provided in the By-Laws. If there trustees of the business and assets of the
is the position of Chairman provided in the corporation for the benefit of the creditors
By-Laws, the Chairman presides over the and are liable for negligence or
meeting
2) The oflaw the Directors
provides (Secthat54 the
Corp annual
Code) mismanagement.
stockholders’ meeting shall be held in the
city or municipality where the principal
office of the Corporation is located. For this
purpose, the law also provides that Metro
Manila is considered a city or municipality. Corporation Sole; Definition
Since the principal place of business of MIC (2004)
Section 110 of the Corporation Code defines
is Pasig, MM, the holding of the annual a "corporation sole" as one formed for the
3) No. The law allows the BOD to hold its
stockholders meeting in Manila is proper. purpose of administering and managing, as
meeting anywhere in the Philippines. The
(Sec 51 Corp) trustee, the affairs, property and
holding of the BOD meeting in Makati was
proper and the validity of the resolutions temporalities of any religious denomination,
adopted by the Board in that meeting cannot sect or church. It is formed by the chief
be questioned. (Sec 53 Corp code) archbishop, bishop, priest, minister, rabbi or
other presiding
Corporation: elder
Right of of such of
Repurchase religious
Shares; Trust
denomination,
Fund sect or church.
Doctrine (2005)
In line with the trust fund doctrine that
generally renders it unlawful for the
corporation to return assets to the
stockholders representing capital, a
corporation may acquire its own shares only
when there exists in the books unrestricted
retained earnings to cover the repurchase of
shares.
1 The purpose
ELIMINATE of the shares
fractional repurchase
arisingof
shares must be a
out of stock dividends; legitimate business
purpose
2 of the corporation,
COLLECT such as to:
or COMPROMISE an
indebtedness to the corporation arising out
of unpaid subscription in a delinquency sale;
3 to PURCHASE delinquent shares sold
during the sale; and
4 to PAY dissenting or withdrawing
stockholders entitled to such payment under
the Corporation Code. (Sees. 41 and 82,
Corporation Incorporation;
Corporation; Code) Requirements
(2006)
Under Section 10 of the Corporation Code,
any number of natural persons not less than
five (5) but not more than fifteen (15), all of
legal age and a majority of whom are
residents of the Philippines, may form a
private corporation for any lawful purpose.
This is the same minimum and maximum
number of directors required in a stock
corporation under Section 14(6) of the
Corporation Code.
 Corporation; Separate Juridical Personality
(1995)

Corporation; Voluntary Dissolution

(2002)
The three (3) methods by which a stock
corporation may be voluntarily dissolved are:
1) Voluntary Dissolution where no creditors
are affected. This is done by a majority vote
of the directors, and resolution of at least 2/3
vote of stockholders, submitted to the
Securities
2) and Exchange
Voluntary Commission.
dissolution where creditors
are affected. This is done by a petition for
dissolution which must be filed with the
Securities and Exchange Commission, signed
by a majority of the members of the board of
directors, verified by the president or
secretary, and upon affirmative vote of
stockholders
3) representing
Dissolution at least 2/3
by shortening of ofthe
the
outstanding
corporate capital
term. Thisstock.
is done by amendment
Corporation; Power to Invest Corporate Funds in of the articles of incorporation.
another Corporation (1996)
A corporation may invest its funds in another Corporation; Voting Trust Agreement
corporation or business or for any other (1992)
purpose other than the primary purpose for
which it was organized when the said
investment is approved by a majority of the
BOD and such approval is ratified by the
stockholders representing at least 2/3 of the
outstanding capital stock. Written notice of
the proposed investment and the date, time
and place Recovery
Corporation; of the stockholders’
of Moral Damages meeting at
which
(1998) such proposal will be taken up must be
No.
sentAtocorporation,
each stockholder.
being (Sec
an artificial
42 Corpperson
Code)
which has no feelings, emotions or senses,
and which cannot experience physical
suffering or mental anguish, is not entitled
to moral damages.
ALTERNATIVE ANSWER:

Yes. When a juridical person has a good

reputation that is debased, resulting in
social humiliation, moral damages may be
awarded. Moreover, goodwill can be
considered an asset of the corporation.
The law simply provides that a voting trust
agreement is an agreement in writing
whereby one or more stockholders of a
corporation consent to transfer his or their
shares to a trustee in order to vest in the
latter voting or other rights pertaining to
said shares for a period not exceeding five
years upon the fulfillment of statutory
conditions and such other terms and
conditions specified in the agreement. The
five year-period
Under section 59m of
aythe
be extended in cases
Corporation C ode,
where the voting trust is executed
supra, a voting trust agreement may pursuant
confer
to a loan
upon agreement
a trustee not whereby
only thethe period is
stockholder's
made contingent
voting uponother
rights but also full payment of the
rights pertaining
loan.
to his shares as long as the voting trust
agreement is not entered "for the purpose of
circum venting the law against monopolies
and illegal combinations in restraint of trade
or used for purposes of fraud." (section 59,
5th paragraph of the Corporation Code).
Thus, the traditional concept of a voting
trust agreement primarily intended to single
out a stockholder's right to vote from his
other rights as such and made irrevocable
for a limited duration may in practice
become a legal device whereby a transfer of
the stockholders shares is effected subject to
the specific provision of the voting trust
agreement.
 Mercantile Law Bar Examination Q & A (1990-2006) Page 34 of 103

The execution of a voting trust agreem ent, Distinction; Private vs. Public Corporation
therefore, m ay create a dichotom y between (2004)
the equitable or beneficial ownership ofthe A PRIVATE CORPORATION is one formed for
corporate shares ofa stockholder, on the one some private purpose, benefit or end, while a
hand, and the legaltitle thereto on the other PUBLIC CORPORATION is formed for the
hand. (Lee vs. CA, Feb. 4, 1992) government of a portion of the State for the
Derivative Suit: Watered Shares (2004) general good or welfare. The true test is the
purpose of the corporation. If the
In a derivative suit, the action is instituted/ corporation is created for political or public
brought in the name of a corporation and purpose connected with the administration
reliefs are prayed for therein for the of government, then it is a public
corporation, by a minority stockholder. The corporation. If not, it is a private corporation
law does not qualify the term “minority” in although the whole or substantially the
terms of the number of shares owned by a whole interest in the corporation belongs to
stockholder bringing the action in behalf of the State. A public corporation is created by
WATERED SHARES
the corporation. (SMCare those
v Khan 176 sold
SCRAby the
448) special legislation
Distinction; or act ofCorporation
Stock vs. Non-Stock Congress. A
corporation for less than the par/book value.
private corporation must be organized under
(2004)
In the instant case, it will depend upon the A stock corporation is one that has capital
the Corporation Code.
value of services rendered in relation to the stock divided into shares and is authorized
total par value of the shares. to distribute to the holders of such shares
Distinction: De facto Corporation vs. Corporation
by Estoppel (2004) dividends or allotments of the surplus profits
on the basis of the shares held. All other
A DE FACTO CORPORATION is one which corporations are non-stock corporations.
actually exists for all practical purposes as a Dividends: Declaration of Dividends
(2005)
corporation but which has no legal right to No form of dividends can be declared and
corporate existence as against the State. It paid by the corporation except from
is essential to the existence of a de facto unrestricted retained earnings appearing on
corporation that there be (1) a valid law its books. Dividends must be paid in amounts
under which a corporation might be proportional to all stockholders on the basis
incorporated, (2) a bona fide attempt to of outstanding stock held by them. Cash or
organize as a corporation under such law, property dividends, can be declared from
and
A (3) actual useBY
CORPORATION or ESTOPPEL
exercise in good
existsfaith
when such unrestricted retained earnings by a
of corporate powers conferred upon
persons assume to act as a corporation it by proper resolution of the Board of Directors.
law
knowing it to be without authority to do so. Stock dividends, however, must be declared
In this case, those persons will be liable as by a proper resolution of the Board of
general partners for all debts, liabilities and Directors from existing unrestricted retained
damages incurred or arising as a result of earnings and ratified by stockholders
Distinction: Dividends vs. Profit: Cash Dividend representing at least two-thirdsTrust
(2/8)Fund
of the
their actions. Dividends: Sources of Dividends;
vs. Stock Dividend (2005) outstanding capital stock of the corporation,
Doctrine (2005)
obtained in a meeting duly called for the
PROFITS are residual amounts representing All cash and
purpose. (Sec.stock dividends are
43, Corporation always paid
Code)
return of capital after deducting all out of the unrestricted retained earnings
corporate costs and expenses from (also called surplus profit) of the
revenues. The accumulated profits, from corporation. If the corporation has no
year to year, represent the corporate unrestricted retained earnings, the
retained earnings from which the dividends dividends would have to be sourced from the
CASH DIVIDENDS represent an actual capital stock. This is illegal. It violates the
can be declared.
distribution of accumulated profits to the "TRUST FUND DOCTRINE" that provides
stockholders as a return on their that the capital stock of the corporation is a
investments. Declaration of cash dividends trust fund to be kept intact during the life of
requires only the approval of the majority of the corporation for the benefit of the
the Board of Directors in a proper creditors of the corporation. (Commissioner of
STOCK DIVIDENDS are simply transfers of
resolution.
retained earnings to capital stock, thereby Internal- Revenue v. Court of Appeal®, G.R. No.
108576, January 20, 1999; Boman Environmental
increasing the number of shares of stocks of
Development Corp. v. Court of Appeals, G.R. No.
each stockholder with no required cash
77860, November 22, 1988; and Steinberg v.
contribution. A two-thirds vote of the
Velasco, G.R. No. 30460, March 12,1929)
stockholders, coupled with a majority vote
of the Board of Directors, is needed to
declare stock dividends.
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) Page 38 37
Page of 103 of 103 Code.acquires,
As Page in36
shortened, of 103
violation the of his
No.2.
fromThereretaining
Opening
is no surplus
offices
need by for
profits the inabsorbed
excess of corporation
duty, an interest continued adverse
its business
to the corporation
3.
corporation
100% of
whatever Participating
their
name
to paid-in
undertake incapital.
thedissolution
management, and operations
in respect untilof anyMaymatter 30, 1997, which thehas lastbeenday
supervision
winding or control of
up procedure. Asany domestic
a result of entity
the of its
reposed
corporate in him existence.
in confidence, Prior to hesaidshall date,
be
b) Are Entering
4.
merger, there
the instances into
absorbed when a corporation
corporation is there
liable
were as aa number
trustee for of pending
the corporation civil and
5.
shall not
service
automatically Appointing
contracts held representatives
bedissolved liable
and for its notassetsor
declaring
and actions,
must of account
varying fornature
the profitsbut mostlywhich money otherwise
distributors,
dividends?
SUGGESTED operating
(3%)
ANSWER: under
liabilities are acquired and assumed by the the control of claims
would filedhave by accrued
creditors, tonone
the corporation.
of which was
2) The
surviving instances
Pending
the foreigncorporation. when
approval
entity, who a corporation
of domiciled
is the merger shall
in thebynot expected
Equity to imposes
be completed liability or uponresolved
him not within
to deal
be held
thePhilippines liable
SEC, mayor the for not
who surviving declaring
stays in thecorporation dividends
country for a fivefor
years
his own frombenefit.
May 30,(Sec. 1997. 31, Corporation
are:
already
period or institute suits to
periods totaling collect
at least 180 days all If the
Under
Code)creditorsSec. 34 had of sought
the Corporation
your professional Code
1) when
receivables justified
in any calendardue to year. by definite corporate
the absorbed corporation expansion helpwhere
at that a director,
time about by virtue
whether of or
his not
office,
their
projects
SUGGESTED or
ANSWER: programs
from its customers? Explain your answer.approved by the BOD; or 2)
cases
acquires
could for
be pursued
himself abeyond
business May opportunity
30,
No.
(3%) The the
when merger does not
corporation become effective
is prohibited under any loan 1997,
which what shouldwould belong
have been to theyour corporation,
advice?
until
agreement with any financialby
and unless approved the SEC.
institution SUGGESTED
or creditor,
(2%)therebyANSWER: obtaining profits to the prejudice of
Before
whether approval
local or byforeign,
the SEC fromof the merger,
declaring Thesuch
dividends cases can be pursued
corporation, he must even beyondtoMay
account the
thewithout
surviving corporation has no legal 30, 1997, the
its or his consent, and such consent has notlatter for all such profits by refunding the last day of the corporate
personality with respect
yet been secured; or 3)towhen receivables
it can bedue clearly existence
same, unless of GHQ his Corp.
act hasThebeen Corporation
ratified by is a
to the absorbed corporation.
shown that such retention is necessary under special not actually dissolved
vote of the stockholders owning or upon the expiration of
3) A case was filed against a customer to its corporate term. There is still the period
circumstances obtaining in the corporation, such asrepresenting at least two-thirds (2/8) of the
collect on the promissory note issued by him forEffect: Expiration
liquidation or ofwinding
Corporate up.Term
when there is need for special reserve for probable outstanding
Under Section capital
122 enteredstock.
of the C orporation C ode, a of
after the date of the merger agreement. The NOTE:
(2004)
XYZ Corporation into a contract
contingencies. corporation whose corporate existence is terminated in
customer raised the defense that while the lease with ABC, Inc., over a piece of three
real
any manner continues to be a body corporate for
receivables as of the date of the merger (3) years afterits dissolution forpurposes ofprosecuting for
estate for a term of 20 years, renewable
Dividends; was
agreement Right;transferred
Managing to Corporation
the surviving andanother
defending20 suitsyears,
by andprovided
againstitand that to le XYZ's
and itto se
enable
(1991)
ABC Management
corporation, Inc. presented
those receivables which to the were DEF corporate term is extended inclose its
accordance
Mining Co, the draft of its proposed affairs,
created after the merger agreement remained with law. Four years after theculminating term of XYZ
to Management
be owned byContract. the absorbedAs an incentive,
corporation. ABC Corporation expired, but still in within
the the
included
These in the would
receivables terms be of distributed
compensation to thethat Theperiod
termination allowed ofthe lifebyofthe a corporate
lease contract entity does
disposition for the
ABC wouldconformably
stockholders be entitled with to 10% the of any stock
dissolution notby itself cause the extinction or dim inution
extension of the lease period,and XYZ of the
Corp.
rights and liabilities ofsuch entity. 27 If the three-
distribution
anddividend
liquidation which DEF may declare
procedures under the during New the notified ABC,
yearextended life hasInc.,
expired that it is aexercising
without trustee
of its rem or the
SUGGESTED ANSWER:
lifetime of the Management Contract.
Corporation
Whether the Code? receivable Discusswasthe meritsby
incurred of Would
this
the option
receiver having to extend
been expresslythe lease. ABC,
designated byInc.,
aining the
you approve
argument. (3%) of such before provision? If not, what objected
corporation, to the
within proposed
thatperiod, ed
extension,
the board to so arguing
assets.
of directors (or
absorbed
SUGGESTED corporation or after the
would youANSWER: suggest as an alternative? trustees)
that itself, mthe
since ay be permi
corporate life continue
ofItmay,
XYZ as
Corp. had
I would
merger not approve
agreement, a proposed
or before or after stipulation
the "trustees"
during the
in the thereof
approval management by the contractSEC, thethat saidthe expired, it could no longer opt
bythree-to renew
legal im the
managing
receivable would corporation,
still belong as to the ansurviving
additional lease. XYZ Corp. countered plication that withstanding
yearterm to ,
the lapse of its corporate com
term plete
it
appointastill has the
compensation
corporation undertoSec it,80should
of the be Corp. entitled
Code to the
Foreign
right Corporation;
to renew “Doing
the Business”
lease becauseintrustee
the noora quo
10%does
which of any stock any
not make dividend
distinctionthat as mayto be corporate
receiverwh
Philippines
warranto (1998)
thedeclared.
assets and Stockholders
liabilities of arethe theabsorbed
only ones SUGGESTEDproceedings ANSWER: for involuntary
liquidation.
o m ay
When is a foreign
dissolution of XYZ corporation
Corp. deemed
has(PEPSI-
been to be
instituted
entitled tothat
corporation receivethe stock dividends
surviving corporation
(Nielsen & XYZ Corporation's contention is not
actbeyond
Effects; Winding “doing business in the Philippines?” (3%)
Lepanto Up Period26 of a Corporation by the Office Based of the on Solicitor COLA
General.
would
Co vinherit. Mining s 569) I would add that SUGGESTED meritorious. ANSWER:
the ruling
PHILIPPINE
of theIs the
thatperiod.
(1997)
Thethe corporation,
unsubscribed once dissolved,
capital stock thereafter contention
Supreme
of a A foreign of XYZ
Court in Corp. meritorious?
Philippine National Explain
corporation is deemed to be
S, INC., vs. Bank vs.
continues
corporation to bemay a bodyonly corporate
be issued for for three
cash or “doing briefly.
CFI of (5%)209 SCRA (1992).THE
Rizal, XYZ Corp.
COURT was
business in the Philippines” if it is
years for purposes of prosecuting and dissolvedthe ipso facto OFexpiration of
property or for services already rendered continuing body or upon
substance the
APPEALS,of the
defending suits by and against
constituting a demandable debt (Sec 62 business it and of its original term. It ceased to be a body
or enterprise for which [G.R. it No.
was
enabling it to settle andalternative,
close its affairs, corporate
Corp Code). As an I would organized. It is the intention of an entity tothe
for the purpose of continuing
145855.
culminating in the the final disposition and
suggest that managing corporation continue thefor
business bodywhich of its it was
business organized,
November except
in the
distribution
should instead of its remaining
be given assets.a net If theprofit
3 only for purposes connected 24, 2004.])
with its winding
Doctrine of Corporate Opportunity (2005) country. The grant and extension of 90day
year extended life expires
if it without
later so adesires, trustee to up or liquidation. Extending the lease
participation
Briefly
and,
discuss the designated doctrine of by corporate credit terms of a foreign corporation to ais not
or thenreceiver
convertbeing the amount that may bethedue an act to wind up or liquidate XYZ Corp.'s
opportunity. (2%) domestic
Effects; corporation
Merger of“Doing for
Corporations every purchase
corporation
thereby towithin
equitythat or period
shares and of stockby that at no Foreign Corporation;
affairs. It is contrary Business”
to the idea in theof winding
SUGGESTED ANSWER: shows
(1999)
Two an intention
corporations toagreed
continue transacting
to merge. They
timeless(expiry
than of par
the the value
3 year extended term),
thereof. Philippines;
up the Acts
affairs or Activities
of the (2002)
corporation.
In brief,ANSWER:
SUGGESTED the doctrine disqualifies a director, with thentheexecuted
latter. an agreement specifying the
the corporate liquidation is not with yet over,
Thetrustee
liquidation
or officer canfrom continue
appropriating for his Give
the at least three (3) examples of the acts or
surviving
how,
winding if
personal
at all,
up. benefit can
The membersa final settlement
a transactionof theorBOD of the
can
opportunity activities thatcorporation
are specifically and the absorbed
identified
corporate affairs be made? corporation.
our foreign investment laws as of merger
Under the agreement
continue with thetowinding
that pertains of the corporate
the corporation, and which under dated November 5, 1998, the surviving
affairs
under until
thefinal
dutyliquidation.
of loyalty he They shouldcan first
act as bring constituting
corporation
“doing business”
acquired all the
in the
rights,
SUGGESTED
Philippines (3%) ANSWER:
trustees
to the or receivers for
corporation for this
its usepurpose.
or exploitation.
Effects; Winding Up Period of a Corporation Anyproperties
three (3) of and the following
liabilities of acts or
the absorbed
activitiesMust
corporation. the 1)
constitute absorbed
What“doing corporation
would business”
happen undertake
intothethe
(2000)
TheThe SEC doctrine
approved of corporate
the amendment opportunity of the is an dissolution and the winding up procedures?
Articles
enforcement
of Incorporation
of the duty of of GHQ loyalty
Corp of Philippines
absorbed under our
corporation? foreign investment
1.
laws: your
Explain
Solicitinganswer. orders(3%)
shortening
corporate its directors
corporate and life to officers.
only 25 When years a SUGGESTED ANSWER:
in accordance
director, trustee with Sec or120 officer
of the Corp attempts to
acquire or
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) Page 43 39 of 103 103 children.
5) When Page They
he
Page40
42
44 is 41 103
then
made,
of of 103 brought
by a the
Onthe
substantial
c) No.
December
2)
number
Theto have period
amount
6,of1988,
more
shares
ofofshares
30
A,damages.
an
hedays incorporator
holds
with within which
on
It would
record
whichto pay in forthe
Whatdeed
specific
majority
is the
SUGGESTED of assignment
ANSWER: of to
provision
doctrine
stockholders law, the
"piercing
can toproper
always the corporate
veil of
thus
the
and thethe
be acquisition
stockholder
the
corporation.
General
difficult Manager
forcan of
Pablomore of
pay toassets
the Pajelike
convincingly
the Multi acquisitionmuster
unpaid ofd.
corporateNo,
officers
Chattel the
Mortgage
personally
a 2/3 stockholder
forvote,
entity?" registration
vs. After-Incurred
answer
Explain.
would you maywith
for not
allowtheexercise
Obligations request
corporate
the for action.
assert Co,
subscription
Farms that company
resigned
the car,
hadincorporation
not asyet GM stocks,
expired.
and of house,
sold the to machinery
family
the appraisal
(1999)
Onthe
ormajority transfer
Mercantile
December
SUGGESTED (Tramat right
stockholders
ANSWER: 1,in1996,
Incbecause
the corporation's
v CA
toBorrowerGR the
remove the matter
111008, stock
executedonethatand
Nov he
7,
a 94
b) Pre-emptive
corporation business;
his
wasshares right
andof must
intended stocks
merely be in as exercised
the a case in The
chatteldoctrine
dissented
SUGGESTED
director 238s14)
transfer mortgage
ANSWER:of "piercing
from
books
representing of
inis favor
not
the the onethe
assigned
of the of
minority?veilthose of
shares,
Bank where
to the
Stockholders:
3)
accordance
of “estate tax
corporation to have Preemptive
for P300th,extra
with
planning.” share Right
the
the (Tan with
book Boon which
Articles
valueBee v to cover
of or No. I
corporate
rightwill
Liabilities;
cancellation
secure a of not
entity,"
loan allow
Stockholders,
appraisal
of of P3M.is
thethe
the
is majority
stock
In doctrine
dueDirectors,
available certificates
time that
under
the allows
Officers
the
in PX's
loan
Piercing
(2004)
The Board
meet the
Incorporation
thereof, 41337
Jarencio the
payable Corporate
requirement
of Directors
or the Veil
as follows: a) P100th as
30June88) for
of
By-Laws. declaration
ABC, Inc.,
When of astock
the stockholders
the
was courts
(1997)
A,
name, B,
corporation
paid. and
and
Onto to
look
Cthe remove
are
code.
December behind
issuance the
shareholders
1, the ofdirector.
1997, separate
new of
stock
Borrower While
XYZ Co. A
(1996)
E Co
domestic
down sold
Articles
payment; dividend.
its ofassets
corporation, b) P100thto Mpassed
Incorporation Inc on after
orand a complying
before resolution
the By-Laws
31 the SEC;
juridical
has Jurisdiction;
stockholders
an
certificates
obtained personality
unpaid
another in the Transferred
may,
loan of by
names
for aP2M Jurisdiction
2/3
a corporation
subscription of his vote,
ofwife
which remove
and
P100th,and his
the B’s
with thesilent,
authorizing requirements
additional of the Bulk
issuance ofa Sales
shares a (1996)
What
director,
treat the
shares is the
corporation
are original
law
fully also
paid and up,exclusive
provides,
asowners.
an association
while however,
Cofficers
ownsof only
are
July1989; and the
c) theBOD remaining may fix
balance of of
reasonable Bankchildren
granted as under
the new the same The
security as of
Law.Stocks;
stocks
time
P100th Sale,
Subsequently,
without
on within Transfer
or before notice
which oneof Certificates
30 of
nor
the
Sep the 1989. of A
creditors
approval
stockholders Stockofof the Emay that
thatjurisdiction
persons
thehis
nominal
which right
andsecured
Corporation offully
may
thereby
but thenot, SEC?
make
denied
the without
paidfirstthe the
uploan. just
individual
shares
request cause, andthe
on is a
Pre-Emptive
(1996)
Arnold has Right
in his vs.
name Appraisal
1,000 Right
shares of the be
For SUGGESTED
exercised
actorsthe
director second
personally andANSWER:
so as
loan, to
liable
officer. deprive
Borrower
for
XYZ themerely
corporate
becomes minority of
insolvent,
Co exercise
tried to collect
stockholders.
promissory the
note, DX,right.the
with amount
a stockholder,
an acceleration dueobjectedit, butclause, to ground that another heir is contesting the
The Foreign
(1999)
ABCcorporationCorporation;
Corporation failed “Doing
has to an Business”
pay the
authorized in the
first The SEC has original and exclusive
capital
found
the
was out
issuance,
executed stock
that byEof Co ABC
contending
the had Cono
corporation asmore
that evidencedassets
it for
violatedthecapital
byhis
left. a representation
delivered
liabilities.
and
validity it a
jurisdiction
Stockholders;
The
isof the
Rights
in
promissory
fiction
established
over
the of
deed BOD
cases ofnote;
corporate
that (Sec no
assignment.
involving:
the new
28 chattel
identity
insolvency
Corp Maycode;
a)within
Devices
is is
the
The Philippines;
installment
stock
creditor
right ofbalance.
unpaid of P1MTest
on
certificate.
thendue(2002) date.
divided
sued Arnold
preemption to the unissued shares. M A
into then
Inc 50,000
delivered
on sued
the Paje
common
the
theory on
stock mortgage
disregarded
the
Gov’t vs result agreement
Agoncillo
Corporation and
of the
fraudulent
50p348)
be compelled was
individuals executed
practices as
comprising
by mandamus the it
tothe
the What
promissory
shares isand the legal
note
50,000 test
in thefor
preferred determining
RTC. a) Does if its
the an (1996)
Whator schemes
are
canSUGGESTED theIf amounting
rights
ANSWER: of a counsel to fraud and
SUGGESTED
that
Is certificate
hisM Inc ANSWER:
is ato
contention Steven
mere alter
tenable? who ego now ofshares.
Explain Eclaims At
Co. briefly.to
Will be parties
be
company.
register relied
treated
misrepresentation;
on you
the shares b) a provision
identically.were of stock The in
Controversies
the for1996
stockholders
in the names a creditor
arising of
Yes. DX's
unlicensed
SUGGESTED
court have
inception, contention
ANSWER: foreign
jurisdiction
the Corporation is the
corporation
over tenable. case?
offered is doing Under
b)
for stockholder?
G.R.
canYes. No.
SUGGESTED
SUGGESTEDThe 108734,corporation
ANSWER:ANSWER: May 29, may be compelled by
thethe
(5%) suit real owner
prosper? of the
Explain. shares, having paid for chattel
The ofbe
the
out
mortgage
held
XYZ,
assignees?
rights
of of directly
would
a agreement
liable
Explain
stockholder
intra-corporate
you
or
for
advise
briefly.
are which
corporate
as
partnership (5%) included
legal
follows: action
1)
The
Sectionsuit
business
Would your
subscriptionwill not
39 subscription.
in ofthe
answer prosper.
the
all beCorporation
Philippines?
the theABC
common The
same sale
(2%)if A
shares.by
Code, EtoCoall
instead of a) As to A—an
1996).
mandamus toamong action can
register the be brought
shares of stock against in
Arnold’s refused future
obligations,
The against
rightdebts to as
A,even B,
vote, and to C? the
the
including extent obligations
the of their
right tolegal
its assets
stockholders
SUGGESTED to M
of
ANSWER: Inc
ABC, does
Inc. not
enjoy result
preemptive in the To relations;
A
the
what
“In for name
case P100th c)Mortgagor
of
circumstances
the Controversies
thewhich assignee. is the
will
executes in
amount
Thethe the
only election
doctrine of unpaid or
sold his shares
However,
recognize only
and to register
his friend
40,000 shares Mabel
Steven’s were and
ownership.the secured
personalaby assetsthe mortgage.
(Concept Thetoprovision
Builders v. NLRC,
The
transfer testof iscasewhether or not theagainst
unlicensed appoint
appointment
subscription. proxy; of2)Since
The byright
directors, orshare
theofficers, corporation in
ofetc; the
d) is
right to
SUGGESTED
latter
Is filed
subscribed.
the athe
subscribe
refusal liabilities
ANSWER: with
Recently, to all
justified? the of
issues
the RTCthe
directors
Explain. latter
of sharesto, the
thought norof limitation
apply?
subsequent
reads:
Marabe, (2.5%)
et al,imposed
promissory Section
note 63
notes the
either
ABC’s
foreign
in the refusal
assumptioncorporation to recognize
thereof has and
performed register an act or profits
The Petitionsof
doctrine
insolvent, the to corporation,
is be
the declared
applicablelimit ofincluding
in
when a
the state
the the
of
notion
stockholder’s
any class,
corporation
of raising toincluding
compel
additional toby,
the
itcapital the
register and former.
reissuance the sale
decided Theofto asCorporation
a renewal, Code as an is when
extension, or Corporation
as a new
Steven’s ownership right
ofloan,
legal tothis
suspension declare
entity of
is stock
payments
used dividends;
to (Sec
—against
1) isDefeat53)PD The 902-A)
public
acts
facts togiven
treasury
and offer that
to shares
issue theimply
donew public allis
aindicate
incontinuity
notcertificates justified.
proportion
the that ofofstock
such
authorized The
commercialinfacts
totransfer
their
her
shares liability
holds
right to a
tounpaid
anymortgage
proportionate
the creditor
claim
shall
share
also
of
only
stand
the
the up
shares
as
assets
to the
or indicate
Stockholders;
dealings
assumption
have
respective
SUGGESTED
name? that
or
pre-emptive the
Appraisal
took
shareholdings.
ANSWER: stock
arrangements, place
rights certificate
Right or
to and
was
the for
contemplate
stipulated
remaining the convenience.
extent
intended
security of his
to 2)be
for theupon Justify
unpaid
transferred.
payment wrong.
subscription. 3)
The
of said 4) Protect
alleged
promissory claim
of the Corporation at their market value. a) the
of b)corporation
As to B—there liquidation;
is causeThe
nov. sufficient of toaction
a)
In
uponThe
(2003)
1,000
what
to
10,000 RTC
that
by shares
instanceshas parties
extent
shares?
the jurisdiction
inthe question
may
(2%) the
performance
b)
in over
is
right
Would
their in the
of of
Mr. case.
name
appraisal
acts
agreement.
X have orof fraud.
of 4)
another Defend
noteoforappraisal; heir
notes without crime
of PX (PNB
is not
necessity Andrada of executing deny
Would Mr. X, a stockholder holding 4,000 right
against
TAKE NOTE: The
B No.because RTC 5) The has
he pre-emptive
jurisdiction
has already right
over to
fully the
paid
The
be SC said
Arnold.
availed
works,
Furthermore,
pre-emptive orof that
Although
under
thethe asale
rights corporation
the
the
exercise by
to certificate
Corporation
theof
E some
Co50,000may
of of
its only
wasCode?
the
assets
preferred buyis Electric,
the
ashares; G.R.
issuance
new contract of andnew thiscertificates
mortgage of stock
shall
shares, ANSWER: to cases
for his 6)
which The right
involves
subscription. to inspect
intra-corporate
As stated corporate
earlier, the
its ownofshares
delivered
SUGGESTED
functions
a sale
shares? its(2%) byof
property. stockincident
Arnold
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Steven, enough
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andfacts
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the records;
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the said
SECTION
surplus 81.
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certificate
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corporation existing
gain if the transferee's
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notes towere the shares existing hasonno
—
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Any answer
stockholder would be
of the
a corporation
same. An actionshall directors;
5) is that
Trust
creditor
Asdate
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Shield 8)
thereof Such
Doctrine
a theis a other
violation TRANSFERRED
corporation, rights
of the as may
proscription
when the latter
stockholders
endorsed
or
belongingof the to by Arnold
purpose itsarestockholders.
and entitled
atobject
the time to
of the itpre-emptive
was
There business is prima faciefailed
hereof.” validity to pay or isthe second loan,
uncertain.
have
to Joint
compel Venture;
the anoright Corporation
corporation to price dissent contractually
JURISDICTION
(1992)
A Corporation be granted
under
executed to
Sec. athe 5.2the
promissory of the SRC,
note
rights,
delivered
corporation.
therefore at towhatSteven
merger ortothat
or register
willthe and
consolidation the a shares
demand
salethatbe
procedure for against
the becomes
Bank
the
forum
proceeded
stockholders
shopping
insolvent,
by the
is
(First
to foreclose
corporation
extent
Philippine Chattel
or
of his
Piercing
(1996)
May
payment
and d) to
offered? a the
issue
theplace. of theCorporate
corporation
new
Assuming
effective (2%) fair
certificates
value
a Veil
enter of into
his
stockholder of a
stockjoint
shares is in
disagreesthe c)
the As
binding
International to
subscription.
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Commission’s
itself
Bank tov.action
pay
Court
sued its can
jurisdiction
ofthe be
Appeals,
Bank filed
over
President/Director, G.R. against
all
claiming cases
No. C,
took E transfer
Co continues of shares to ofexist stockand set by special law.
1
(2001)
Plaintiffs
venture?
following
itself an
SUGGESTED
with In case
filed
intra-corporate
instances: any
a the
ANSWER: amendment
collection matter action to
that the articles
against and Xthe of 6) not Work
as
enumerated
who
137537,thehad January inequities
stockholder
tendered under
24, 1996). PD
his among
because
902-A
longersec.
noresignation, members
he has
5ahas of
already
been
certain
out
remains inthethe
liable issuance
by-laws
to of of ABC
creditor. new Co,shares if any, was that mortgage was in force.
A corporation
incorporation has may
the enter
effect into a the
of changing joint venture. the corporation
paid upclaimedthetointernally,
shares, but involving
inchattel
his no rights
capacity and as
Corporation.
exclusively
pricing
observed. lies
for Upon
the
Since with execution
thethe
shares, RTC. may
certificate ofthe was notor
court’s
stockholder transferred
sum
Borrower in payment the ofCourts
that thea latter’s
fresh of general
shares
However,
NOTE: The
restricting
decision,
TAKEinvoke
endorsed the
Xhis inasmuch
RTC
rights
Corporation
in
has
appraisal
favor ofas
of
the
jurisdiction
any
Steven was
rights term
stockholders
(orfound ‘joint
andoverto
anybody
theor
demand be class Stockholders;
else
of the public
director
jurisdiction
interests
mortgage
Voting
inor
should andor
the
Power
third
the
have
of Stockholders
persons
officer
appropriate
company. been Thebecause
(Secosa
executed Regional
corporation whenof Trial
v. Heirs the
of venture’
cases
shares,
without which or
assets.has of no
involves precise
authorizing
Thereafter legal
intra-corporate preferences
plaintiffs definition, filed in it
any
an (1990)
Mercy
ofErwin subscribed
Stockholder;
Suarez
corporation’s Delinquent;
Francisco, to
insolvency1,000
Unpaid
G.R. shares
Subscription
No.
being of
156104,the stock June
result of of
SUGGESTED
payment ANSWER:
for his shareholdings? (2%) could be the Court.
defaulted
second in
loan paying the full amount so that
a was
for that matter), the only conclusion Rosario Corporation.
Evade granted.
Sheobligations
paidby a)25% Decide the
of collection
said
Stocks;
may
a. Yes.
controversy.
respect
action Sale,
take Mr.
superior
against As Transfer
variousX, aits
ofto2006, of Certificates
forms.
stockholder
those theofItoutstanding
present could
applicableofholding
Stock
takerule
and the4,000 of 7)
shares
past (1997)
The
29,said
2004). BOD
fraudulentformer ofthe lawful
corporation,
practices
President within
filed suit athe vote
for the
of ten in
company.
no other than that the shares in question still case and
subscription.
corporation
favor ofratiocinate.
one During
like a
against, (4%)
the
judgment b) Suppose
stockholders’
declared credit due the
and
is
any (2001)
A
formis
shares,
thatclass,
stockholder the
of or
there registered
a has
simple
isY aextending
of TRANSFERRED
Corporation owner
poolingorofshortening
pre-emptive of Stock
resources
which right owned (notterm
to
the the Directors
would
of the its are
balance validity liable
before and jointly
effectiveness
the SEC. (Sibagat
anda)severally
Under be for
belong to Arnold. (Razon v IAC GR 74306 Mar chattel
G.R.
meeting,
Timber mortgage
No.Corp.112546,
can v.Mercy was
December
Garcia, votenot registered,
11,
all 1992).
her 8) the capital
subscribed
of Certificate
involving
remaining
JURISDICTION
corporate
substantially No.
existence;
all 000011.
incorporation)
10,000under ofshares.
Sec. the He
between
5.2 All entrusted
of
stocks the two
stockholders
SRC, of the
or X of payable
damages
impaired?
what all
conditions unpaid
sustained
Explain. is subscription
a (4%)
stock by the
corporation to corporation,
16,92 207s234) Escape
stock.liability
SUGGESTED
shares? ANSWER:
Explain.
The lone arisingdissenting from adirector
debt (Arcilla
failed v. to
the
2 possession
more
a
Corporation. Incorporations
stock
Commission’s case of
Theofsaid
corporation sale,
two certificate
for
jurisdiction
lease, a specific
shall
corporations enjoy
over to his
exchange, havebest
project,
preemptive
all cases
transfer,
the stockholders
SUGGESTED
empowered ANSWER: to oracquire
other persons
itssubscribed
own resulting
shares? b)fromIs
Yes,
Court Mercy
of Appeals,
pay arrangement
on duecan vote
G.R.
date, i.e., all
No. her
88113, October 23,
friend
purpose
right
enumerated toBpledge
who
orunder
subscribe borrowed
ofundertaking,PD to902-A
allandtheorsec.
issues said
for a
or
5 endorsed
limited
has disposition
ofbeen 1 the
gross The foreclosure
negligence or of19the
bad Sept
faith 1997,
chattel
in his
directing
mortgage,
same board or
directors other disposition
Y Corporation all or shares. Avoid
Section theinclusion
72 between
ofthe theofOther
corporate
Corporationthe corporation
assets as the
isCode
9) Piercing
1992). Corporate Veil than
certificate
SUGGESTED
time.
of shares
transferred
substantially
financed ANSWER:
Itthemaytooftothe
all support
involve
any class,
of Courts
operationsthe theB’s in
of
corporateof application
creation
proportion
general of a for
property
X Corporation. more
to their
and unpaid
mortgage
affairs
and its subscription.
regarding
of
President the corporation.
covered second by loan
the(Sec the
trust shares
not
31 fundCorp
Yes, Y Corporation may be held liable for the part
states ofthat
(1994)
Mr.
wherein the estate
Pablo, holders
he awas rich ofunable
ofthe
merchant decedent
subscribed to in his
complete shares
(Cease
early not
v.forties,
payment,
ALTERNATIVE
passport
formal
respective
jurisdiction
assets
May as
Y Corporation (or
structure
or
provided ANSWER.
for a
shareholdings.
the purpose
and,
appropriate
in the
be have hence,
Code; other the
Regional
held pre-emptiveand than
formation
liable for the Trial valid.
Code) A
SUGGESTED
doctrine? chattel Explainmortgage
ANSWER:
your cannot
answers validly
briefly.
a. No, Mr X does fully
hepaid
Court ofstock which
Appeals, are
G.R. not
No. delinquent
L-35861, October shall 18,its
debts
of
Court.
3
debts a of
of
transfer). X But
corporation.
In X case
Corporation.
of B
Corporation? Ifnot
sold
merger the theor
Why?
Theventure
certificate
joint
consolidation.
(5%)
doctrine towouldX,(n)right
of
a 10)
a)
was
secure AdidTo
a not
after promote
corporation
defendant
own
incurred any
or
in
toshare amay
obligations.
shield inonly
lawsuit theThe
unfair
acquire
which
corporation.
objectives
could
over
piercing
bona fide
involve Credit Transactions
the the
the remaining
veil
purchaser
creation of of 10,000
who corporation shares
relied on theas the
a partnership, because
fiction 1979).
haveown all
subject the
shares
On (Villanueva
affidavit
Stocks; 23 Sept
of
Increase
rights
him
good of
of to
1997, faith
v.
Capital
of
stock
Adre,
a
he stockholder.
if
substantial the
was No.
required
G.R.
Stock
trustdamages.
informed
under fund
80863,the by
April
A
the27, year
Liabilities;
these
Stockholders;
applies
endorsed to BOD;
shares Removal
this Corporate
have
case.
certificates of The Acts
already
Officers two
and believed & been BOD offered
corporations at doctrine
before
BOD
chattel that, the
mortgage is notcourt
unless impaired.
duerendered
law expressly payment This is to
judgment,
is say,
meanwhile
provides that forPablo
term is understood under the Civil him Code, to be (2001)
Suppose X Corporation 1989).
has an authorized
In (1996)
When
incorporation
(2001)
have 1999,
the the
ownermay a corporate
Corporation
same thereof.and
board he
a) A
of
Can director,
chose passed not
directors
A claim trustee,
toathe subscribe
board
and sharesor
Y “thesought corporation
instance,
received,
foregoing histhat
he:lawyer’s
a)it forthwith:
mortgage mayadvice
could purchase
no
is longer
made on how its
for own
serve to plan
as a his
then a corporation cannot be a party to it. Pre-emptive Right
Chattel
officerMortgage
to stock
them.
SUGGESTED
resolution
Corporation
of be from
vs. therefore,
held
He,ANSWER:
removing
owned After-Incurred
X?personally
X from
substantially
Explain hasObligations
liable
(3%) his waived
b) with
position
all
Would ofthethe
his right capital
as
your b)
shares
estate
director
securing
stock would
of
the
of P1M
toofstock
avoid
the not
obligation by divided
be entitled
utilizing
taxes.
into
His merely
specified toin
lawyer
100,000
the the cash
its and
suggested
(1991)
To secure
a) No.
corporation?
SUGGESTED
thereto the
Assuming
and payment
ANSWER:
the that of
corporationthean earlier
shares may loan
wereoffer of them (2001)
Suppose
shares
stock of
ALTERNATIVE
surplus that
stock
dividends
profitsX Corporation
with
ANSWER: par
which
over and value
were has
above of already
P10
declared
the each. and
manager
stocks
answer of of X said corporation.
Corporation, if AwhichlostThe by-laws
facts justify of that hehereof,
conditions should andform for no a othercorporation
purpose.” with
A
the A
P20,000 corporate
already
SUGGESTED
to anyone.
corporation
conclusionasbe well the
transferred
ANSWER:assame
director,
provides
that the totrustee
subsequent B,
that
latterAthe
the
or
loans
cannot
stock
officer
isofficers which
merelyclaim may
are the
an
issued
a) a)
Give (an
payable the
subscribed
himself,
twoanswer
1000
onways
his 24
originally
capital
wife
enumerating
whereby
Sep and 1997;
of theauthorized
his
said
and the
corporation.
children
instances
authorized sharesor
(all students
certificate
b. Yes. Mr. in question
X would haveor if it was
pre-emptive stolen from
rights The
of the after-incurred
cases obligation not being
thebe
her sharesheldof
friend
president,
extension personally
Noreen,
of stock
the would
from liable
vice-president,
personality X. extend
Thewith the
to
certificate
oftreasurer
the her, former, of
and c) corporation
capital
and
under
stock could
still
may the
not
unemployed)
so
be Corporation
votethatinits
increased the BOD Code
to
as stockholders
andwhere the
about
stockholders and
him?
to (2%)
the 50,000 preferred shares. All specified
stockholders
Corp in the
allows wish affidavit,
the to
acquisition
increase ispractical
not secured
X’s
of shares
authorized by
such
corporation
Karen
stock
secretary.
and executed
that thecovering
Upon under
in
former favor
said the
complaint of
sharesfollowing
Noreen
controls filed have a
the policiesbeenchattel
with the duly of P1.5M.
meeting
then
(3%)
transfer
b)
scheduledGive
all his
three
to assets
take place andon
reasons
26
liabilitiesSeptasto
stockholders
circumstances: of 1) aWhen stock hethe corporation
assents to shall mortgage.
capital
for in the stock.
stockholder’s
a corporation After tocomplying
increaseexercise itswith
of appraisal
capital the stock
mortgage
SEC,
the endorsedit held
latter. over by her
Added A and
that (Karen)
to entrusted
a
this car.
manager
is Is the
byfact him
could toaB.
that be Y 1997.
this corporation. Mr Pablo isfollowed the
corporation;
enjoy
SUGGESTED
patently pre-emptive
ANSWER:
unlawful 2) When actright hethe
of acts
to in badfrom
subscribe faith to or all 2
SUGGESTED
requirements
(2%)right,
Was Yes.
thefailure The
ANSWER:
action of chattel
of
the bids
of law
the inmortgage
on
BOD the increase
sale
on of
each not
of of valid
delinquent
the
mortgage
By
removed his
Corporation byvalid?
said acts,
mere
controls A is
resolution now
the estopped
of the
finances board of of
X recommendation of his lawyer. 1 year later,
A chattel
with gross
issues mortgage
orsaid negligence
disposition cannot ineffectively
of shares of any secure a)
as Two
against ways any ofXperson,
increasing except the the Authorized
mortgagor,
claiming
directors.
Corporation On which shares
motion isfor from X, a an
reconsideration,
merely bona fideclass,
adjunct,
capital
X or in his shares,
foregoing
the
stock,
court
etc.) mattersissuedvalid?
rendered
an additional
judgment
1000
against Pablo
after-incurred
directing
ALTERNATIVE
Piercing
in the Corporate
proportion obligations.
the
ANSWER: affairs Veil
to While
of the
their a stipulation
corporation,
respective Capital
executors
SUGGESTED
shares
SUGGESTED Stock
of the of
and
ANSWER:
same
ANSWER: X corporation
administrators.
value. a) to
Assume P1.5M thatare: the
purchaser
alleged
business that he who
conduit couldrelied only
or on be the
alter endorsement
removed ego byof the Y and
1) the Increase
plaintiff the sought
number to
of shares
enforce this
to b.
b) Yes,
includewith
conflict
Yes. Mr. X
after-incurred
the has
interest preemptive
of obligations
the right
corporation over
in a resulting the b) The arrangement
in a) No. TheA period of 30 between days200 the
within which
(2004)
How by A
affirmative
Corporation of In
shareholdings.
does theonethe
vote
(CIR
case
pierce
certificate
v
where
of
Norton
the
of the
&
the
veil
stock.
Harrison
certificate
of corporate
stockholdersCo 11
of
S
stockholder
judgment.
from 100,000
presently
The to sheriff,
150,000
holds
however,
shares
out of
with
the
could
the not
50,000
chattel
stock
fiction?
SUGGESTED damages
was preferred
mortgage
ANSWER:losttoor isthe shares
itself
stolecorporation,
from because
not invalid, A, A its has they
the were
stockholders
a right corporation
theoriginal
stockholder
or SUGGESTED
1000 and
shares.
ANSWER: its
canWouldPresident
pay the A have to
unpaid the
a pre- extent
representing
714 (1964))
not
obligation
Theto veil
other offered
ofcannot, 2/3
corporate
persons; of
before
3) the
however, by
fiction
When outstanding
the
he bemay corporation
deemed
consents be capital
pierced
to the for b) locate
same
that
When it
subscription
The plaintiff par
any
calls
should value
property
for theof
stockholder
had not P10.00
in
payment
yet the A each.
name
expired. of
exercisethe of Pablo
latter’s
the and
No. Stockholders’
claim the approval
certificate of is necessary
stock from only
the emptive
2) piercingrightIncrease tocan 200availparof the himself
value new of
of theofdoctrine
issue
100,000
stock.theIsremoval
subscription.
automatically
by
for proving
issuance X’sin ofcontention
secured
court
watered
of thatby legally
stocksthat
thetitle tenable.
mortgage
notion Why?
of same.until
legal therefore
shares
pre-emptive
of is returned
covered
right? the(2%) by
veil thethe oftrust writ fund
corporate of doctrine.
execution
fiction
thief who has nothe right members
or of the
to the BOD. 1000 shares? Why? (3%)
(5%)SUGGESTED
after
entity
For“One a
theornew
is who, ANSWER:
being
removal having
chattel ofused knowledge
mortgage
a to
corporate or
defeatanthereof,
officer public does
or not shares
unsatisfied.
The
b)
SUGGESTEDNo. only to
The
ANSWER:P15.00What
exceptions
delinquency
which can be invoked when a corporation each.
remedy,
from did the if
not any,
trust
deprive is
fundavailable
the is
c. The who has
shares lostwill any be movable
offered or has
to secretarybeen
existing his
addendum forthwith
convenience, to the file
justify with
original
wrong, the
chattel corporate
protect mortgage
fraud, or is a) Yes,
to the
doctrine A
stockholder would
plaintiff?
are ofhave
the his a
formed or used in avoiding a just obligation. pre-emptive
redemption
right to of
receive right
redeemable to
dividends
employee,
unlawfully
stockholders, thedeprived
vote who of thereof,
the BOD arehemay isentitled
sufficient
recover itto
b) Three
200 of the practical
new issue reasons
of forclose a dividend
corporation
objection
executed
defend
forfrom
the written
crime
purpose.
the thereto;
to person
cover orthe in 4)
the When
obligation
entity
possession agrees
after
is
of the toan
it same.”
just has hold shares
declared.
While itand, truein
isHowever, the
that casea1000
the of
cash
family shares.
corporation A is a may
corporation,
preemptive
Stocks; Sale, right,
Transfer at a price fixed by the to increase
stockholder
when there its
of capital
record
should stock
holding
be are:
a deadlock 200 1) to
shares
and the in tax;
beenhimself
Stockholders;
(Art actually
instrument 559 personally
Removal;
or
NCC) alterofand
incurred. Certificates
Minority
Accordingly,
ego ofadjunct
orDirector Stockunlessof declared
be organized may beto appliedpursue by the an corporation
estate
BOD,
Piercing
(2004) which
the
solidarily shall
Corporate
liable not
withVeil be the less than
corporation; the par generate
X Corpo.
SEC theordersmore
According working
the to
payment the capital;
Corp Code, each
Four
(1991)
Assuming
such
another months
supplementsthat or
entity before
the minority
are
person. his death,
made, block
the PX of assigned
chattel the XYZ to
planning, unpaid which is not ofper
subscription. the se
(Sec appraised
71 illegal
Corp or
value
(2006)
100or of such shares. Trust
stockholder
value Fundof aDoctrine;
has theIntra-Corporate
stockholder’s pre-emptive Controversy
right to all
Corporation
mortgage shares in the isofablestock
problem toregistered
elect
givenonly would in1his bename
director Code)
unlawful (Delpher Trades share. Corp v IAC 157 SCRA
andintherefore,
favor of his wife (1991)
issues of shares made by the corporation in
deemed to secure onlyand thehis loan of P20,000 349) the factual settings, however, indicate
(Sec 5 Act 1505; Belgian Catholic Missionaries v proportion
the existence to of a lawsuit that could subject
Magallanes Press 49p647) Pablo to a
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) Page 45 of 103
FiveWould
yearsthelater
seller-mortgagee
after completing be payment
legally of situated as well as the LTO where the
thejustified
purchase in foreclosing
price, debtor on obtained
this second title
chattel
to vehicle is registered. (Sec 4 Chattel
theSUGGESTED
mortgage?
lot. And even ANSWER: as the chattel mortgage on Mortgage Law)
theNo.house
The two was mortgages were executed
still subsisting, to
debtor Credit Transactions
secure the payment
mortgaged to a bank the lot and of the unpaid (1999)
Various buyers of lots in a subdivision
installmentsthereon
improvement for the to purchase
secure of a newThis
a loan. car. brought actions to compel either or both the
realWhen the mortgage
estate mortgage on was thedulyold car was
registered developer and the bank to lease and deliver
andforeclosed,
Due to business
annotated the seller-mortgagee
reverses,
at the back ofdebtor
the title.is deemed
failed to free and clear the titles to their respective
paytohishave renounced
creditors. Theall other mortgage
chattel rights. A was lots.
foreclosure
foreclosed whenof additional
the debtorproperty, that is,
failed to The problem arose because notwithstanding
the new the
reimburse car surety
covered by the second
company mortgage
for payments prior sales mostly on installments – made by
madeChattel
wouldon Mortgage;
be
thea bond. Ownership
nullity. In theof foreclosure
Thing Mortgaged sale, the developer to buyers, developer had
(1990)
Zonee, who lives
the surety company was awarded in Bulacan, bought a 1988
the house mortgaged the whole subdivision to a
model
as the Toyota
highest Corolla sedan on July 1, 1989
bidder. commercial bank. The mortgage was duly
Onlyfrom Anadelaida,
after the foreclosure who lives
salein Quezon
did City,
the surety executed and registered with the appropriate
for P300th,
company learnpaying P150th
of the real estateas downpayment
mortgage in governmental agencies. However, as the lot
andofpromising
favor the lending to pay the balance
investor on theinlot 3 equal
and buyers were completely unaware of the
thequarterly
improvement installments
thereon. beginning Octoberit1,
Immediately, mortgage lien of the bank, they religiously
1989.
filed Anadelaida
a complaint executed
praying for the a deed of saleofof
exclusion As
paidthe developer
the failed
installments dueto under
pay itstheir
loan,sale
the
thethe vehicle
house from in the
favor of Zonee
real estate and, to secure
mortgage. It mortgage
contracts. was foreclosed and the whole
was the unpaid balance
submitted that asofthe thechattel
purchase price,
mortgage subdivision was acquired by the bank as the
was had Zonee execute
executed a deed ofahead,
and registered chattel it was highest bidder. a) May the bank dispossess
Ten days
mortgage after
on the
the execution
vehicle in of the
Anadelaida’s priorindividual lotsof
purchasers or, alternatively, require
superior to the real estate mortgage.
abovementioned
Onfavor. documents,
the suggestion that a chattel mortgage Zonee had on the them to pay again for the paid lots?
car transferred and registered
a house- a real property- was a nullity, the in her name. b) Discuss
What(3%)
are the rights of the bank vis-à-
Contemporaneously,
surety company countered Anadelaidathat whenhad thethe vis those buyers with remaining unpaid
chattel
chattel mortgage
mortgage wason executed,
the car registered
debtor was in installments? Discuss. (3%)
notthe yetChattel
the owner Mortgage of the Registry
lot onofwhich the Office
the Recommendation: Since the subject matter
of the
house wasRegister of Deeds of Quezon
built. Accordingly, the house City.was of these two (2) questions is not included
1 In Sep
a personal 1989,
Discuss
property Zonee
the sold
validity
and the
of the
a proper sedan to Jimbo
position
subject oftaken
a within the scope of the Bar Questions in
by without
the surety
chattel telling
mortgage. the latter
company. (3%)that the car was Mercantile Law, as it is within Civil Law, it is
2 mortgagedWho has to aAnadelaida.
better claim When
to the Zonee
house, failed
the suggested that whatever answer is given by
to pay
surety the first
company orinstallment
the lendingon OctoberExplain
investor? 1, the examinee, or the lack of answer should
(3%)1989, Anadelaida went to see Zonee and be given full credit. If the examinee gives a
3 discovered
Would that the latter
the position ofhad
the sold
surety thecompany
car to good answer, he should be given additional
be Jimbo.
bolstered a) Jimbo
by therefused
fact that to itgive up thetitle
acquired car on in a SUGGESTED ANSWER:
credit. No. The bank may not dispossess the
the ground
foreclosure salethat the chattel
conducted by mortgage
the Provincial 1
executed
Sheriff. Explainby Zonee
(3%) in favor of Anadelaida is prior purchasers of the individual lots, much
not valid because it was executed before the less require them to pay for the said lots.
car was registered in Zonee’s name, i.e., The bank has to respect the rights of the
before Zonee became the registered owner prior purchasers of the individual lots. The
of the car. Is the said argument meritorious? purchasers have the option to pay the
b) Jimbo also argued that even if the chattel installments of the mortgagee.
Explain your answer.
mortgage is valid, it cannot affect him 2 The bank has to respect the rights of
because it was not properly registered with the buyers with remaining unpaid
the government offices where it should be installments. The purchaser has the option
registered. What government office is Jimbo to pay the installments to the mortgagee
SUGGESTEDto?
referring ANSWER: Mortgage
who should apply the payments to the
a) Jimbo’s argument is not meritorious. (1999)
Debtor purchased a parcel of land from a
Zonee became the owner of the property mortgage indebtedness.
Chattel Mortgage;
realty company Foreclosure
payable in five yearly
upon delivery; registration is not essential (1997)
Ritz bought a new
installments. car on
Under theinstallments
contract of which
sale, title
to vest that ownership in the buyer. The provided for would
to the lot an acceleration clause
be transferred in the
upon full
execution of the chattel mortgage by the event of default.
payment of theTopurchase
secure payment
price. of the
buyer in favor of the seller, in fact, can But even
unpaid before full
installments, as payment,
and whendebtor
due, he
demonstrate the vesting of such ownership constructed
constituted twoachattel
house on the lot. Sometime
mortgages, i.e., one
b) Jimbo
to the was referring to the Register of
mortgagor. thereafter,
over his very olddebtor mortgaged
car and the otherthecovering
house to
Deeds of Bulacan where Zonee was a secure his obligation arising
the new car that he had just bought as from the
resident. The Chattel Mortgage Law issuance of a bond needed
aforesaid, on installments. After Ritzin the conduct of
requires the registration to be made in the his business. The mortgage was
defaulted on three installments, the seller-duly
Office of the Register of Deeds of the registered
mortgagee with the on
foreclosed proper chattel
the old mortgage
car. The
province where the mortgagor resides and registry.
proceeds of the foreclosure were not enough
also in which the property is to satisfy the due obligation; hence, he
similarly sought to foreclose on the new car.
 Mercantile
Mercantile Law Bar Examination Page 46 of 103
Law Bar Examination Q & A (1990-2006)
Q & A (1990-2006) ToPagepay 47 forPage 103
ofher 48loan of 103
obtained
Because of business reverses, neither the from
(5) Stela,
The Liza
b.Integrity lease
Bank constituted
which in
– rentals Stela’s Edzo
granted
belong favor
to athe
LDC countered
Borrower nor Mr. Timbolthat it had wasbuiltable on to the
pay the chattel
loan mortgage
mortgagor.
in 2001 over
inHowever,
the amountantheelectric
ofmortgage generator.
P500,000. extends
The
mortgaged
loan. In June property2001, thewith Bank theextrajudicially
prior Cecil,
loanto wasarentals
creditor
not secured of Liza,
not yetbylevied
any
received on
asset of
when Edzo,the
knowledge
foreclosed theof twomortgagee
real estate whichmortgages,
had received attachment
but it was the
obligation generator.
guaranteed
becomes due Stela
and filed
unconditionally a third
the mortgagee and
withformal
the notice
Bank of as the thelease.onlya)bidderHow would in the you party
solidarily
may claim.
ran Cecil
by afteropposed
Edzo’s
the said the claim.
rentalsRule
President forandthe
mortgagee
resolve the
foreclosure and
sale.dispute
On LDC? (3%) b)the
between
September Is the
16, 2001, the SUGGESTED
on
controlling
payment ANSWER:
their conflictingstockholder, claims.
of the mortgage Eduardodebt. Z. Ong, as
mortgagee
certificates of entitled
sale of to the thetwo lease rentals due
properties in Mortgage; Foreclosure;
accommodation surety. Effect of mere taking by
from Mortgage;
loan due Extrajudicial
Thecreditor-mortgagor to Integrity Foreclose
of property (1992)
Bank fell due on
favor of LDC
the under
Bank were the lease agreement?
registered with (3%) the
Ten months later, both
Recommendation: the Borrower
Since the and Mr.
subject (2006)
A
matter of
Junereal
X& 15,Coestate
2002.
obtained mortgage
Despite a loan may
pleas fromforbea foreclosed
extension
local bankof in
Register of Deeds of Quezon City.
Timbol were (2) questions
these twoto raise
able is not includedfunds
sufficient withintothe judicially
payment
the amount orbyextrajudicially.
Edzo, of P500th,
the bank In what mortgaginginstance as
demanded
redeem their scope of the Bar properties
respective Questions infrom Mercantile
the may
immediatea mortgagee
security payment.
thereforeextrajudicially
Because
its real foreclose banka
the property.
Bank, but Law, theas Bank it is withinrefusedCivil to Law,permit it is SUGGESTED
real estateANSWER:
threatened
Subsequently, mortgage?
to proceed (5%)
the company against applied
the surety,
with the
suggested that whatever answer is given When a sale is made under a special power
redemption on the ground that the period Eduardo
same bank Z. Ong, forEdzo a Letter
decided of to Creditpay up (LC) all for
by the examinee, or the lack of answer inserted or attached to any real-estate
for redemption had already expired, so that its $200th
obligations in favor
to Integrity
of a foreign
Bank. On
bank June to 20,
cover
should be given full credit. If the mortgage, thereafter given as security for the
theSUGGESTED
Bank examinee
now has
ANSWER: givesabsolute ownership
a good answer, of
he should 2002,
the Edzoimportationpaid toofIntegritymachinery. Bank To theguarantee
full
payment of money or the fulfillment of any
botha. The mortgagee
properties. The has
be given additional credit. a
Borrower better right
and Mr.than principal
payment amount
of the of
obligation
P500,000, underplus the
accrued
LC, the
other obligation, then the mortgagee may
LDC. came
Timbol The to mortgage
you today, extends Septemberto15,the interests company amounting
and its toPresident P55,000. and As a Treasurer
result,
extrajudicially
The machinery foreclose
arrived the was
and realreleased
estate to
improvements
2002, to find out if introduced
the position on of thethe land,
Bank with Edzo executed
Mortgage;had hardlyaForeclosure
surety
any cashagreement
left for operations
in the local
mortgage
the company(Sec. 1,under Act No.
a trust After3135, as
receipt
is the
correct. declarations,
What would amplifications, be your answer?and and bank’s
(2003)
May decided
the favor.
sale attopublic
close its business.
auction by a bank of
SUGGESTED ANSWER:
limitations
State your established by law, whether the paying
amended).
agreement. As the company defaulted inathe
1 Withreasons
respect(5%). to the real estate mortgage property
How
the mortgaged
would
payment
unpaid
you, as
salaries
judge
of its obligations, to of
in it its
the be employees,
nullified
insolvency
theonbank took
estate remains in the possession of the Edzo because filed the a petition
price was forextremely
insolvency low? July 1,
Why?
over the land and building owned by the
mortgagor or passes into the hands of a proceedings, possession
2002.
SUGGESTED ANSWER:
rank
of the the respective
imported credits
machinery. Atorthe
Borrower, Primetime Corporation, a juridical body, claims sameof time, the five it (5)soughtcreditors mentionedthe
to foreclose
third person (Art 2127 NCC). The notice
the period of redemption is only three (3) months, above mortgagedin terms of
propertypreference and or
to priority
hold the
given by LDC to the mortgagee was not Mortgage; Foreclosure
which period already expired. SUGGESTED
against
company eachANSWER:
other?
as (5%)
well as its President
enough to remove the building from (2003) Because
TheDid claim ofoffailure
Handyman of Janette and forJeanne toand
2 As to the real estate mortgage over the Treasurer, the taking
liable of Garage
possession
under the
P10,000
ofSurety
the
coverage of the mortgage considering that pay a their
specificloan
hasmachinery lien to the
on X car Bank, repaired. the latter
residential house and lot owned by Mr. Timbol, Agreement. by the bank result in the 1) full
the building was built after the mortgage foreclosed on the mortgage constituted on
the period of redemption is one (1) year from the payment of the obligations of the company
was constituted and the notice was only as The their property which was(4) put up by them as
date of registration of the certificate of sale, and its officers,four
remaining and 2) foreclosure claims have
of the
regards the lease and not as to the preference security
SUGGESTED fororANSWER:
the payment
priority against of the each loan.
other The
in
which period has not yet expired in this case. mortgage?
construction of the building. Since the price (1)
the1) paid
The
following for
No.taking the
4 –order: ofproperty
claim of the BIR
possession at the offor foreclosure
the unpaid
machinery
mortgagee was informed of the lease and did sale value
by thewas
added bank not
taxes enough to liquidate
did not result in full payment the of
not object to it, the mortgagee became (2) obligation.
the obligations owing from the companyIn
No. 3The
– bank
claim of sued
Joselyn for deficiency.
Reyes for and
bound by Remedies
Mortgage; the terms of the lease when it Unlawful their
its answer, termination
officers. Janette
The taking and ofJeanne did not
such possession
acquired the
(2003)
Carmakers, Inc.,property
sold a asmotor the highest
vehiclebidder.on (3)
denymust theNo.be 1considered
– claimofofthe
existence Ace loan
merely equipment
nor
as athe fact of in
measure
Hence, thebasis
installment mortgagee to Chari steps Paredes.
into the shoes The of Supplies
their as
default. an unpaid
They, seller;
however,
order to protect or further safeguard andinterposed thethe
the mortgagor
transaction
SUGGESTED ANSWER: and acquires
was reflected on the rights of the (4)
a promissory defenses
bank’s No.that 5 – claim
security of at Dacion
the interest.
price the auction en pago was can
a) The
notelessor house under
executed
1st Alternative is always
Answer:Art
by 1768 a real
Chari ofproperty
the favor
in NCC. even This Integrity
of extremely
only beBank.
low and thatastheir
considered having loan, takendespiteplace
SUGGESTED ANSWER:
though
a. Theit mortgagee
provision
Carmakers. was constructed
gives
The note the
haswas lessoron
a better athe
secured land
right nota
right
byto to the(PNB
the loanv aPineda
when documents,
creditor 197 saccepts
1)
was a and long-term loan
appropriates
belonging
appropriate
building.over
mortgage toUnderthetheArtbuilder.
condominium
car. 2127 However,
of the building
Contemporaneous the
NCC, the which
the had
but Mortgage; not yetofmatured.
ownership
Foreclosure the
of goods If in
Improvements you were the
payment of a
2)
due The
parties
withafter
mortgage
themay
paying treat theit lessee
extends
execution as toa the
of personal
all half of the
improvements
note property
andvalue theon judge,
of (1999) mere
howobtainedwould taking you rule of onpossession
the case? of
Borrower obligation. a loan against the
and constitute
the building
mortgage a chattel
deed,atCarmakers,
mortgaged that
property mortgage
time.regardless
Should thereon.
theoflessor
Inc., assigned who mortgaged
Why? (6%) assets does not amount to
security of a mortgage on arequires
parcel ofa land.
Such
therefuse
and mortgage
to reimburse
when
instruments shall
sans be said
the recourse valid and
amount,
improvements
to binding
the lessee
Adelantado were foreclosure. Foreclosure sale at
While the mortgage was subsisting,
but mayonly on
remove
introduced.
Finance the parties.
the
LDC cannot
Corporation. It
improvement will
Charicomplain not
defaulted evenbind or
though
otherwise,
in her public auction. The foreclosure, therefore,
borrower
has not asleased yet beenfor
b) The lending investor hasthe a better claimittowas fifty years the
SUGGESTED
affect
the third
land
because
obligations.
ANSWER:
parties.
will sufferthat
it Could
knew damage
Adelantado thereby.
property Finance effected.
Preference
the 2nd house.
alternativeof The Creditsreal estate mortgage mortgaged
Mortgage; Redemption Period; Development
property to Land Foreclosed
leasing
corporation wasAnswer:
mortgaged
take action when
against it builtboth the Company (LDC). The mortgagee was duly
(2002)
As a. ofAssuming
covering June
the 1,that2002,
house theand Edzo
office
lot Systems
condominium
was duly Property (2002)
condominium.
Carmakers Inc., and Chari? Why? (6%) advised of Corporation
the lease. (the Thereafter,
Corporation
was
registered duly
and (Edzo)
binds was
constituted indebted
the parties andto third
under the the Primetime Borrower)LDC
(1)
following Ace
Condominium
persons. Equipment
creditors:
On theLaw, other Supplies
beforehand, LDC – for
the various
could validly
chattel constructed on the
obtained a P10 Million, five-year mortgaged property
term loan an
Borrower
office condominium.defaulted on his loan and
personal
constitute
mortgage computers
on the house and accessories
same securingas a condominium, sold to
the credit it from Universal Bank (the Bank) in 1996. As
mortgagee foreclosed the mortgage. At the
Edzo on
of should credit
the surety amounting
causecompany
to be recorded to P300,000.
did notinaffect the register
the security for the loan and as required by the
(2) Handyman foreclosure sale, the mortgagee was
of
rights deeds
of third of Garage
the
parties – such
province for mechanical
or
as city where the
the lending Bank, the Borrower gave the following
awarded the property as the highest bidder.
c)
repairs
No.
land The
(parts
is chattel
and
situated service)
mortgage
an enabling
investor despite registration of the chattel performed
overor the on
master house deed collateral security in favor of the Bank: 1) a
Theownedcorresponding
by mortgage Certificateand
the Borrower of Sale was in
which
Edzo’s company
showing,
mortgage. was amongforeclosed
car others,
amountingdid a not to P10,000.
affect of
certificate thethe real estate over the landlocated and
(3)
rights Joselyn
of third Reyes –
parties former employee of executed
Quezon and after
City; the
2) lapse
the of
joint one year,several
and title
registered owner andlike of the all lending
registered was
building
consolidated inofthe name ofBorrower;
mortgagee.
Edzo who
investor. sued
Since Edzo
the for
thirdunlawful
holders of any lien or encumbrance on the parties are not Timbol,
promissory the President
note Pr. of the
Primo and
Mortgagee then applied with the RTC for
termination
bound by
property the of employment
chattel
that mortgage,
they and was
they
consent able
areto to
not the 3) a real estate mortgage over the
the issuance
lot owned of aby writ ofTimbol,
possession not onlyin Quezon
obtain
also a final judgment
bound
registration byof theanydeed. against(SecEdzo
enforcement 4. RA forof its If
4726). residential houseMr. and also located
(4) Bureau over the land but also the condominium
P100,000.
provisions.
the mortgagee Theofforeclosure
Internal Revenue
gave its consent of such – forchattel
thereto, then
City.
building. The mortgagee contended that the
unpaid value-added
SUGGESTED
mortgage did ANSWER:
not taxes amounting
bolster or add to
anything to
LDC should prevail. If no consent was given, mortgage included all accessions,
Mortgage
P30,000.
thetheposition vs.of theLevysurety company.
condominium was included in the improvements and accessories found on the
(2003)
mortgage. mortgaged property.
Mercantile
Mercantile
LawLaw
Bar Bar Mercantile
Examination
Examination Q &Q Law
A& ABar Page
Examination Q & A (1990-2006)
(1990-2006)
(1990-2006) 50 55
52
54
Page 49
53
of 103of 103
of 103 relation,
Moreover,
Yes,
Page On 56
Upon
son,whenMarch 103
his
ofBOY, infailure
Purita
insured
injured
the 51
19,cannot
Page problem
1993, of3103
to
and pay the
a loan
children
insurer
be
a fire
at of
thestated
reinsurance
over
Will
no
After
continuing
1989, evidence
the
his
in
Petra’s
vehicle
building
citingthe
is an crisis
insurance
Gcrcioinsurance
of
insuit
burned
involving
v.favor
suicide
Sun policy,
of
prosper?
against
down,
Life, IOU.
the or
the
G.R.banking
Robin
When
liability
No. arson
principles
Anjo
filedor donee
hand,
have on
POS,
razed
or willful due
agreed
there
ofathe
exposure date,
neighbor,
isbuilding
to
to needless the
deceased.
no the bank
double
perilpayment
who
which areforeclosed
toHence,
the
sued
insurance
ground.
ofSAM
excepted premium
sherisks. Thethe
cannot
because
forGarapal by
insured’s
Insured;
SUGGESTEDAccident
ANSWER: vs. Suicide act was purelyhis
mortgage
Concealment; an act ofand
onnegligence
the 3which is
lots,
Material covered
which byATT,the policy
were and forwas
Concealment;
and
which
defaulted,
Explain.
involvement
his
underlying
financial
claim
the
23703, original
for
sector
IOU
September solidary
fire
of foreclosed
insurer
loss
in
BX
28, the
with
obligations
inmay
1925;Asian
these
the
EFG.
andincur
region.
chattel
GoOn
events.
v.in
would
Feb
favor 28,BX
be also
the
installments
damages.
Insurance
insured
be beneficiary.
with
SAM's
refused the
partial
lawyer
First
to make
payment
Insurance
wasgood has itswho
isbeen
No, Petra’s suit will not prosper (assuming which the insured got the insurance for his protection. In fact, he removed the
(1993)
S Insurance
Does
of the
mortgage,
demanded
1994,
violated
BDoriginal
Redfern, EFG
have Co
. G.R.and
denied
an issued
insured.
(Malayan payment
No.insurable
soughtRobin’s
47705,
Ins atoApril
Co personal
of
interest
vrecover
claim.
CA the
25, accident
within
On
the
GR1841); insurance
L-36413 AprilSep 3, subsequently
Incontestability
different
made paid
obligation
magazine atfor
from the
from
the his
guntime
to
andthe sold
Clause
services
Benjie
of
wheninsured
he for
(1991)
loss,
pointedonly
under
by then
the
with
the P99th
gunthe
the
insurer
tothe at for
hisinsurance
insurer
Second
temple the
he did so
(2)
thethat
Insurance;
policy Neither
the
to
deficiency.
proceeds
1994,
meaning
26, 88 Robinpolicy
Double
Bob can
Insurance
offrom
165s536;May Tan
sought
the the
of life
with
Insurance
IOU the Insured
insurance
arecover
reconsideration
Figuracionstill two Code
vda take
face the
has
value
policies,
deofthe ofbeen
the
Maglana ofthe
the vin Concealment;
foreclosure
Atty
Insurance
becomes
reporting
contract.
because Roberto
liable.
he thought Company.
1)
that Material
itsale.
took
periodically
IsWhen
was Garapal out
The
for Concealment
safeThereafter,
the
him aInsurance
on dolife
same
to car the
so. loss
Heisthe
insurance
case
didtruebank
happened
so tolegally
towith filed
CNI.
assure policy
his In
cash surrender
force
SUGGESTED
(2005)
When does
SUGGESTED
P500th.
Philippines for
ANSWER:
In
deficiency?
premiums
denial,
Consolacion double
the
but value,
aANSWER:
period
evening
(PD1460)?
for
EFG
Explain.
GR which assign
of
insurance
reiterated
60506 of
(2%)less
IS
Aug Sep or
had
6, than
its
92 even
exist?
5, 2 borrow
1992,
been years
position.
212s268) afterfrom (2001)
faithfully
On A applied
sisteran
respect
on that ordinary
from
one the
justified
the 5th the
gun
report,
to for
wasinDana
the
month, aaction
harmless.non-medical
refusing
interests
ATT Therefor
Ins
the Co
disclosed the
(DIC)
isinsured
six none
payment in the
months tolife
collection
on
policy
CNI
in
to insurance.
1that
that
agreed
the Sep
would
Benjie? ofrelieve
two the
1989.
after
2) Is
Yes.
on
his Insurer;
IOU
BDdate
said
the
SUGGESTED
(2%) may
birthday
paying
March has
policy3rd
20,of
ANSWER: itsParty
insurable
no
party,
during1995, longer
without
issue).
Tan
all
RobinLiability
interest
therecover
The
was
the in in
matters his
the
he bank
beneficiary's
a happy
commenced
time deficiency.
which
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although
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creditors
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pertain
Corporation to for the its new principal
drug brandv.name, The TheThe
Corporationfollowing
test of dominancy
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and other
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ANSWER:
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insolvency,
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debtor of
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raise
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inparticipation
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(1996)
On
to pay June his 16, and
1995,
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they Philippines
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statement
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S The
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25, 1995.
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exceed
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June be15,
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accompanied Despite
of a patent. by apleas bond,for extension
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(1997) the protective The possibility
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benefits of
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of court gave Manufacturing cannot
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being Act applies upon in casesit and, losstoor ,
of instead
had shipment
to initiate in accordance
a suit under with
the the terms
provisions and
of a)
paywhenone's causeddebts by andcircumstances
liabilities, over which
My the
(Art. advice
stockholders.
load thewhile
logs
810) would
vessel
were The be
and SEC
inspected
general that
the or hasby RC
purchaser
gross customshould
jurisdiction
averagesloads give
inspectors itto damages
Suspension
sued toofthe
X Corporation cargo.
Payments toThe
vs.recovertermand
Stay "loss"
Order
what
where as
it
the conditions
notice
declare
forCarriage
andhis of the
suspension
own
representatives
of
of
damage the
Goods
account.
purchase by Sea
ofsustained
payments
Saad
of the may
order.
Act
by
Bureau with (CA
the
recoverof
65).
cargo
respect 1 the
neither
theSUGGESTED
(2003) has
master
petitioning
interpreted
Distinguish sufficient
nor
ANSWER:
by the the
corporation
the property
owner
Supreme
stay order of
either:to the
cover
Court in ship
in all itshad
has
corporate
Mitsui any
include "all the damages and expenses which paid the latter. How would you rule if you
What
within
to would
damages 3 days
corporations, your
toand the advice
that
partnership
extent he be? has (2%)to file the suit control;
debts but b) when
foresees necessary
the to
impossibility comply of with a
are Forestry,
deliberately who certified
caused inof to its
ordertheor losses
associations,
good
to save (Art
condition
the 689 rehabilitation
O.S.K.
were Lines
the Ltd.
judge from
v. Courtadecide
declaration
of Appeals, in a state of
287 SCRA
to
but b) If
recover
Code
not Oslob
with
of the did
Commerce)
respect not
damage load
to Lady
sustained
individuals. Love for
by itsthe Letters
warranty
meeting
suspension
366 (1998)orof avoid
them Credit;
when a to
, contemplates
of payments? they Three falla(4%)
due the(solvent
Distinct
situation
controversy?
Contract
where
and exportability
vessel,
SUGGESTED itsANSWER:
cargo, or both of the atlogs.
the same After time, the (6%)
own
cargo account, it year
would bethe bound byMate the Relationships
peril, whether
butSUGGESTED
illiquid) or (2002)
or not the peril is insured
from
b. The a within
loading real
SEC was
and one
order completed,
known of
from
risk"
suspension
the
(Art.Chief date
811).
of
of
payment
the
Being of the no delivery
Explain
ANSWER:
the
at all was made by the carrier of
three (3) had distinct but
charter
delivery of party,
the cargo but XYZ
to him. would have to against;
2 the has
goods c) no when
because made
sufficient the in good
property
same faith, and
(insolvent)
perished or
for vessel
the common
suspended issued
the a mate
judicial receipt
benefit,proceedingsgross averages of the cargoare
initiated grounds of belief in its necessity to avoid a are
COGSA;
indemnify Prescriptive
Oslob ifthe Period
it was uponintertwined
isreasonable
Suspension
butgone under of
the contract
Payments;
management relationships
Rehabilitation
of a that
Receiver
to
by which
be
theborneFirst statedby
Bank. thethat owners
According logs ofnot are
the informed
tosale.
thein good
articles
Supreme
of the
peril;
out of commerce deteriorated or
or d) when iningood
Bottomry
(1995)
What is
Charter the prescriptive
Party at the time periodof for actions
(Art 689 indispensable
(1999)
Debtor
rehabilitation
decayed Corporation
while receiver ora afaith, letter
and for the
theits
management of principal
credit
condition.
saved
Court
(1994)
Gigi
(Art.
inoflost
obtained
However,
812).
aCommerce)
line
aorloan
Inofthe AC
present
cases,
from
refused
Jojo the case tothere
issue is
suspension
Corporation,
the life, or
SUGGESTED
purpose
transaction. ANSWER:in
of relieving
saving
transit.
another
human
In
vessel
present
in No.
distress.
case,
(Sec.
involving
Code
required certification damaged in cargo
the letter under of the
credit. stockholders
committee,
the shipment the filed
applicable
of ladies' with law
wearthe is Securities
P
was .D. actually and
no proof
order
c) Theappliesthat
term the
to“Ownervessel
secured had
Pro to
creditors
Hac be Viceput
and afloat
ofato the the The three
Insurance
124,
COGSA; (3)
Code)
Prescription distinctof Claimsbut intertwined contract
payable
Carriage inof installments.
Goods by Sea GigiAct? executed Exchange
902-A pursuant
delivered. Commission
to"loss
Sec. of 5 par. (SEC)isanot petition for
to Because
save
action
SUGGESTED
Vessel,”
Bank
itANSWER:
to from
refused
of
enforce
is
the
generally
to
absence
an imminent
chattel mortgage in favor of Jojo whereby the
the
advance
ofdanger.
security
understood
certification,
payment
against
to
on
be the
the
FE relationships
(1992)
A local
rehabilitation
loss
Letters of Credit
The
consignee
contemplated
thatsought
and
are value"indispensable
declaration to enforce
the Carriage of Goodsof
byExtraordinary of a
theintotal
judicially
state
a letter of
corporation regardless ofof the stage transaction
credit
Carriage of Goods; are:
Exercise
ONE
she YEAR after
charterer
transferred of the “inthe delivery
vessel
favor inJojo,
theof its thereof.
the
case goods
of or a claim
suspension
by against of the
paymentscarrier for lossPD
under of a902-A.
letter
date of
SUGGESTED
thebareboat when credit.
ANSWER:
or the1)goods
demise
May Fe
charter shouldBankhave be held been liable 1) Sea
Diligence
shipment (2005)Act.
Between
of drums theof applicant/buyer/importer
lubricating oil from of and
successors
c. under
The order and assigns,
of suspension all her title,
(Litonjua rights
of payments ... The ofobjective was for SEC to take control
delivered the
(Sec letter
3(6), of credit?
COGSA) Explain. 2) Under Letter
StartheShipping Credit: Lines Mortgage
beneficiary/seller/exporter
accepted 100 cartons of – The
to a vessel
Shipping
suspended of
Co which
v National
the foreclosure Gigi is the
Seamen’s absolute
Board GR Japan under the Carriage
the corporation and allof Goods
itsto AC by Seaand
assets
the facts above, the seller, BV,proceedings argued that FE (2005)
Ricardo mortgaged
applicant/buyer/importer his fishpond is the toBank
Charter
51910
owner.”
initiated
Party
10Aug1989)
The by chattel
the mortgage
Second Bank. was While the sardines
Act
liabilities, fromearnings
(COGSA) Master
after the toand be delivered
carrier
operations,hadone who procures
555
rejected
and to
Bank, of by accepting the obligation to notify to the
secure lettera Manila.
P1 of Millioncredit loan. and In a separate
obliges
(2004)
Under
Doctrine
registered
foreclosure
a charter
Inscrutable
with
isshipped
party,
the Philippine
against
Fault XXO
the property
Trading
CoastofGuard a third
Company
its in
demand. The
determine the Only
carrier
feasibility88 cartons
pleaded of its himself to
were
incontinuing
him that the irrevocable letter of credit has transaction,
reimburse he opened these a letter of credit
Company
(1995)
1. 2
pursuant
party,
vessels
it istoinPD coming
1521.an
reality
sugar
from
Gigi action
to
the Coca-Cola
defaulted opposite
to anddirections
collect had
the
delivered,
Answer
operations the the
however, issuing
affirmative
and rehabilitating
bank
were
defense inuponbad
of company
the
receipt of the
been
Company
collided
SUGGESTED transmittedthrough
with
ANSWER: each toSS it
other on
Negros his
due behalf,
Shipping
to fault has Corp., with the same
documents
condition.
Generally, 555 bank
Company
the for
of $500,000.00
unsecuredclaimed title, from inStar
creditors favorhad
while the
a total accountability of P3M. But Jojo could prescription
for under the provisions of said Act
principal
confirmed
1) No. The
insured
imputable by obligation
the
letter
Capitol
to both.letter of owned
ofInsurance
credit
What credit.provides
are Company.
the by as athe
Consequently,
liabilities Theof of HS the
Shipping
manifestedBank, benefit
Lines athe
beneficiary/seller/exporter
of investors
foreign
value
willingness bank,
of the
to
and
isto creditors.
missing purchase
the
cooperate one withwho in
not foreclose
corporation. the
During mortgage the on timethe vessel
that the inasmuch as the suit was brought by the
FE
cargo
the Bank
conditiontwo arrivedisa liable
certification
vessels but under
withwith the
of
shortages.
respect letter
AC. to Without
the of credit.
Coca-Cola
damage such Is outboard
compliance
goods,
Debtor as well motors.
aswith
Corporation. the the Likewise,
damagedThecontract goods.
secured ofRicardo
sale
Star
creditors, ships the
because
payment it ofsankthe during a typhoon.
principal obligation is consignee after one (1) year from the
the argument tenable? Explain. executed
goods a Surety
to Agreement inthe favor ofdocuments
ACand
certification,
demanded
caused toLutang
Meanwhile,
suspended,
from
them
the
there Capitol
and istheir
Corporation
debtor
no Insurance
obligation whichCo.
cargoes?
corporation
on the
Explain.
is
Shipping
The
however,
delivery
outboard
SUGGESTED
Linesofthe
ANSWER:
buyer
refused
expressed
the
motors goods. and
because
serious
arrived
delivers
In turn, andthe were
the
former
objections
consignee of
SUGGESTED
part
P500.000 of ANSWER:
FE inBank to
settlement advance for payment
XXO Trading. of the The Bank.
title
failed and
to present draft to the issuing bank to recover
2. If
rendered
considered
Lutang
it cannot
salvage
Corporation’sto
be
be
determined
services not
lien for
in
should
which
refloating
default
be
of
given
the
the
and,
two
The
reservations.
contended
claimBank
delivered thataCompany
of Ricardo,
to 555
bill period
the of lading.
but heiswas of Resolve
prescription
meritorious,
not able to
letter
MM
vessels
ALTERNATIVE of
Regional credit.
was
ANSWER: at Trial
fault
(Feati Court,
resulting
Bank where
v CA in196 the
the S civil
collision,
576) suit withpayment
First
was reasons
suspended forhad
the the
claim
by the goods.
already
of 555 Company.
written Their
initiated relationship
extrajudicial judicial is
vessel
therefore,
preference.sued even Gigi.
The Whose
the
lien ofright lienby
Jojo should
tovirtueenforce be of giventhe
acaused even if
paygoverned
the it fails
purchase to present
price a
thereof.bill of a) lading.
Can AC
c. 2)
was No.
which
The FE
filed, party
suspension Bank
"absolved
shouldmay
order have
the
beardoes confirmed
insurance
the notdamageapply the
company,to a (4%)foreclosure by the contract
proceedings of on sale.the mortgage
preference,
security,
loan that of
whether Jojo
owned or Lutang? by the debtor- demand
2)
Although
Bank takeaBetween it
billhad
possessionofon made
lading theofagainst
isissuing
the the thebank
best
outboard carrier
evidence and the
thirdtoofthe
letter
declaringbottomry
party ofvessels
credit
that
mortgage was
when
under
and extinguished
the it
the notified
Code
cargoes?
because of
inwhen
BV, thatthe
Commerce,
Explain.
such an a constituted
within the one-year
beneficiary/seller/exporter
theperiod, factorypursuant
– The
of toDebtor
issuing bank
corporation
vessel sank.
irrevocable or
Under of
letter a third
suchof loan
credit party, on
has has
bottomry
been not yetthe of the
motors? contract
Corporation.Why? of
b) carriage
Can AC for
Bank cargo,
also
3. the shipping
Which party agent
should
case, the credit is not yet being enforced is civilly
bear the liable
damage for to Article 1155 of the Civil Code providing thatand
arisen.
Jojo acted is the
nevertheless
foreclose one
the that
such
mortgage issues
contract over thecanthe letter
exist of
fishpond?even credit
vessels
against thenot
transmitted
damages in only
and to
favor
the
corporation itasonofcreditor
cargoes its
third
but behalf.
if butBut
persons
the
against also
cause the
due
the asoftothe
third the Second
the prescription
undertakes
Bank had
of actions
already
is interrupted
initiated
insurer.
conditions Jojo’s inright to recover the amount of be without
Explain.
foreclosure bill oftoproceedings
a(5%) pay
lading. the
Likeseller any on upon
othera receipt of
third-party
conduct
partycollision
mortgagor’s ofwas thethe letter of
acarrier's
fortuitous
property. credit
event?must
captain, and the
Explain. first
when
SUGGESTED there
ANSWER: is proper
a written extrajudicial demand
thestipulation
loan is
complied
SUGGESTED predicated
ANSWER: with, namely on the that safe
the arrival
draft be of the
contract,
mortgagedraft and
a contract
constituted documents
of carriageon certain of
is a meeting title
assets and
of theto
in the charter party exempting a) SUGGESTED
by theNo,creditors. for AC a) Bank
Has the has
action no in legal
fact
d. SUGGESTED
theForvessel
the
accompanied
ANSWER:
same
at the reason
port
by a of as
destination.
in
certification (c), thefrom The
order AC. of surrender
of minds
principal the
thatstockholders. documents
gives rise to an obligation on
ANSWER: to the buyer upon
the owner from of liability is notwill against public standing,
prescribed? muchWhy? lessTheir aby
b) lien, on theconsignee
outboard
No.
suspension
right was
Further,
Thelost appeal
of payments
when
confirmation theCoca-Cola suspended
vessel
of a sank
letter
not
the
(Sec
of credit suit
17 thea) Theof
reimbursement.
part
Third action
Bank the carrier
hadtaken toIftransport
already the
the filedconsignee’s
local
relationship suitis against
a the action
governed
policy. Coca-Cola appealed. Will theits appeal motors.
were Insofar
predicated as AC
on Bank
misdelivery is concerned,
or it
PDprosper.
Carriage
filed1521)
must byofbe
Letters
prosper? Third Under
ofGoods:
Credit;
expressed.
Reason Bank Article
Deviation:
Liability a587
ofLiability
against
(Feati
briefly.
of
confirming
Bank
(5%) the v CA
Code
and
principal of
196 s 576)
has,
by
goods.
has privity
in fact,
Jurisprudence
with
prescribed.
the principal stockholders who had held by
the terms of
the
the has
person
letterThe
held
of
period
of
that credit
Ricardo
the of one
issued
under
Commerce,
(2005)
On a clear
notifying
ALTERNATIVE
stockholders. weather,
bank
ANSWER: the
(1994) shipping
M/V Sundo,agent is
carrying civilly G.R.conversion
No.
year
the
moment
themselves L-18965,
under
bank.the carrier of
the the
October
liable goods,
Carriage 30,
jointlyof
receives would
1964;
theGoods
and your
Negre
cargo byfor
severally answer
v.
Sea Act for
d. liable
insured
InThe foraction
cargo,
letters damages
of leftcredit the in
against
in portfavor
banking of
of Manila
the third persons
principal
bound
transactions, the 3)Surety
Cabahug
be the
(COGSA) Shipping
same? Agreement,
Between
is not theG.R.
&interrupted
Co.,
Explain and
issuing
No.by
briefly. aL-19609,
lien
a bank on and
written the the
transport,
the loans
ALTERNATIVE then
ANSWER: its duty to exercise
of Debtor Corporation with said
for due
Cebu. to the
stockholders’
distinguish While conduct
the sea,ofthe
at liability
surety the
inof carrier's
vessel
afavor
confirming captain,
of bank the fishpond
April 29, 1966)
extrajudicial based demand.
applicant/buyer/importer on the real Theestate–provisions
Their mortgage
relationship
of Art
extraordinary
StarBank.
Shipping diligence
Lines can arises
refuse . (Cia.
to honor Maritima 555
and
fromthe
corporation
encountered
SUGGESTED shipping
isa strong
ANSWER:
a notifying agent
not suspended
bank. typhoon can exemptforcing
as it is the himself
not an constituted
is
1155governed
After of therein.
the
hearing, by
NCC the
the terms
merely
SEC of
apply
directed the toapplication
the and
v. Insurance
Company's
b) agreementYes, claim Co.
butforof North
for
only the America,
missing and
to issuance
enforce payment of
In case
therefrom
captain
action to anything
against steer onlythethe by wrong
abandoning
vessel
corporation happens
to the the
butnearest tovessel
against the the prescriptive periods the provided of
for the said and of
letter
theappointment
damagedprincipal goods. loanofThe aof rehabilitation
Bill of Lading
P1million isinthe
receiver
secured by
letter
with
stockholders
island all
where ofhis credit,equipment
itwhose
stayed a confirming
for and
personality
seven the bankfreight
days. incurs
Thehe
is separate credit
Code and by the
not bank.
to special laws such as COGSA
liability for the amount theordered
document
real estate ofthetitlesuspension
that
mortgage onofthe
legally all actions
establishes
fishpond and
the
may
vessel
from ran
that have ofout earned
the ofcorporation.duringofthe
provisions theits
for letter ofOn the
voyage. except
claims against
ownership when otherwise
the Debtor provided.
corporation (Dole as
v
SUGGESTED
credit,hand,
other
passengers. ANSWER:
while a notifying
assuming
Consequently, therebank
the isdoes
bareboat
vessel not incur b) If the of 555
consignee’s Company action over were saidpredicated
goods.
well
Maritime as against
Co 148 the
s principal
118). stockholders. a)
e. Under
Assuming
any
charter,
proceeded PD
that
liability. theLeyte
to 902A,
the to the
cargo
stipulation was
replenishappointment
in damaged
the charter
its supplies. of
party a (National
555onneeds
Discuss(2%)
Stolt-Nielaen,
Letter ofclaim
Maritime Commerce
Union
misdelivery
the
Credit; G.R.
Fire Insurance
to present
validity
No.
the BillofofPittsburg
or conversion
of the SEC
87958, AprilConsignee
Lading
of goods,
order
26, 1990)
v.
to
or
the
rehabilitation
Letters
because of
of Credit;
such receiver
Liability
deviation,
exempting the owner from liability is not of awill
Notifying
who suspend
Bank
between theall legally
provisions of Certification
said the COGSAfrom
goods. would be
suspension?
Average; Particular
actions
(2003)
a)
insurance
against forWhat claims
company
public liability,against
and
policy if
the any
because the
owner corporation
is incurred
the the byatan
ofpublic
(1993)
inapplicable.
Charter Party In these cases, the NCCAverage
Average vs. General
and COGSA:
the
SUGGESTED Prescription
corporation
ANSWER: of
willClaims/Actions
be placed under (2003)
prescriptive periods, including Art 1155 of
advising
cargo
large bears or
the notifying
loss? bank
Explain. in a letter of v. (1991)
(2004) istransaction?
credit
not involved (Home Insurance Co.
the NCC will apply (Ang v Compania Maritama
American Steamship Agencies, Inc., 23 SCRA25
(1968). 133 s 600)
 Mercantile Law Bar Examination Q & A (1990-2006)
owner and the captain as the typhoon came SUGGESTED ANSWER:
earlier and overtook the vessel. The vessel Under the “doctrine of inscrutable fault,”
sank and a number of passengers where fault is established but it cannot be
disappeared with it. determined which of the two vessels were at
Relatives of the missing passengers claimed fault, both shall be deemed to have been at
damages against the shipowner. The fault.
shipowner set up the defense that under the Doctrine of Inscrutable Fault
doctrine of limited liability, his liability was (1998)
A severe typhoon was raging when the
co-extensive with his interest in the vessel. vessel SS Masdaam collided with MV
.1 How will you advice the claimants?
As the vessel was totally lost, his liability Princes. It is conceded that the typhoon was
Discuss the doctrine of
had also been extinguished.limited liability in the major cause of the collision, although
maritime law. (3%) there was a very strong possibility that it
.2 Assuming that the vessel was insured, could have been avoided if the captain of SS
SUGGESTED ANSWER:
may the claimants go after the insurance Masdaam was not drunk and the captain of
.1
proceeds? (3%)the doctrine of limited liability in the MV Princes was not asleep at the time of
Under
maritime law, the liability of the shipowner collisions. Who should bear the damages to
arising from the operation of a ship is confined to SUGGESTED ANSWER:
the vessels and their cargoes? (5%)
the vessel, equipment, and freight, or insurance, The shipowners of SS Masdaam and MV
if any, so that if the shipowner abandoned the Princess shall each bear their respective
ship, equipment, and freight, his liability is loss of vessels. For the losses and damages
extinguished. However, the doctrine of limited suffered by their cargoes both shipowners
liability does not apply when the shipowner or are solidarily liable.
Limited Liability Rule
captain is guilty of negligence.
(1994)
Toni, a copra dealer, loaded 1000 sacks of
.2 Yes. In case of a lost vessel, the claimants
copra on board the vessel MV Tonichi (a
may go after the proceeds of the insurance
common carrier engaged in coastwise trade
covering the vessel.
owned by Ichi) for shipment from Puerto
Galera to Manila. The cargo did not reach
Manila because the vessel capsized and
When Toniall
sank with sued Ichi for damages based on
its cargo.
breach of contract, the latter invoked the
“limited liability rule.” 1) What do you
understand of the “rule” invoked by Ichi? 2)
Are there exceptions to the “limited liability
SUGGESTED ANSWER:
rule”?
1) By “limited liability rule” is meant that
the liability of a shipowner for damages in
case of loss is limited to the value of the
vessel involved. His other properties cannot
be reached by the parties entitled to
2) Yes. When the ship owner of the vessel
damages.
involved is guilty of negligence, the “limited
liability rule” does not apply. In such case,
the ship owner is liable to the full extent of
(Mecenas
the damagesv CAsustained
180 s 83) by the aggrieved
parties
Limited Liability Rule
SUGGESTED ANSWER: (1997)
Explain the doctrine in Maritime accidents –
1. Each vessel must bear its own damage. Both The Doctrine of Limited Liability
SUGGESTED ANSWER:
of them were at fault. (Art 827, Code of
Under the “doctrine of limited liability” the
Commerce)
exclusively real and hypothecary nature of
2. Each of them should bear their respective
maritime law operates to limit the liability of
damages. Since it cannot be determined as to
the shipowner to the value of the vessel,
which vessel is at fault. This is the doctrine of
earned freightage and proceeds of the
“inscrutable fault.”
insurance. However, such doctrine does not
3. No party shall be held liable since the cause
apply if the shipowner and the captain are
of the collision is fortuitous event. The carrier Limited Liability Rule
guilty of negligence.
is not an insurer. (1999)
Thinking that the impending typhoon was
Doctrine of Inscrutable Fault
(1997)
Explain the doctrine in Maritime accidents – still 24 hours away, MV Pioneer left port to
Doctrine of Inscrutable Fault sail for Leyte. That was a miscalculation of
the typhoon signals by both the ship-
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) Page 74 75
76
Page 73
of 103of 103 andrequires
backupClaro
alsoinalready
thethe60%
fact
processing
Filipino
sighted
that A does Manila
holding
of
does
MV engage
SuperFast,
not fall in under
retail
a passenger-cargo
trade.
the category. Besides, Neither
vessel
Matilde’s notin
goods,
on have
land
its
c)radar
the
factories,
corporate
means
screen. and
and
ownership.
Manila
d)
resources
its own had no to invest
radar
owned
doessale it by
appear
of the SF Shipping
asbestos
that Z isproducts Company
habitually to
plying
engaged
Celeste, the P500th
employees.
equipment. in the Is security
EL
As engaged
for speed, agency.inDon retail Claro
trade? was
inter-island
in selling
being wholesale,
to routes,
the general was
the transaction
on
publicits way thattois not ALTERNATIVE
Explain.
twice as ANSWER:
fast as Manila.
(Asbestos
Zamboanga
commodity.
covered by Integrated
Since
City thefrom there
Retail vthe
Peralta
isTrade
Manila 155
no violation
Law port when of the 1) The
SUGGESTED
c) The prosecutor
ANSWER:
Anti-dummy mayLaw establish
allowsthe board fact
S 213)
it accidentally,
Retail Trade Law, andthere without would fault likewise
or by no The
thatAt sale
the
the
representationby
P500th
time EL of of
would
the generators
to constitute
collision,
the extent to
Manila
of government
a major
actual failedandto
Nationalized
negligence
violation of of Activities
theanyoneAnti-Dummy or Undertakings
on the Law. ship, hit a huge offices,
investment
follow
permissibleagricultural
Rule and 19 yet of
foreign Aenterprises
the is not even
International
investments and
elected
in factories
Rules of
(1995)
Global
Retail
floating Trade KL
LawMalaysia,
object. The accident a 100% causedMalaysian damage are
member
the outside
Road
corporations.of the the
which BOD scope or one
requires
Accordingly, of of 2the theterm
vessels
the officers.
President “retail
meeting of
owned
(1993)
A
to foreign
the vessel corporation,
firm and loss ofdesires
is engaged tobusiness
aninaccompanying
the build a hotel of business”
Furthermore,
head on
Acme may and
to no it may,
may
changesit inalso therefore,
thebe
their shown
course
BOD ofbe by
the made
that each A by
beach
manufacturing resort
crated cargo of and in Samal
selling PR.
passenger Island,
rubber Davao
In orderproducts City,
to to the
does said
not even
vessel steering
department corporation.
have
store the However,
means
to corporation
starboard (right) to raise
but cansales the doof
so that so
to take
dealers
lighten advantage
thewho vessel in turnof the
and save increased
sell them it from traffic
to sinking
others. It of generators
d)
amount
each
in The
the of by
Treasurer
P500th
vessel
realty may EL and ofto Acme
thatits theown
may employees
not
officers
pass on the port side (left)
corporation. holdor that
SUGGESTED ANSWER:
andtourists
also sells
in order and
directlyto boost
avoid the
risktourism
to agricultural of damage industryto or of the constitute
enterprises,
2)
position
majority
of the
No. The
of retail
either
the directors
other.
mere Manilasales
in
fact
and
thesignaled
department
of being
arethat
are foreigners. proscribed.
acorporation
common
store
it would law
1. Assuming
Philippines.
automotive assembly that plants,
Global public has US$100M utilities to investUnder
turn the
corporationto the amendment
or
port in the
side to
realty
and the
steered Retail Trade
loss of the rest of the shipped items (none of wife of a foreigner does not bring her
which in a hotel beach resort in thetoPhilippines, may
Law sinceintroduced
the Anti-Dummy by PD 714,
Lawthe term
prohibits “retail
the
which buy was them located in onlarge thebulk, deck), and someits had to accordingly, thus resulting in the collision.
officers it and
be allowed
employees. to acquire1) Is the land
there violation on which towithin business”
Don
the ambit
employmentClaro’sshall of ofaliens
not
captain
the Anti-Dummy
include
wasin sucha
off-duty
Law.
manufacturer
nationalized
and was
be jettisoned. SF Shipping had the vessel ALTERNATIVE ANSWER:
of the build the
Retail Trade resort?Law? If Explain.
so, under 2) what
May terms
said and(such
areas
having as of a EL)
business
drink selling
at
2) Yes. Being a common law wife, it can be except
the to
ship’s thoseindustrial
bar that
at thecall and
for
time
repaired at its port of destination. SF
firm conditions
operate a may Global
canteen inside acquire
the premisesthe land? of commercial
highly
of thepassengers users
technical
collision. who
or diedwould
consumers
qualifications.
a) Who and the who
you owners
use
hold the of the
liable
Shipping thereafter filed a complaint presumed that she is the one running the
its Discuss
plant exclusively fully. for its officials andto products
for recover
cargoes
the bought
collision?damages byb)them Iffrom
Don the
toClarorenderowner of
service said
demanding all the other cargo owners business, which raises a prima faciewas at
SUGGESTED
2. May
employees
ANSWER:
Global be
without allowed
violating the to Retail
manage Tradethe hotel to Retailvessel?
SUGGESTED
the Trade
general Law
ANSWER:
public (eg government offices)
share in the total repair costs incurred by fault,
presumption
I(1991) may the
of heirs
violation of the
of the Anti-dummy
1) On the
Act? beach
Explain.
assumption
resort? Explain. that the foreign firm is Iscan
and/or theto hold
Filipino the 2
produce
vessels liable.
common-lawor manufacture wife Inof the a goods
the company
doing business and in in
the the value of the
Philippines, the lostsale andto Law,
Retail (RA
problem Trade6084). Law;
given, Consignment
whether on the basis ofretail
the
3. May Global be allowed to operate whichforeigner
Nationalized are barred
in
Activities turn from engaging
sold
or Undertakings by in
them the (eg
jettisoned
the dealers
SUGGESTED cargoes.
of In answer
agricultural
ANSWER: to the
enterprises, (1991)
ABC Manufacturing
factual
SUGGESTED
business? settings
ANSWER: or Inc,
under a company
the doctrine wholly
of
restaurants within the hotel beach resort? (1994)
complaint,
1. Global
automotive
SUGGESTED the can
assembly
ANSWER: shippers’
secure plants, sole
a lease contention
and on
publicthe land. was As a agricultural
Celeste,
ownedA by
Filipino
inscrutable
a domestic
foreignenterprises corporation
fault, nationals,
common-law both vessels
andwholly
wife manufactures
of can
factories).
a foreigner
be said to is
Explain. (Goodyear
owned by Tires
Filipino v Reyes
citizens, Sr Gr
is 30063,
engaged Jly in2,the 83
that,The
No.
utilitiesunder
corporation
is the Code
shippers’
wholesale with of aCommerce,
contention
and, Malaysianis not valid.
therefore, each
nationality,
not inThe typewriters
not
havebarred beenwhich from engaging
guilty ABC
of distributes
negligence. in retail to
Thebusiness.
liability
123s273).
trading
1 On and
ABC operates
consigns as general contractor.
damaged
owners
violation Global
ofof party
thethe should
cannot
cargo
Retail own bear
jettisoned,
Trade theitsAct or
land.to(BFhis
save own the
Goodrich general
of the the public
2assumption
carriers in 2 ways: foritsthat
thetypewriters
she
death acts or for to andofin
injury
damage
2.
vessel Yes,
fromand those
Global
sinking that
canand did
manage
to not
save suffer
the
the hotel
restany beach
of It buys
independent
her and
own resells
dealers
behalf, the
and who products
in
absent turn a of Matilde,
sell
violation themofto athe
v Reyes 121 s 363) passengers and for the loss of or damage to
2)
loss
the Yes. The
orresort.
damage
cargoes, operation
There
are were of
isnot
entitled nothe canteen
obligated
law
to prohibiting
contribution. toinside
make it
The from domestic
theAnti-Dummy
public; corporation,
and, Law which 90% of whose
prohibits capital
a is
the goods arising from the collision
the premises
anyLimited
contribution
jettisoningmanaging of exclusively
Liability
saidthe Rule for
incargoes
favor
resort. its officers
ofconstitute
those whogeneral andIs
did. stock
2 foreignerisThrough
owned from by aliens.either
individuals,
being All whoof theMatilde’s
arereal notthe
solidary. Neither carrier may invoke
employees,
(2000)
MV Mariposa, would amount
one of to
five an input
passenger in the ships goods
employees are made in the Philippines from
the3.shippers’
average Global
loss which contention
may be allowed
entitles valid?thetoExplain
operate
owners (2%) doctrineof
proprietor ofABC,
or
last anclearand
employee who
chance are paid
of which
a person strictly
can only
manufacturing
owned
thereof to by
restaurants process
Marina
contribution within and,
Navigation
fromthetherefore,
beach
the Co,resort.
owner sank does off
of the This materials
theis on ALTERNATIVE
a commission
engaged foundANSWER:
in the orbasisproduced
retail for each
trade, inshe the
sale. would be
be relevant, if at all, between the two
notcoast
vesselviolate
part
and the
of also
Mindoro
of the Retail
from Trade
while
operation
the en
owners Act.
of route
theofresort.to Iloilo City. Philippines.
the An engagement
SUGGESTED ANSWER:
On the by
other a wifehand, (including
ECQ
violating
vessels
Yes, but is butthe
subject notRetailon Trade
the
to Filipino claims
the doctrine Act. made by
Retail
SF Trade
Shipping
More
cargoes Lawis 200
than
saved. not entitled
passengers perished in the Integrated
to contribution/ common-law relationships)
a 100% of a of
owned limited in
foreigner
passengers
liability. The or shippers
doctrine is (Litonjua
to the Shipping
effect that vthe
Retail
(1996)
With a
reimbursement Trade
capital
disaster. Evidence Lawof P2th
for the costs Maria
showed operates
of repairsthat on a stall
thethe the
ship corporation retail trade business,
and manufacturer raises the
of asbestos
National
liabilityCeleste Seamen
of thethat Board
shipowners GR 51910
would 10Aug1989)
at a(1990)
Acme
vessel public
captain from Trading
market. CoShe
the shippers.
ignored Inc,manufactures
typhoon a trading
bulletins company soap
issued by products. presumption and she ECQ hastook violated partonly theabe
in to
Anti-
thatwholly
she
Pag-asa owned
sells to
during by
the foreign
general the stockholders,
public.
24-hour Her was
period the
Dummy
public extent
bidding Law. of any
Hence,
conducted remaining
the by wife
MWSS value
is barredof
for the
its from
persuaded
common
immediately byprior
law husband, Pauloto Alva,theavessel’s
MaLee, Filipino,
who hasdeparture to
a invest vessel,pipe
engaging
asbestos proceeds
inrequirements.
the retail of insurance,
trade if any,
business.
Celeste won and
the
in
pendingNationalized Activities or
20% of
petition the outstanding
for naturalization,
from Manila. The bulletins warned all types shares of stock of a bid, Retail
earned
having Trade Law
freightage.
offered 13% Givenlower the thanfactual that settings,
corporation he (1992)
A
theCooperative
shipowner purchased
himself was from Y Co
not guilty onof
occasionally
Undertakings
of sea crafts financestoisavoidforming
the the which
purchase
typhoon’s will
of engage
goods
expected offered by ECQ; and MWSS awarded the
installments a rice mill and made a down
path near Mindoro. To make matters worse, 1) Is Celeste barred under the Flag Law can
forin the
resale, department
and assists store
in the business
management (the of negligence
contract to supplyand, therefore,
its asbestos the
pipes doctrine
to
SUGGESTED ANSWER:
the“department store payment
well apply therefore.
(Amparo deAs security
los Santos for CAthe
vaward 186 s 69)
No,he
business.
theretookismore no
Is there load corporation”).
violation
athanviolation
of wasRetail
the
of the
allowed Paulofor
Trade
also the Celeste.
from Limited
taking ECQ
Liability
partsought
Rule; to
General
inbalance,
biddings nullify tothe
Average supplyLoss thein
urged
Retail Trade Acme Law? to invest
Explain. inSued
40% for of the payment of the the Cooperative
Nationalized
ship’s Activities
rated or Undertakings
capacity. damages by favor of Celeste.
(2000)
X Shipping
government? Company spent almost a fortune
Law. Maria
outstanding is a shares
manufacturer ofastock who
of the sells to
realty executed a2) Did Celeste
chattel mortgage and Matilde
in favor of Y
(1993)
1) A
the invested
victim’s
thecorporation
general public, P500thsurviving in
through security
relatives,
her stallagency
Marina
in the on Nav in
violate refitting
the and
Anti-Dummy repairing Law? its 3) luxury
Did Celeste
he 1) is putting up to own Corporation. Y Co in turn assigned its rights
October
Co contended30, 1990. He was
that charged
its liability, with iftheany,land had andpassenger vessel, theRetail
MV
public
on market,
which the the soap
department which storeshe will be built toMatilde
the chattel violate the
mortgage toMarina,
ZTrade
Co a 5% which foreign
being
been a dummy
manufactures.
corporation? extinguished of his friend,
Inasmuch
Explain with as her
your a
the foreigner.
sinking
capital
answer. b)does If
Mayof MV Nationalization
plied the inter-island
Law? routes
Explain. of the company
(the “realty corporation”). a)evidence
May Acme owned company doing business in the
you were
Mariposa;
notinvest
exceed
Acme
SUGGESTED theP5th
invest prosecutor,
and
ANSWER: in(it 2)
theis that
only
realty what
assuming
P2th) then
corporation? it
she can
had
is not from La Union in the north to Davao City in
inextinguished,
the said department store Philippines. The cooperative thereafter made
youbeenpresent
Yes.
considered
Discuss. so
The toMay prove
contentions
under
c) Sec
the violation
4a such
of theof
of Marina
President the
liability
Retail Nav
of Acme, Anti-
should
TradeCoa are be SUGGESTED
the
Becausesouth.ANSWER:
the The MV
Cooperative Marina wasmet an
unable untimely
to meet
installment
1) No. The payments
materials offered to Z Co.
Dummy
Law limited Law?
meritorious.
asBODnot
foreigner, toofsit2)
the
engagedthe Juana
The
in loss
said
the de
captainof la
in department
the the Cruz,
of cargo.
“retail astore
MVbusiness.” Are
Mariposa theseis
corporation? fate during
its obligations its in post-repair
full, Z Coin the against
voyage.
filed bids It sank it aoff
common
contentions
guilty
he be law
of
a wife
negligence
director of ofa
meritorious foreigner
the in in
ignoring
realty wrested
the the
corporation?contextthe
typhoon of submitted
the
court coastsuitare of
formade
Zambales in
collection. the Philippines
while
The en
Coop route from
to
resisted La
Inasmuch Mayas Maria’s business is not a “retail
control
applicableof athen television
provisions firm.
by At ofthein instance
the Code articles
Unionproduced orZ grown inillegally
the
bulletins
Discuss.
business,” d) issued
May the the Treasurer
requirement PAGASA of Acme,
Sec 1 of inof
and contending from that Manila. Co Thewas investigation engaged
of the minority
Commerce?
occupy
overloading
another the
foreigner,group
(3%)
the same of
vessel. the
position
Butfirm, in
only shethethe was
said department
captain Philippines,
showed
in the and
that
retail thethe
trade bidder,
captain
business Celeste,
alone for was
having is a sold a
the Retail Trade Law that only Philippine
charged
of the storewith vesselviolation
corporation? MV of the Anti-Dummy
May
Mariposa heorbeindirectly,
isthe treasurer
guilty of of domestic
negligent.
consumer entity. There
good The Flag
aswereopposed Law
no does
casualties
to not in that
a producer
nationals shall engage, directly,
Law. May
said
the
negligence. sherealty be convicted
corporation?
The by the mere fact apply. It
disaster. can
TheFaced be invoked
Coop with only
a claim thatagainst
for the Zahad payment
in the
SUGGESTED retailANSWER:business is ship
inapplicable. owner For is this not. item. also alleged
that she
SUGGESTED
Therefore, is
Explain. a common
ANSWER:the ship law wife
owner ofcan a invoke the bidder
of the
violatedwho is
refitting
the not a
and
Anti-Dummy domestic
repair, Xentity,
Law. Shipping
Is orguilty of
Z
reason, the participation
1) A allows or permits the use or exploitation of Ma Lee, Maria’s 2) No, since Celesteentity is merely a dealer of
a) Acme
Limited
foreigner?
doctrine may
Liability
Explain.
of of not
limitedRule;invest Doctrine
liability. in the of department
Inscrutable against
company
violating a domesticasserted
the Retail whoLaw
exemption
Trade offers
from
and liability
the Anti-
common
or enjoyment Law husband,
a right, in the management
privilege or Matilde
SUGGESTED and not
ANSWER: an alter ego of the latter.
Retail
store
FaultTrade Law
corporation
(1991) since the Retail Trade Act imported
SUGGESTED
on the materials.
basis
ANSWER:
of the hypothecary or limited
of the business
business, the would not
exercise or be a violation
enjoyment of of
which Dummy
No. Law? Why?
(1996)
EL InInc,
allows, a domestic
in the between
a collision case corporation
of corporations,
M/T Manila, with foreign only Celeste
Z CoThe buys
is notassertion
and
guilty sells ofon
of X Shipping
its ownthe
violating Company
account
Retail is
to the aAnti- tanker, liability rule under Article 587 of the Code
the
is Retail
expressly Trade
reserved Law in by relation
the Constitution or the not valid.
products
Trade Law The
ofand total
Matilde.
the destruction
Anti-Dummy ofLaw.the vessel
The
equity,
100%
and M/V manufactures
FilipinoDon owned electric
Claro, companies generators,
an inter-island to engage vessel, in of Commerce. Is X Shipping
Dummy
the laws
andretail
Donsells
Law.
to
them
trade.
Claro
citizensto the
sank
offollowing
and
the Philippines,
many ofcustomers:
by the
its passengers a) 3) Matilde
does
term not RETAILdid
affectnot underviolate
the thethe
liability Retail ofCompany’s
Retail the
Trade Trade
shipAct owner
foreigner not possessing the requisites Law assertion
forsince
repairs it valid?
does
on not
the Explain
sell
vessel its(3%).
products
completed to
before
b) Acme may
government
drowned offices
and invest
died.which in the
All realty
usecargoes
its the were lost. requires that the seller must be habitually
prescribed
corporation,
generators by
during theon Constitution
the assumption
brownouts toorrender
the
that lawsthe of consumers,
its loss. in
engaged butselling
to dealers to thewho generalresellpublic them.
The collision occurred at nighttime but the Limited Liability Rule; General Average Loss
the Philippines.
balance The prosecutor should prove Neither did Celeste violate the Retail Trade
public was of
sea service, calm, 60%b) the of ownership
agricultural
weather enterprises fairof andthe lattervisibility consumption goods. By consumption
(2000)
goods
the above
corporation, elements of
isgenerators
Filipino the crime Law since, in the first place, it is not
which
wasutilizegood.the Prior to theowned as since
collision and thewhile
law are meant “personal, family and household”
merely prohibited
purposes. to A Rice Mill
still 4 nautical miles apart, Don
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) Page 77 of 103 Civil Code Page 78
and79
Page 103of 103
ofother laws of
SUGGESTED
prevented
paymentExcel ANSWER:
through
from the
becoming
Clearinga holder
House,
in XM general
drawee-bank application bearscan thestill lossapply (BPI Family Bank v.
dueA
BankSURETY
course, as BOND
honored such failure is issued
it. by a surety
Thereafter,
or refusal Albert or OnG.R.
April No. 1, 1996,
suppletorily.
Buenaventura, 148196, Pentium Septemberstopped30, payment2005). A
insurance
constituted
withdrewbad company
the faith. in favor
P210,000 and closed his of a designated ALTERNATIVE
of the check ANSWER:
drawee-bank for failure
paying of onCD a forged
Bytes to check must
beneficiary,
3) Yes.
account.Not being pursuant a holder in due to course,which such The
deliver dismissal
be considered
the computer. byas thepaying court
Thus, outwas
when correct.
its fundsAand
of Fund
company
When
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cannot whether
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Construction
charge the not
the check, post-dated
amountthe Co. the or
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drawerFar East
obligor
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William beneficiary.
candiscovered
set up against theA alteration.
CASH
Jose BOND bankis still
Bank, a negotiable
G.R.
dishonored No. 129015,
it. instrument
August 13, and unless
2004). If the
is
XM
(State aInvestment
security
Bank in
recredited the form
House IAC of
vP210,000175cash S to
310)established
William’s PabloHouse
If Fund
drawee-bankis a general files indorser,
hasachargedcomplaint which
against
drawer's is account,
not
Checks;
by
currentCrossed
a guarantorCheck and
account, or sought
surety reimbursement
to secure the expressed
Pentium
the and can
latter in the
CD Bytes
recoverfactual
forsuch settings,
the payment
amount he from
cannot
of thethe
OnChecks:
(1995)
Oct 12,
obligation
from ND1993, Crossed
Bank. ND Checks
Chelsea
of another. Bank Straights,
refused, aclaiming corp G.R.
be
dishonored No. liable
held
drawee-bank 107382,
check, for January
willthethe
(Associated 31,
dishonor 1996;
complaint
Bank of v.Bank
theCourt of P. I.of
(2005)
What
engaged
that XM is Bank
in a crossed
the manufacture
failed to check? What
of cigarettes,
return the altered are the v.
prosper? CaseExplain.
instrument.
Appeals, Montessori
In State
SUGGESTED Internationale,
Investment
ANSWER: House: TheG.R. v IAC No.
effects
ordered
check ofitcrossing
from
to Moises
within 24 a check?
2,000 hourbales Explain.
clearing of tobacco.
period. 149454,
complaint
(GR 72764 May
filed 28,
by Fund
13Jul1989) 2004). , the
House court did not go so
against
SUGGESTED ANSWER:
Chelsea issued to Moises two crossed However,
ALTERNATIVE ANSWER:
far as to the that
hold drawer the mayofbe
fact precluded
crossing would or
Who, as between, Pentium will not prosper but the one against
A Crossed
SUGGESTED ANSWER:CheckXM underBankaccepted
and ND Bank, banking In State Investment
estopped from House vup
setting IACthe (GR defense
72764 of
checks
should postdated
bear the15 MarExplain.
loss? 94 and 15 Apr 94 CDrender
Bytes will. the instrument
Fund House non-negotiable.
is not a holder in
practice,
ND Bank crossing
should a check
bear the isloss
done if by
XM writing
Bank 13Jul1989),
forgery as the
against SC considered
the drawee-bank, a crossed when it
in full payment therefor. On 19 Jan 94 due course and, therefore, Pentium can raise
two
returned parallel the lines
altereddiagonallycheck on to theND left top
Bank check
is shown as subjecting
that the a subsequent
drawer himself holder
had been
Moises sold to Dragon Investment House at the defense of failure of consideration
portion
within twenty of the checks. The its crossing is thereof
guilty of to the grosscontractualnegligence covenants as to of the have
a discount the twofour checks hours after
drawn discovery
by Chelsea against it. The check in question was issued
special
of the where
alteration. the name
Under ofthe the bank
given or
facts, a payor
facilitated and the payee.
the If such
forgery were ( the case,
Metropolitan
in his favor. Moises failed to deliver the by Pentium to payBENE:
(NOTA for a computerThe question that itdoes not
business
William institution the
discovered is written
alteration between
when the the then
Waterworksthe instrument
v. Court ofis not one
Appeals, which
G.R. No. canL62943,
bales of tobacco as agreed despite Chelsea’s ordered from qualify CD Bytes.
the termThe computer
"forged not
check". An
two
altered parallel
check lines,
was which
returned means
to him that
after thea still
143 be
SCRA said20, to contain
July 14, 1986 an ).unconditional
demand. Consequently, on 1 Mar 94 Chelsea having been delivered, there the was liabilities
a failure of
drawee
month. It should
may pay be
safely onlyassumed with that the promiseanswer to pay addressing
or order a sum certain in of a
issued a “stop payment” order on the 2 consideration. Theshouldcheck discounted deemed with
Effects
intervention
William of Crossed Checks
of that company.
immediately advised claimingXM Bank of money. drawer In the transfer benon-negotiable
of sufficient.
checks
1) issued
The to Moises.
check may Dragon,
not be encashed but Fund House
only by CDaddressing
Answers Bytes is a liabilities
crossed check of parties
such fact and that thefiled latter promptly credits byBank assignment, the transferorBank does —
to be a holder
in the
deposited bank.in 2)due Thecourse,
check may be a negotiated andDrawee
this should
ALTERNATIVE should
ANSWER: have versus
likewise putbe Collecting
Fundgiven House
full credit)on
SUGGESTED
notified ANSWER:
ND Bank thereafter. Central Bank not
When assume liability for the fault of the
complaint
only once—to
Dragon for collection
cannot one
collect against Chelsea for Yes. The
inquiry. Itthe
shouldsignature
check is crossed.
have of theItdrawer
ascertained should theishave forged,
title
theCircular
value of No.
the 9, as from
checks. amended,
Rule
Chelsea.
on theon The which the of
debtor
as
CD between
forewarned
Bytes
or obligor.
to the
Mr.
the check
Accordingly and
drawee-bank
Noble that
or the it
the court’s
was
nature collecting
issued
of the for
who has an
instruments are account with a bank. which3) The
decisions
complaint of ofcrossed
Dragon. the Give
checks
Supreme
your legal
were
Court
basis. in decision
bank,
a
latter’sspecific the was correct.
drawee-bank
purpose.
possession. Hence,
Failing in sustains
Mr
this Noble
respect, thecould loss,
act
intended of crossing
to pay&forShanghaithe check
the 2,000 bales serves as a
of Corp v
Hongkong
the holder that the check Banking
hasItbeen issued forFunda since
notHousebethe collecting
a holder
is deemed in due bank does
course.
guilty notis
He
of gross guarantee
subject
warning
tobacco to to delivered
be to Moises. was
People’s
definite Bank purpose,& Trust so Co he
that and must Republic
inquire if hethe
to the
negligence signature
personal
amounting ofdefense
theto drawer. of
legal The payment
breach
absence of trust/
of of
therefore
Bank the CA
vs obligationwere of Dragon
based was to inquire
expressly
received the check pursuant the
Doagreement check by the
Mr. Pablo.drawee Such bank constitutes
defense
due is
as to has
the
cancelled purpose and of the issuance
superseded by ofto the
CB
that
2 purpose;
No 317
good these
faitharrangements
(Philippine
and, thus,
National
notviolate
Bank
a holder the
v. Court
inRetail
of
Trade
Appeals,
otherwise, he is not a holder in due Law?the
available
course.
Checks; proximate
Fund
Effect; in favor
House
Acceptance negligence
of
canbyMr Carlos
collect
the draweesince
fromagainst
bank it
CD has Mr the
crossed
dated checks
Dec 23before 1970.causing The latter them wasto bein turn G.R.
Checks; No. L-26001,
Crossed Check October 29, 1968).
course. duty
Noble.
SUGGESTED
Bytes
(1998)
X draws to know
ANSWER:
as athe checklatter the
was the
against signature
hisimmediate of
current account its client-
discounted.
amended Failure
by CBChecks on its part
Circular to580,make suchSept
Checks: Crossed vs. NoCancelled dated
Checks a)
with
(1994)
Po
The Press
drawer.
indorserthe first
of issued
the
Ortigas arrangement
check. in favor
branch (Seeof
of Jose Cigar
would
Bataan
Bonifacio
anot
postdated
Bank be in
and in
inquiry,
19, which
1977. Asresulted
to altered in its bad faith,
(2004)
Distinguish clearly (1) checks,
crossedthe new rules
checks from crossed
violation
Cigarette
favor
(b) of B.
Forged
of check,
Factorythe
Although
in
Retail
v CA X
Payee's
payment
etdoesTrade
al 230
Signature:not
of
s 643newsprint
Law.
have GR The
When 93048 law
Dragon
provide cannot
that claim
the drawee to be abank holder caninstill duereturn which Josewhen promised to deliver. Joseto sold
cancelled checks; applies
Mar 3, 94)
sufficient only
funds, pays thethe bank sale honorsis direct
the check theand
course. Moreover, the checks were sold, not drawee-bank the forged check, it must
them
SUGGESTED even ANSWER:after 4:00 pm of the next day negotiated
general public. theA check dealer tobuysExceland Inc.sells at a for
endorsed, byithim to Dragon which when it is presented
be considered for payment.
as paying out of its funds and
A crossed
provided check
does is one
so within with 24 did
two not
hours parallel
from and discount.
in his X Excelbehalf
own did notand, ask Jose the purpose
therefore, the
become
lines a holder
drawn in due
diagonally course.across Not being
its nofacea or Apparently,
cannot charge has conspired
the amount with
so paid the bank’s
to the
discovery
ALTERNATIVE of the
ANSWER: alteration but in event saleof tocrossing
the the check.
general public Since is Jose
made failed
by to
the
holder bookkeeper
account ofsothe that his ledger
depositor. In card
suchwould case, the
XM in
across
beyond due
Bankathe course,
corner
should
period Dragon
thereof.
bear
fixed the orisprovided
On subject
the
loss. other
Whentobyhand,
the
law deliverand
dealer the newsprint,
not by Po
the ordered
manufacturerthe
thea personal defense on the marked
part showbank that he still liable
becomes has sufficient
since itsfunds. primary duty
forcancelled
drawee filingbank of check
a(XMlegal is
Bank)one
action byofthe
failed toChelsea
or stamped
return
returning the ALTERNATIVE
The drawee
(Marsman
bank
ANSWER:
bank
&
files Coantovaction
stop
Firstpayment
Coconut
for recovery on the
Control check.
ofRetail
the Co
concerning
"paid" the
and/or breach
"cancelled" of trust on the
by or onbank part
behalf of of a) is
The to verify
first the
arrangement authenticity of
violates the thepayee's
altered
bankCrossed
Checks; check
against Check to the
the bankcollecting
sending the (ND
same. Efforts
GR39841
amount of Excel
20June1988)
paidbecause
to B becauseto collect from Po failed.
Moises
a draweeLim in
bank notthe complying
to indicate with
payment his thereof. signature
Trade Law (Traders Royal the
when ABC
Bank check
v.“consigned”
Radio
Assuming
Bank)
(1996)
What are the within that
effects the of24relationship
hour
crossing clearing
a between period
the Excel
(c)
presented wants
Forged
has noto sufficient
know from you as
funds. counsel: 1)
Decide
obligation
Checks; tobankdeliver
Crossed the
Check 2000 bales of 9, the Philippines
typewriters, Network, the G.R.
transactionNo. 138510,was October
one of
provided
drawee
SUGGESTED
check? ANSWER:in Secand 4c of
the CBcollecting
Circular bankdated is What
SUGGESTED
the are
Indorsement:
case
10, 2002; the
ANSWER:
(5%) Westmont effects Bankof crossing
v. Ong, G.R.a check?
No. 2)
The(1991)
tobacco.
Mr Pablo
effects
evidenced
Feb 17, of sought
crossing
1949,
by some theto aborrow
checkisare
latter
written P200th as from
document,
absolved Mr
from
the consignment
crossed
The132560,
bank cannot check,sale. In
recover consignment
is it indorser
a holder
the amount in due sale,
course?
paid an
to
Whether as second
January 30, 2002). and holder of
Carlos.
follows:
1 TheCarlos
liability.
prescriptive check agreed
may
period vnot to
beloan
would encashedtheL-28226
be amount
10 but only
years. in agency
B for therelationship
3) Whether check. Po’sWhen is the
defense created of lack
bank so of
honored it is as theif
(See HSBC PB&T Co GR Sep the
the
deposited
(Campos,
30 form
1970; aofsbank;
in35NIL a5th
140; postdated
ed 454-455)
also Rep Bankcheck v CA which
GR 42725 was ABC sells became an acceptor. As acceptor, its
against
consideration
check, it ANSWER: directly
Jose as to
is the
also public
available through
as against
SUGGESTED
Checks;
crossed The1991 Forged
(i.e.
check 2 Check;
parallel Effectslines diagonally agents. Excel?
2 Apr 22, 196may s 100) be negotiated only once to the bank
The became
b) SUGGESTED second primarily
arrangement and directly would be
(2006)
Discuss
onedrawn
who has onthe legal
theaccount
an top left consequences
portion
with a bank; of thewhen check). a ANSWER:
liable
violative to the payee/holder
1) The effects of crossing a checksince the
of the Retail Trade B. Law,
bankThe
3 Before honors
the
act of a forged
due datecheck.
crossing of the
a check (5%) check,
serves as Pablo
a The recourse of the bank should bebeing against
SUGGESTED ANSWER:
saleare:is1done The through check individuals
is for deposit only paid
in the
discounted
warning to the it with
holder Noble
thereof On thatdue thedate,
checkNoble has X and
strictly its bookkeeper
on a commission who conspired
basis. to said
The
The legal consequences when a bank honors account of the payee
deposited
been issuedcheck forthe check purpose
a definite with hisso bank. that the The make X’s ledger
individuals would show thenthat be he has sufficient
acting merelyonly as
a forged are as follows: ALTERNATIVE2 ANSWER: The check may be indorsed
check
holder must was dishonored.
inquire if he has Noble
received sued the Pablo.
check funds.
agents of the manufacturer. Sales, therefore,
(a) When
SUGGESTED ANSWER: Drawer's Signature is Forged: The bankonce can in recover
favor of from a person B. This whoishas an
solutio
The court
pursuant to that dismissed
purpose, Noble’s
otherwise complaint.
he iscannot
notWas a ALTERNATIVE
made accountby ANSWER:
suchwith agents are deemed direct
The court’s
Drawee-bank decision
by accepting was the
incorrect.
check Pablo indebiti
b) The because
2nd there
arrangement a bank
is payment
is not by the
violative of
the court’s
holder in due decision correct?
set
and up thecourse
Carlos, being (See
defense ofBataan
immediateforgery, Cigar and to the
because
parties by sales by
bank
the to3 Bthe
Retail when
manufacturer.
The
Trade suchcheck
Law is issued
payment
because is for
not a specific
due.
typewriters
Cigarette Factory, Inc. v CA GR 93048, Mar 3, 1994;
instrument,theare
accepting instrument,
governed the by drawee
the rules bank of The
are check
notpurpose issued
consumptionand bythe X to person
B as payee
goods who
or goods takes
had no itfor
not
230 s 643)
admits
privity.
Checks; Crossed theCheck
Given genuineness of signature of
the factual circumstances sufficient in accordance
funds.
personal, household with said
and family use. purpose does not
(1996)
Ondrawer
the
March problem,
1,
(BPI 1996, Pablo
Family has no
Pentium
Bank valid
Company
vs. excuse from
Buenaventura G.R. Checks;become
Effects; Alterations;
a holderPrescriptive
in due course Periodand is not
denying
ordered
No.
Unless
148196, liability,
a computer
a forgery from
(State CD
September 30, Bytes,
2005; and
investment
is attributable
Section
House 23,
v IAC
to the fault Negotiable Instruments Law
(1996)
William
2) No.
issued to
entitled
It is a
to payment
Albert a check
crossed check
thereunder. for P10,000
and Excel
issued a
Negotiable
GR 72764 crossed check
Instruments
13July1989).
or negligence of the drawer himself, the inPablo
the
Law). undoubtedly
amount of had drawn on XM Bank. Albert altered the did
benefited
P30,000
remedy post-dated in the
of the drawee-bankMar transaction.
31, 1996. is Upon
To hold
against the amount of the check to P210,000 andpurpose
not
Bond: take
Cash it
Bondin accordance
vs. Surety with
Bond the
otherwise
receipt the would
check, also contravene the basic for which
(2004)
Distinguish the
clearly check to was
cash his bond issued. from Failure NDon
surety
partyofresponsible CD the
for Bytes discounted
forgery. Otherwise, deposited
its
bond. part
the
to
check
inquire as to
account
said purpose,
with
therules
check with of unjust Fund House. enrichment. Even in Bank. When ND Bank presented the check
negotiable instruments, the for
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) Page 80 of 103 alteration ofPage
the 81 of 103
instrument.
liability
thereforin the(Traders
event that Royal it Bank
should pay Yu
v. RPN, Thee)serial
May number is not material
Pablo recover to the
from either Mario or
throughG.R. oversight
No. 138510, orOctober
inadvertence.
10, 2002). Despite negotiability
Jose? of the instrument.
• stopDrawee-bank
the order by Lim,can BPIrecover
neverthelessfrom paid SUGGESTED ANSWER:
Yutheupon
collecting bank (Great
presentation of theEastern
check.Life LimIns.sued a) Camilo
b. Yes. As a generalmay not rule, enforce
the drawee said promissory
is not
Co. v. Hongkong & Shanghai
BPI for paying against his order. Decide Bank, G.R. No. the note
liable against
under the Mario
check and because Jose.there The promissory
is no
because
SUGGESTED
18657,
case. even
ANSWER:
August if the indorsement on
23,1922) noteofatcontract
privity the timebetweenof forgery XYZbeing Marketing,payable to
In the theeventcheck that Mr. Lim,byinthe
deposited fact, had
bank's order, the
as payee, and signature
ABC Bank of as the Pablo draweewas essential
sufficient
clientlegal reasons
is forged, to issuebank
collecting the stopis bank.for However,
the instrument if the to passtaken
action title to bysubsequent
the
paymentbound order,
by itshe may sue BPI
warranties for paying
as an bank parties.
is an abuseA forged signature
of right which caused was inoperative
against his order.
indorser The waiver
and cannot set up executed
defenseby of (Sec 23
damage notNIL).
only Accordingly,
to the issuer the of the parties
checkbefore
Mr Lim forgery did not mean that
as against it need
drawee bank not but also to the payee, the payee has arelated
the forgery are not juridically cause to
exercise due diligence
(Associated Bank v. Court to protect the interest
of Appeals, G.R. Checks; Presentment
parties after
of action under quasi-delict. the forgery to allow such
Checks;
of itsLiability;
No. Drawee
107382,
account BankIt 31,
January
holder. 1996).
is not amiss to state Gemmab)
(1994) Camilo
drew amay
enforcement. check notongo against Pablo,
September 13, the
(1995)
Mario
thatGuzman
the drawee, issued to Honesto
unless Santos ahas
the instrument latter not having indorsed
1990. The holder presented the check to the the instrument.
check for P50th
earlier as payment
been accepted by it,forisanot
2ndboundhand to drawee bank only on March 5, 1994. The
car.honor
Without the knowledge of
payment to the holder of the check Mario, bank c) dishonored
Camilo may enforce
the check on the thesame instrument
ALTERNATIVE ANSWER: against Julian by because of bank,his special
Honesto changed
that thereby the amount
excludes it from to any
P150th liability if date. After dishonor the drawee the
1991 6b) BPI would not be liable to Mr Lim. indorsement to Camilo,
which alteration
it were to comply could withnotits bestop
detected
payment by holder gave a formal noticethereby of dishonor making to him
Mr Lim and BPI are governed by their own secondarily
theorder
naked(Sec eye.61 Honesto
NIL) deposited the Gemma throughliable,a letter bothdated beingAprilparties
27, after
agreement. The waiver executed by Mr Lim, the forgery.
altered check with Shure Bank which 1994. 1) What is meant by “unreasonable
neither being one of future fraud or gross d) Julian, in turn, may enforce the
forwarded the same to Progressive Bank for time” as applied to presentment? 2) Is
negligence, would be valid. The problem instrument
SUGGESTED ANSWER: against Bert who, by his forgery,
payment. Progressive Bank without noticing Gemma liable to the holder?
does not indicate the existence of fraud or 1) Ashasapplied
rendered to presentment
himself primarily for payment,
liable.
the alteration paid the check, debiting
gross negligence on the part of BPI so as to e) Pablo preserves
“reasonable time: is meant his rightnot more to recoverthan 6from
P150th from the account of Mario. Honesto
Defenses;
warrant Forgery liability on its part. eitherfrom
months Mario or Jose
the date of issue.who Beyond remainsaid parties
withdrew
(2004)
CX maintainedthe amount of P15thaccount
a checking from Shure with juridically
period, related to him.
it is “unreasonable time” Mario and theis still
Bank and disappeared.
UBANK, Makati Branch. AfterOne receiving his
of his checks checkconsidered
becomesprimarilystale. liable to Pablo. Pablo
bank statement,
in a stub Mario discovered
of fifty was missing. Later, he the 2) No.
SUGGESTED ANSWER: may,Aside
in case form of the check being
dishonor, go after already
Jose who,
alteration
Thediscovered
demand and demanded
ofthat
Mario Ms.for restitution
DYrestitution
forged hisof from
signature
the stale, Gemma Note: is It
alsois possible
discharged that
form an answer
by his special indorsement, is secondarily
Progressive
and succeeded
amount Bank.
of P150,000 Discuss
to to
encash fully the
P15,000
his account rights
is from liability might distinguish between blank and
liable.under the check, being a drawer
andanother
the liabilities
tenable. branchof
Progressive ofthe
theparties
Bank bank.
has no concerned.
DY was able
right to to and a person special
whose indorsements of prior parties
liability is secondary,
encash
deduct said the check from
amount whenMario’sET, a friend,
account this is duewhich to the cangiving thereby
of the notice materially of alter
guaranteed
since the orderdue execution,
of Mario saying that she
is different. dishonor beyond the above suggested
the period allowed answers.
by law. The
was a holder
Moreover, in due course.
Progressive Bank is Can liable CX forrecover
the The givingproblem of noticedid not clearly
of dishonor on indicate
April 27, the
SUGGESTED ANSWER: Forgery; Liabilities; Prior
the money
negligence of from the bank?inReason
its employees
Yes, CX can recover from the bank. Under
not noticingbriefly. 1994 is more kind (1)&month
of indorsements
than one Subsequent
from Parties
made.
the(5%)
alteration which, though it cannot be March(1995)
Alex5,issued
1994 when a negotiable
the check PN was (promissory
Section 23 of the Negotiable Instruments note) payable to Benito or order in payment
detected by the naked eye, could be detected dishonored. Since it is not shown that
As Law,
between forgery is a real Bank
Progressive defense. andbyThe
Shure forged
by a magnifying
check
instrument used tellers. Gemma and the holder resided in the the
of certain goods. Benito indorsed same PN to
Bank, it isisthewholly
former inoperative
that should in relation
bear theto CX. Celso
place, the inperiod
payment within of which
an existing to give obligation.
notice
CXProgressive
loss. cannot be held Bankliablefailedthereon
to notify byShure
anyone, ALTERNATIVE
Later Alex ANSWER:found the samegoodstime to be defective.
notthateven by a washolder in due course. of
2) dishonor must bebe the that the
Bank there something wrong Under with a Gemma
While
notice wouldincan still
Celso’s
reach
liable under
possession
Gemma if sent
the
the
by PN was
mail.
theforged
check signature
within theof the drawer,
clearing hour there
rule of is24
no original
(NIL • contract
stolen
Sec 103byDrawer'sfor the consideration
& Dennis
104; Far account
who Realty
East forged cannotofCelso’sbe
valid
Checks;
hours. instrument
Material that
Alterations; would
Liability give rise to a which the check
charged,
signature and was
and ifissued.
charged,
discounted it hewithcan recover
Edgar, a
contract Investment
Checks; PresentmentInc v CA 166 S 256)
(1999)
A check for which
P50,000.00can be wasthedrawn
basis or source of
against moneyfrom (Associated whoBank
the drawee-bank
lender did v.not Court
make of inquiries
Appeals,
liability
drawee bank on and
the made
part ofpayable
the drawer. to XYZ The (2003)
A bank issues G.R. its
No. own check. May31,1996).
the holder
about the PN.107382
EdgarJanuary indorsed the PN to
drawee bank
Marketing or order.has Theno right
check orwas
authority to hold the • bankDrawer
liable thereunder
has no if he fails
cause to
of action
Felix, a holder in due course. When Felix
touch the
deposited with drawer's
payee’sfunds account deposited
at ABCwith Bankthe –• 1. against
prove are
What presentment
the
collectingrights for
bank,of payment,
Felix,
since ifthe or
any, duty of
Forgery; Liabilities; Prior & Subsequent Parties demanded payment of the PN from Alex the
drawee
which thenbank. sent the check for clearing to • presentAlex,
against
collecting the bill
bank to
Benito,is the
only drawee
Celso to and
the for
Edgar?
payee. A
(1990)
Jose loaned Mario some money and, to latter refused to pay. Dennis could no longer
drawee bank. Drawee bank refused to honor acceptance?
Explain
collecting Explain your
bank answers.
is not (4%)guilty of
evidence his indebtedness, Mario executed be located.
the check on ground that the serial number SUGGESTED ANSWER:
2. negligence
Does Celsoover haveaany forged rightindorsement
against Alex,on
1 and delivered toforJose a drawee
promissory note
thereofIs had it proper
been altered. the XYZ marketingbank to Benito and
checks for Felix?
it has Explain.
no way of ascertaining
payable
dishonor the to his
check order.
for the reason that it had
sued
Josedrawee
endorsed bank. the note the authority of the endorsement and
been altered? Explain (2%)to Pablo. Bert when it caused the checks to pass
2 fraudulently
In instantobtainedsuit, drawee the note bank from Pablo
contended Checks;through (Manila
Validity; Waiver Lighter
the of Bank’s Transportation,
clearing liability house Inc. v. Court of
before
and endorsed it to Julian
that XYZ Marketing as payee could not sue the by forging Pablo’s G.R. No. 50373, February 15, 1990). On the
Appeals,
for negligence
allowing (1991) withdrawal of the proceeds
signature. Julian endorsed the note to other a hand, a collecting
drawee bank as there was no privity between Mr. Lim issued
thereof check drawn against bank BPI which
Camilo. a) May Camilo enforce
then. Drawee theorized that there was no basis to the said endorses a check bearing a forged
Bank in favor of Mr Yu as payment of certain
promissory note against
check.Mario Is thisand Jose? b)
make it liable for the contention shares of stock which he purchased. On the to the
endorsement and presents it
May
SUGGESTED Camilo
ANSWER:go against Pablo? c) May
correct? Explain. (3%)
a. No. The enforce
serial number is not a material same day draweethat he issued banktheguaranteescheck to Yu, all prior
Camilo said note against Julian? d)
particular Lim ordered BPI to stop payment. Per the forged
endorsements including
Against of the check.
whom can Julian Its alteration
have the right does of endorsement itself and
notrecourse?
constitute material standard banking practice, Lim wasshould
made to be held
sign a waiver liable of BPI’s
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) Page 82
84 83
Page of 103of 103 delivered
b) Paragraph
Negotiable it to Marie.
Instrument: 2 –Definition
negotiability
She &
Negotiable
a) MP
2. P2,500.00
Celso hasInstrument:
bought Ithe
apromise
used Negotiable
rightcell to
topay phone
collect Document
Pedro from
from
San JR.Alex
Juan
JR accepted
is “NOT
Characteristics the AFFECTED”
check
(2005) Whatin good is a faith
negotiableas payment
andvs.
preferred Negotiable
orBenito.
order cash
the Instrument
Celso sumbutisofMP (2005)
aP2,500.
party is asubsequent
friend so JR to for
instrument?
goods Theshe interest
Give
delivered
theis to be computed
characteristics
to Ruth. Eventually,
ofat aa particular
theDistinguish
acceptedtwo. MR’s However, apromissory
negotiable
Celso note hasdocument
for
no P10,000.
right fromto a Ruth and is
time
regretted
negotiable determinable.
what she
instrument. (2%)didItand does not make the sum
apologized
negotiable
claim
JR thought against of instrument.
converting
Felix who (2%)
the note is intoa party cash uncertain
to Jun. Immediately or the promise he directed conditional.
the drawee c)
(Sgd.)
SUGGESTED
subsequent
by endorsing Noel Castro
ANSWER:
to Celso it to(Sec his 60 brother
and 66 KR. NIL) The SUGGESTED
Paragraph ANSWER: 3 – negotiability
bank to dishonor the check. When Marie is “AFFECTED.”
Negotiable
Incomplete
promissory &noteInstrument
Delivered
is a piece of havepaper requisites
with the of Negotiableencashed Giving theInstrument
the
check, maker isthe
it was a written
option renders
dishonored. contractthe
AX,Sec.
(2004)
following 1 of
2) aManila, the
businessman, June
hand-printed NIL, 3, a1993holder
was of this
preparing
notation: “MP instrument
for
WILL a for the
1. conditional
Is Jun payment
promise liable d)toof money which
Paragraph
Marie? (5%) is intended is
4 – negotiability
have
business
PAY JRright
trip
TEN of recourse
abroad. THOUSAND As he against
usually intermediate
PESOS did IN in as a
“NOTsubstitute
SUGGESTED AFFECTED.”
ANSWER: for money and passes from
parties
P10,000.00
the past, heFOR who are
For
signed secondarily
value received, liable,
I Holder
promise toin Yes.
one This
person
Giving to covers
another
the option the
astomoney, delivery
the in such
holder of a an
does not make
PAYMENT HISseveral
CELLPHONE checks 1 in WEEK
blank
due
pay
and entrusted course
Sergio Dee may or have
order rights
the sum better
of than incomplete
manner promise
the as toinstrument,
give
conditional.
a holder under in dueSection
course 14 theof
FROM TODAY.”them Below to this his secretary
notation MP’s with
transferor,
P10,000.00
instructionwith its
in
to safeguard subject
five (5) is
installments,
them money and
with thethe the
right Negotiable
to hold the Instruments
instrument free Law,
from which
signature “8/1/00” next to and fill them
it, indicating
provides
Negotiability; that Holder there
in Due was
Course prima Suchfacie
theInstrument
out first
only
date installment
ofwhen theitself is property
payable
required
promissory onnote.
to of value.
October
pay 5, 1993
accounts
When JR defenses available to prior parties.
On
and
during the
the
his otherinstallments
other
absence. hand,
OB, negotiable
his on or
secretary, document
before the
filled authority
(1992)
Perla
instrument onmust
brought the parta motor
comply of Ruth car
with to fill-up
payable
Sec. 1 ofonany
the of
presented MP’s note to KR, the latter said it
out does
fifth
one not
day
of ofcontain
the the requisites
succeeding
checks by of Sec.
month
placing her or 1name
of NIL, theinstallments
material
Negotiable particulars
from
Instrument Automotive
Law thereof.
to be Company Having
considered for
was not a negotiable instrument under the The characteristics ofaaitdown
negotiable
as it haspayee.
thereafter.
the no secondary She filledliability
out of intermediate
the amount, doneP250th.
negotiable. so, and She when
made is firstpayment completed
of P50th
law and so could not be a valid substitute for instrument
parties,
(Sgd.) Lito
endorsed andtransferee
Villa
delivered merely check steps tointo the before it isare;
and executed negotiated
a promissory to a note holder for in thedue
cash. JR took the oppositethe view, insisting KC,
on
b)
who shoes
TH is
accepted ofan the transferor,
indorsee
it in good faith of aits subject
promissory are goods
note 1) Negotiability
course
balance. like Marie,
The - That
companyit is quality
valid foror
subsequently attribute
all purposes, whereby a
theSUGGESTED
note’s negotiability.
ANSWER: You for arepayment
asked of to
that
gemsand simply
thatthe instrument
states:
KC sold “PAY
totheOB. is TO merely
JUAN
Later, OBviews evidence
TAN
told OR
AX of bill,
and noteMarie
indorsed or check
the maynote passes
enforce
to or
Reliable may it passwithin
Finance from hand
a to
referee.
The
SUGGESTED Which
promissory
ANSWER: ofnote is opposing
negotiable as it is 2. Supposing the check was stolen while in in
of title;
ORDER what thing
400
shewith of
PESOS.”
did valuewith are
The the
note
regrets. goods
has AXThismentioned
no date,
timely hand,
reasonable similar
Corporation to
time, money,
which as if so
it
financed as
had to give
been
the the
filled
purchase. holder
up
correct?
Yes.Negotiable
AX Instrument; Negotiability
no in
directed thecould
complies
place document.
of payment
the
be Sec
bank
held
to
1,liable
NIL.
and
dishonor noto consideration
KC.
the check.
is a Ruth's
due Thecourse
strictly possession
in the
promissory right
accordance and
notetoahold thief
with
read: thefilled
“For the
instrument
the blank
authority
value and
case(1997)
Can
• of
mentioned. an
a incomplete
bill
Firstly,
It ofwas exchange
it is in
signed check, or
writing
by awhich
MK promissory
andand has
signed been
written note
by the check,
collect
given. endorsed
the sum and
payable delivered
for himself it to Marie
free from in
Could AX NoelbeUnder received, I promised to pay Automotive
delivered.
qualify
maker,
under his as aheld
letterhead Castro.liable
negotiable Section to
specifying
KC?14
instrument Answer if – and
of
the address, the payment
defenses.
Company for the
2) Accumulation
or order goods at its heof purchased
Secondary
office in Legaspi from
Contracts
reason
a.
Negotiable briefly.
it (5%)
is not to the
Instruments Law,
•
which Secondly,
happens bepromisehis KC, isas a holder
unconditional
residence. TH her,
toas theyis
City, are Jun liable
the transferred to
sum of P200,000.00 Marie
from onewithif theperson check is at
to another.
interest
in b.
dated;
due acourse,
pay
accepted the certain
or
sum
the day canandenforce
promissory inthemoney,month,
note payment
asthatbut is,not
payment of thethe
P2,500.00
for dishonored?
twelve (12%) (5%) percent per annum, payable in
year
check asof Thirdly,
itsitmaturity,
if hadit been is given;
filled on ordemand
up strictly in no dateSUGGESTED
Manila ANSWER:
September of 21,P20,000.00
1991.
•
services rendered istopayableSH, who in turn as equal installments monthly
c.
accordance it iswith payablethe toJuan Tan
authority given by AX to No. Even
Negotiable though
Instrument: Marie is a holder
Identification in duefor
of maturity
received the is specified.
note from as payment ten (10) months starting October 21, 1991.
d. itor course,
(2005) this is an incomplete and
OB
for “cash”’
•Fand
ourth,
a prepaid itnames
within is apayable two to time.
reasonable
cell phone card worth 450
State (sgd)
undelivered
and Perla explain whether the following
instrument, covered by Section
are
Incomplete
alternative and drawees Delivered instruments under the Negotiable Instruments
negotiable
order.The payee acknowledged having
pesos. 15 Pay of(5%) the Negotiable Instruments
(2005) was
Brad
The promissory
received
in desperate need of money to pay
the note on note is negotiable.
August 1, 2000.All A theBar
1)
Law: Postal
to the order ofMoney
Reliable Finance Law.
his debt to Pete, a loan shark. Pete Where
2)
Order; A an incomplete
certificate
Corporation. Automotive Company of instrument
time deposit has which not
requirements
reviewee had told of Sec
TH,1who NIL are happenscomplied to be
threatened to take Brad’s life if he failed to been delivered,
states “This is it to will certifynot, that if completed
bearer has and
your with. The sum
friend, that to TH beispaid not isa stillholdercertain in due
pay. Brad and Pete went to see Señorita negotiatedBy:
deposited inwithout
this(Sgd) bank authority,
the sumbeof aFOUR
Manager valid
despite that the sum
course under Article 52 of the Negotiable is to be paid by
Isobel, Brad’s rich cousin, and asked her if contract in the
THOUSAND PESOS hands (P4,000.00)of any holder, only, as
installments
Instruments Law (Sec 2b NIL)
(Act 2031) and therefore 3) Letters of credit;
sheNegotiability
could sign a promissory note in his favor against
repayable
Because any to person,
Perla
the defaulted including
depositor in200 the Jun,days whose
payment after of
does not enjoy the rights and protection 4)
signature Warehouse was placed thereon before
in (2002)
the
Which amount
ofstatute. of
the following P10,000.00 to
stipulations pay Pete. date.”
her installments, Reliable Finance
under the TH asks for our or advice 5) Treasury warrants payable from
SUGGESTED
Fearing
features
ANSWER:
that of Pete
a would kill
promissory note Brad,(PN) Señorita
affect or
receipts;
delivery.
Corporation Such defense initiated isaacase real defenseher
against even for aa
specifically
a) KR is in
right. connection
The promissorywith the note
note being
is not Indorser:
specific
against Irregular
fund.
a holder Indorser
in due vs. General
course, availableIndorserto a
Isobel
do not acceded
affect to the request. assuming
its She affixed sum of money. Perla argued that the
undated
negotiable.
herthe signature
andIt not
on is anegotiability,
mentioning
not
piece issuedof paper
place that
toa order
with the
of
or (2005)
Distinguish
SUGGESTED
party like
promissory
ANSWER: an irregular
Jun note whose is merely
indorser appeared
signature an assignment of
from a
payment
bearer. PN is
and
There otherwise
any is no negotiable?
consideration. Indicate
What would your general
1) Postal
indorser. Money (3%) Order – Non-Negotiable
assurance
answer of writing
Brad thatword he of just
will negotiability
fill it upof prior to delivery.
credit, a non-negotiable instrument open to
your advicebybe?
containing therein. (2%).the Itup paragraph
isthe notblank number
issued in SUGGESTED
as it isANSWER: governed by postal rules and
later. Brad then filled paper, all
Irregular defenses available to the a assignor
party to and,
the stipulation
accordance with or feature
Section 1 ofofthe
theNegotiable
PN as shown regulation Indorser which may is not be inconsistent the
with
making a promissory note for the amount of therefore,
instrument Reliable Finance Corporation is
below
What defense
Instruments and your
LawHe corresponding
or defenses can Señorita answer, either the NIL and it can only be negotiated once.in
but he places his signature
P100,000.00.
“Affected” or “Not then
affected.” indorsed
Explain and
(5%). not a holder in due
blank before delivery. He is not a party but course. a) Is the
b) Theset
Isobel fact upthat against the Pete?
instrument Explain. is (3%)
undated
a)
delivered
SUGGESTED The
the date sameof to thePete, PN iswho “February
accepted 30, 2) promissory
he becomes A certificateonenote a of
because mere ofassignment
time his signature
deposit of credit
which in
and doesANSWER: not mention the place of payment
the b)
2002.”
note
The defense asThe PN
payment bears
(personalof interest
the debt.
defense)payable on the the or a negotiable
instrument. is Becauseinstrument?
to certifyhisthat Why? bearerIs
signature b) hehas is
does not militate against its whichbeing states
SUGGESTED “ThisANSWER:
last dayIsobel of each calendar quarter atPete
a rate Reliable
considered Finance
anthis indorser Corp ainholder isinof due
Señorita
negotiable. The date can set
andup against
place of payment is deposited
a) The promissory in banknoteand the he
sum
the problem liable
FOUR istoa
that equal
the to five percent
amount (5%) above is thenot then the course?
While,parties Explain
a Generalin the briefly.(P4,000.00)
Indorser
instrument. warrants thatonly, the
are not material ofparticulars P100,000.00 required in
to THOUSAND
negotiable PESOS
instrument, being in compliance
prevailing
accordance 91-day Treasury
with thenegotiable. Bill
authority given to her rate as instrument
repayable is genuine, that he has a good
make an instrument with the to the depositor
provisions of Sec 1 200 NIL. daysNeitherafter
to published
The Bradfact (in that atno
the the beginning
presence
mention of
ofisPete)
madesuch and calendar
of that
any title
date.”
the tofact it, that
– Non-Negotiable
that all
the prior
payable parties as it
sum had
is capacity
does
to be not
paid
c)
quarter. The PN gives the maker the option to to contract; thatnor thethat instrument
Pete
consideration
was not isa not holder
material. in due Consideration
course for comply
with with
interest the requisites the Sec.at
ofmaturities 1 of the NIL
aretime in
make payment either in money or in quantity of the Letters
3) SUGGESTED indorsement
ANSWER: of is valid and
credit subsisting;
- uncertain
Non-
acting
is presumed.in bad faith when accepted the note stated installments renders the
of palay Instrument:
or equivalent value. Instruments and 1. that
Felix onpayable
has
dueno presentment,
right
Negotiable
as d) payment ThedespitePN gives
Ambiguous
his theknowledge
holder the that option it Negotiable
amount (Sec 2toNIL) claimthe instrument
against Alex,
(1998)
How
was do you
only treat a negotiable instrument will
4) Benito
be accepted
and
Warehouse Celso or who
paid
receipts
b) Yes, Reliable Finance Corporation are
or
- both
parties
Non-Negotiable accepted
prior
is a to
either
Incomplete to10,000.00
require Incomplete
Instruments;
that was
payment in money
Delivered
allowed or to by
and the
that
Señorita is so ambiguous that
theirthere is doubt for holder in due course given the factualDennis.
paid
the forgery
according
same of
as Celso’s
to
Bill its
of tenor,
signature
Lading and it by
that
merely if it
requireIsobel
Instruments the
vs. maker
Incomplete
during to serve
Undelivered
meeting
as the with
is dishonored,
Parties
represents to
good,an he
instrument
not willmoney.pay who
if the are necessary
such prior
whether
Brad. it is a bill or a note? (5%) settings. Said corporation apparently took
bodyguard
Instrument
SUGGESTED (2006)
ANSWER: or escort of the holder for 30 Negotiability
proceedings
to the forgeryfor dishonor
cannot are
be held
made. liable by any
SUGGESTED ANSWER: the promissory note for value, and there are
Jundays.
1. Where
was about a negotiable
to leave for instrument
a business is so
trip. As (1993)
Discuss
5) no
party the
Treasury
who negotiability
became warrants such or at non-negotiability
payable
or from
subsequent a to
a) Paragraph 1 – negotiability is “NOT indications that it acquired it in bad faith
ambiguous that there issigned
doubt whether it is of the
the following
specific notes
hisAFFECTED.”
usual practice, The he date is not one several of the blank (Sec 52fund
forgery. NIL see - Salas
However, Non-Negotiable
vEdgar,
CA 181 who s 296) being a
became
a bill
checks. or He a note,
instructed the holder
Ruth, his may treat
secretary, it
to payable
party out
Negotiability;to of
the a particular
instrument
Requisites fund.
subsequent to the
requirements for negotiability. 1) Manila,
forgery September
either
fill them asas a payment
bill of exchange or a promissory
for his obligations. Ruth (2000) 1, 1993the same to Felix,
and who indorsed
note atone
filled his election.
check with her name as payee, can be held liable by the latter.
placed P30,000.00 thereon, endorsed and
Mercantile Law Bar Examination Q & A (1990-2006) Page 86 85
Page of 103
of 103
A, single
latter became
proprietor
a holder
of a
be duly taken, he will pay the amount business
thereof. concern,
As suchisholder, about Napoleon
to leave for cana
thereof to the holder, or to any subsequent business
proceed trip
against
and, as Richard
he so oftenClinton. does on
indorser who may be compelled to pay. these occasions, signs several checks in
Negotiable
blank. Instruments;
He instructs B, Bearer Instruments
his secretary, to
C is not liable to F since the latter cannot (1997)
A delivers a bearer
safekeep the checks and fill them out instrument to B.whenB then
trace his title to the former. The signature of andspecially
as required indorsesto pay it accounts
to C and C later his
during
C in the supposed indorsement by him to D indorses
absence. it inout
B fills blank onetoofD. theE steals
checksthe by
was forged by X. C can raise the defense of instrument
placing her name from asDpayee,
and, forging
fills in the
forgery since it was his signature that was signature
amount, of D, succeeds
endorses and delivers in “negotiating”
the check to it
ALTERNATIVE ANSWER:
forged. to F accepts
C who who acquires it in good the faith
instrument
as payment in good
As a general endorser, B is secondarily liable
forfaith
goods andsoldfortovalue. a) If, forher
B. B regrets anyaction
reason, andthe
to F. C is liable to F since it is due to the drawee bank refuses to honor the check, can
tells A what she did. A directs the Bank in
negligence of C in placing the note in his SUGGESTED ANSWER:
F enforce the instrument against the
time to dishonor the check.
Yes, A can be held liable to C, assuming that When C
drawer that enabled X to steal the same and drawer? b)check, In case of the dishonor Can of the
encashes
the latter the gave noticeitof is dishonor
dishonored. to A. This A
forge the signature of C relative to the check by both the drawee and the drawer,
be held liable
is aSUGGESTED
case of an to C?
incomplete instrument but
indorsement in favor of D. As between C and can F hold
ANSWER:
F who are both innocent parties, it is C a) Yes.
delivered Theitany
as
of B, C and
instrument
was entrusted wasto Dpayable
liable to bearer
B, the
secondarily
as it was on the instrument?
whose negligence is the proximate cause of secretary of aA.bearer
Moreover, instrument.
under the It could
doctrine be
the loss. Hence C should suffer the loss. negotiated by mere
of comparative negligence, as between Adelivery despite the
Negotiable Instruments; incomplete and andpresence of specialparties,
C, both innocent indorsements.
it was the The
undelivered instruments; holder in due course forged signature
negligence is unnecessary
of A in entrusting the check to presume
to B
(2000)
PN makes a promissory note for P5,000.00, Negotiable
the is
which Instruments;
juridical
the kindscause
relation
proximate of negotiable
between of theor among
loss. the
but leaves the name of the payee in blank instrument;
partieswordspriorofto negotiability
the forgery (2002)and the parties
because he wanted to verify its correct A. Define the following:
after the forgery. The only (1) a negotiable
party who can
spelling first. He mindlessly left the note on promissory
raise the note,defense (2) ofa bill of exchange
forgery against a and holder
top of his desk at the end of the workday. (3)ina check. (3%)
due course is the person whose signature
When he returned the following morning, the b)
B. You Only
are B
is forged. and C
Pedro can Draft
Cruz. be held theliable by F. The
appropriate
note was missing. It turned up later when X instrument
contract language at the fortime of thenegotiable
(1) your forgery was
SUGGESTED ANSWER: payable to
promissory notebearer,
and (2) being your a bearer
check, each instrument.
presented it to PN for payment. Before X, T,
a) turned
Yes. Date
out toishavenot filched
a material particular Moreover,
containing thethe instrument
essential was indorsed
elements of a in
who the note from
required by Sec 1 NIL for the negotiability blank byinstrument
negotiable C to D. D, whose (2%) signature was
PN’s office, had endorsed the note after
of an instrument. SUGGESTED
forgedANSWER:
by E cannot be held liable by F.
inserting his own name in the blank space as
b) No. The time for payment is not A. (1) A negotiable
Negotiable Instruments; promissory note is liabilities
bearer instruments; an
the payee. PN dishonored the note,
determinable in this case. The year is not unconditional promise(2001)
of maker and indorsers in writing made by
contending that he did not authorize its
stated. oneAperson
issued to another, signed
a promissory note by the maker,
payable to B or
completion
c) Yes. Sec and 9d delivery.
NIL makes But X the saidinstrument
he had
engaging
bearer.to A pay on demand
delivered the note or atto aB.fixed or
B indorsed
no payable
participation in, or knowledge
to bearer because the name of about, thethe determinable
the note to future C. C placed time, the a sum note certain
in hisin
pilferage and alteration of the note and
b) Can the payee in a promissory note be a of
payee does not purport to be the name money
drawer,to order
which orwasbearer.
stolen by the janitor X. X
therefore he enjoys the rights of a holder in
any person.
“holder in due course” within the meaning of indorsed the note to D by forging C’s
dued) Acourse
bill may under the
not be addressed Negotiable
the Negotiable Instruments Law (Actto2031)? two or (2)signature.
A bill of exchange
D indorsed is an theunconditional
note to E who in
Instruments
more your Law.
drawees Who is correct and why?
Explain answer.in(2%) the alternative or in order in writing addressed
turn delivered the note to byF,one person
a holder into
due
(3%)
succession,
SUGGESTED ANSWER:to be negotiable (Sec 128 NIL). another, signed by the person giving it,
course, without indorsement. Discuss the
a) PN
To dois so
right.
makes Thetheinstrument is incomplete
order conditional. requiring
SUGGESTED the person toto
ANSWER: whom it is
individual liabilities F of A, B and C. (5%)
andNegotiable Instruments;
undelivered. It did Bearer
not Instrument
create any A is liable
addressed to topay F. on
As demand
the maker or of
at the
a fixed or
(1998)
Richard
contract that Clinton makes
would bind PNatopromissory
an obligation note (3) A check is future
promissory
determinable anote,
bill of exchange
Atime
is directly drawn on
or primarily
a sum certain in a
payable
to pay to bearer
the amount and delivers the same to
thereof. bank
money payable
liable toto onor
F, who
order demand.
is
to abearer.
holder in due course.
b) A payee inPage.
Aurora a promissory
Aurora note cannot
Page, be a
however, Despite the presence of the special
“holder in due course”
“Payable within
to
endorses it to X in this manner: X. the
Signed: meaning
Aurora of B. (1) Negotiableon the note, these do not
indorsements
the Negotiable Instruments Page.” Law, because a promissory
detract from notethe - fact that a bearer
Later,
payee X, without
is an immediate endorsing
party inthe promissory
relation to instrument, like the promissory note in
thenote,
maker. transfers
The payee and deliverstothe
is subject same to
whatever question, is always negotiable by mere
Napoleon.
defenses, real of The note available
personal, is subsequently
to the B, as a general
delivery, until itindorser,
is indorsed is liable to F
restrictively
ALTERNATIVE ANSWER: by secondarily,
dishonored
maker of the promissory Richard
note. Clinton. May “For Depositand Only.”warrants that the
b) A payee can
Napoleon be a “holder
proceed against in due course.”
Richard Clinton instrument is genuine and in all respects
A holder
for theisnote?
SUGGESTED defined
ANSWER:
(5%) as the payee or indorsee what it purports to be; that he has good title
Yes.instrument
of the Richard Clintonwho is is liable to Napoleon
in possession of it. to it; that all prior parties had capacity to
under
Every the is
holder promissory
deemed prima note. facie
The note
to be made
a contract; that he has no knowledge of any
by Richard
holder Clinton is a bearer instrument.
in due course. fact which would impair the validity of the
Negotiable Instruments;
Despite special indorsement Incomplete
made by Aurora instrument or render it valueless; that at the
DeliveredInstruments;
Page thereon, the note Comparative
remained a bearer time of his indorsement, the instrument is
Negligence (1997) and can be negotiated by mere
instrument valid and subsisting; and that on due
delivery. When X delivered and transferred presentment, it shall be accepted or paid, or
the note to Napoleon, the both, according to its tenor, and that if it be
dishonored and the necessary proceedings
on dishonor
 Mercantile
Mercantile Law Bar Examination Page 88 of 103
Law Bar Examination Q & A (1990-2006)
Q & A (1990-2006) YES! 87 of 103
PageDagul is an
2. If Pedro pays the said P20,000 to Y, Pedro accommodation
Commercial Banking party
Co. Thebecause
By-laws ofinSaad therequires
case at that
canNegotiable
recoverInstruments;
the amount Requisites
from X. X is the bar,checks
he isissued
essentially,
by it must be a signed
person who
by the signsand
President as the
(1996)
What are the party
accommodated requisitesor the ofparty
a negotiable
ultimately maker without
Treasurer receiving any
or the Vice-President. Sinceconsideration,
the Treasurer was
SUGGESTED
instrument?
liable for the ANSWER:instrument. Pedro is only an absent,
signs as C anrequested the Vice-President
accommodation party to co-sign
merely the for
check,
The requisitesparty.
accommodation of a negotiable
Otherwise, instrument
it would thewhich
purposethe latter
ofreluctantly
lendingdid. the Thecredit
check was delivered
of his name. to B.
are as follows: a) It must
be unjust enrichment on the part of X if he is be in writing and And The
as check
an was dishonored
accommodation upon presentment
party he on due
cannot date for
notdrawer;
signed
Parties; byb)theIt must
to payAccommodation
Pedro. maker contain
orParty an unconditional setinsufficiency
up lack of of funds. a) Is Saad liable
consideration on the check
against any as an
promise
(2003)
Susan Kawada or order borrowed P500,000 from XYZ accommodation
holder, even asparty? to one b) If who
it is not,
iswhonotthen, under theinabove
a holder
to pay a sum
Bank which required certain her,in together
money; c)with It must
Rosebe Parties;
duefacts, Holder
is/are the
course. in accommodation
Due Course party?
payable
Reyes who to did order or to bearer;
not receive any amountand d) Wherefrom (1993)
Larry issued a negotiable promissory note to
thethe instrument
bank, to execute is addressed to a drawee,
a promissory notehe Evelyn and authorized the latter to fill up the
payable mustto thebe named bank, or or otherwise
its order on indicated
stated therein SUGGESTED
amount ANSWER:
in blank with his loan account in the
reasonable
with certainty.
maturities. The note was executed as so (Sec 1 sum of P1,000.not
a.) Saad is liable on
However, the check
Evelyn inserted as an
NIL)
agreed. What kind of liability was incurred accommodation party.
P5,000 in violation of the instruction. She The act of the
Notice Dishonor corporation
negotiated the in note accommodating
to Julie who had a friend of
by Rose, that of an accommodation party or
(1996)
When
SUGGESTED is notice
ANSWER: of dishonor not required to the President, is ultra
knowledge of the infirmity. Julie in turn vires (Crisologo-Jose v
that of a solidary debtor? Explain. (4%)
(per
beDondee)
given toRose may be held liable. Rose is
the drawer? CA GR 80599, 15Sep1989).
negotiated said note to Devi for value and While it may be
an SUGGESTED ANSWER:
accommodation party. Absence of who legally
had no possible
knowledge for the corporation,
of the infirmity. whose 1)
Notice of dishonor
consideration is inis not the required
nature to of be an business is to provide financial
given to the drawer in any of of the following Can Devi enforce the note against Larry and
accommodation. Defense absence of accommodations
if she can, for how much? in the Explain.
ordinary2) course of
cases: a) Where the drawer
consideration cannot be validly interposed by and drawee are business,Devi such as one given by atofinancing
the same person; b)against
When the draweeinisdue a Supposing endorses the note Baby
accommodation party a holder SUGGESTED
for company
value
ANSWER:
but towhobe an has accommodation
knowledge of party, this
the
not
Parties;
course. having
fictitious capacity
Accommodation
person or atoperson
contract; c) When the
Party b) Considering
1) Yes, Devi can that is
enforce boththe the President
negotiable and
situation,
infirmity, can however,
theagainst
latter not
enforce the case
the in
note the bar
drawer
(2003)
Juan Sy is the personfrom
purchased to whom “A” the Appliance Vice-President
promissory note were signatories
Larry in the to the
amount
problem.
against Larry?
instrument
Center one generator is presented set onfor payment; with
installment d) accommodation,
of P5,000. Devi is a they holder themselves
in due course can be
Where the drawer has
chattel mortgage in favor of the vendor. no right to expect or andsubject
the breach to theofliabilities
trust committed of accommodationby Evelyn
that thehold
require
After getting drawee of the or generator
acceptor will set,honor
Juan the cannotparties be to settheup instrument
by Larry against in their Devipersonal
instrument; e) Where
Sy immediately sold it without consent of the drawer has capacity
because it is(Crisologo-Jose
a personal defense. As a holder
v CA 15Sep1989)
thecountermanded
vendor. Juan Sy payment
was criminally(Sec charged Parties;
in due Accommodation
course, Devi is not Partysubject to such
To 114
settle
with estafa. theNIL)case extra judicially, Juan Sy 2) (1996)
Yes.
Nora Baby
applied
personal defense. is notfor a aholder
loan ofinP100th
due course with BUR
paid the sum of P20,000 and for the balance because
Bank. she By way has knowledge
of accommodation, of the breach Nora’sof
Parties; Accommodation
of P5,000.00 he executed Partya promissory note trust
sister,
committed
Vilma, executed
by Evelynaagainst promissory Larrynote in
(1990)
To accommodate
for said amount with Ben Lopez Carmen, maker
as an of a which
favor is of
just BUR a personal
Bank. When defense. NoraBut defaulted,
having
promissory note,
accommodation party. JorgeJuansigned
Sy failed as indorser
to pay taken
BUR the Bankinstrument
sued Vilma, fromdespiteDevi, aits holder in
thethereon,
balance.and 1) What the instrument
is the liability wasof negotiated
Ben dueknowledge
course, Baby thathas Vilmaall thereceivedrightsno of part
a of
to Raffy, a holder for
Lopez as an accommodation party? Explain. value. At the time Raffy SUGGESTED ANSWER:
holder
the loan.
in due May course.
VilmaBaby be held did not liable? Explain.
took the instrument, Yes, Vilma in may be heldofliable. trust Vilma is an
SUGGESTED
2) What ANSWER:
is the liability ofhe knew
Juan Sy? Jorge to be an participate the breach committed
1) Ben Lopez, as an
accomodation party only. When the accommodation party, is accommodation party. As such, she is liable
by Evelyn who filled the blank but filled up
liable as maker to the
promissory note was not paid, and Raffyholder up to the sum on the instrument to a holder for value such
the instrument with P5,000 instead of
of discovered
P5,000 even if he did not
that Carmen had no funds, he receive any as
Parties;BUR
Holder Bank.
in Due This
Courseis true even if BUR Bank
P1,000 as instructed by Larry (Sec 58 NIL)
consideration
sued Jorge. for Jorge thepleadspromissory
in defense note. the This
fact wasconstitutes
(1996)
What aware at the time itintook
a holder duethe instrument
is that
the nature
he had endorsed of accommodation. the instrument But without
Ben that Vilma
SUGGESTED
course? ANSWER: is merely an accommodation party
Lopez can ask
receiving valuefor therefor,
reimbursement and thefrom furtherJuan fact A holder in due course
and received no partisofone thewho loanhas (Seetaken
Sec 29,
Sy,that
the accommodation
Raffy knew that party.
at the time he took the the instrument under the following
NIL; Eulalio Prudencio v CA GR L-34539, Jul 14,
2) Juan
SUGGESTEDSy isANSWER:
liable to the extent of P5,000 in 1 Parties;
conditions:
86 143 ThatAccommodation
s 7)it is complete Partyand regular upon
instrument
Yes. Jorge is Jorge
liable. hadSec not29 received
of the NILany value (1998)
the hands of a holder in due course (Sec 14 For
its face; the purpose of lending his name without
or consideration
provides that an of any kind for his
accommodation party is
NIL). If Ben Lopez paid the promissory note, 2 receiving value therefore,
That he became holder of it before Pedro makes it a
indorsement.
liable on the Is Jorge liable?
instrument to a Discuss.
holder for
Juan Sy has the obligation to reimburse Ben was overdue and without notice that it had X
note for P20,000 payable to the order of
value,
Lopez fornotwithstanding
the amount paid. theIfholder
Juan Sy at thepays beenwho in turn negotiates
previously dishonored, it to if Y,
suchthewaslatter the
time of
directly to taking
the holder said of instrument
the promissory knew him note, to 1.
knowing
fact; May that Y recoverPedrofrom is not Pedro
a party if the
forlatter
value.
be only
or he pays an Ben accommodation
Lopez for the reimbursement party. This is the 3 interposes
“September
That he took the15,
itabsence
in2002good of consideration?
faith and for
of nature
the payment or the essenceby the latter of accommodation.
to the holder, value; (3%)
Parties; Accommodation
Parties; Accommodation Party Party “For
the instrument is discharged. 4 2. value Supposing
Thatreceived,
at the under I hereby
time itthewas same
promise facts,
negotiated toPedro
pay
to
(1991)
On June
(2005)
Dagul has1, 1990,
a A obtained a loan
business of P100th from B,with
arrangement payable Juan Santos
pays or
the order
said the
P20,000 sum of
may TEN
he recover
him, he
SUGGESTED
had no
ANSWER:
notice of any infirmity in the
not later than
Facundo. The 20Dec1990.
latter Bwould required lend
A to issue him a check
money to THOUSAND the same PESOS amount (P10,000)
from X?thirty
(2%) (30)
instrument
1. Yes. Y or
can defect
recover in thefrom title of
Pedro. thePedro is an
for that amount to be dated
another, through Dagul, whose name would 20Dec1990. Since he does not days from date hereof.
person negotiating party.
accommodation it. (Sec 52, NIL)of
Absence
have any
appear in checking
the promissoryaccount, A, with note the knowledge of B,
as the lender.
requested
Dagul would his friend,
thenC, immediately
President of Saad Banking
indorse Corpthe consideration
(Signed) Pedro Cruz is in the nature of an
(Saad)
note to
to accommodate
Facundo. him. C agreed,
Is he signed
Dagul a check
an for accommodation. Defense of absence of
the aforesaid
SUGGESTED ANSWER:amount dated
accommodation party? Explain. (2%) 20Dec 1990, drawn against Saad’s to: consideration
Philippine cannot be validly interposed by
account with the ABC accommodation
National Bank party against a holder in due
course.
Escolta, Manila
Branch”
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) PagePage92
90 91 89
93
of 103of 103 who
A connives
gave
course
passenger,
hadhim aof certificate
with
the
herPietro.
note
B
work by The in
which
ofthe payment
public
heirs
plans
A of of
Port
legislative
important
her
The
number
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reorganized
tofranchise,
ofunder
Calamba,
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the
ifdrawee
Laguna.
letters
it meets
circumstances
activity
bank.
sent
To
allcarry
the
toThus,
ofGrace,
other
WWW
out in all will
when convenience
for
WIC.
Pietro
offertwo By sued
forcavans
herself
sale
toYellow
operate
some
ofand rice.
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ofauto-trucks
AB
his
Company
associates,
therefore
securities with
forpaidshe
and GH
requirements.
determining
faithfully
MTthem
Communications
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itsunanswered,
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his Therecourse
presented
Inc.
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nothing
of
would
EOL, action
the
subcontracted
through
not
incheck
in
the
bethe law
considered
aforlight
Makati B
fixed
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P1,00
purchased
damages,
routes
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from
but
DOP same
atthe
certain
astocks
certain
latter
date. towns
available
refused
Onfixed September
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Bulacan
to
at paythe withthe
stock
15,
norlaw
of
withpayment,
a the
such
public
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Constitution,
factors
utility
Reyes
the filed drawee
requiring
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complaint
delivery
the
bank a
indicates
degree
franchise
dishonored
of 400for that sacks
collection
ofor it.aits the
andexchange
2002,
heirs,
understanding
RizalEF insisting
to Manila
discovered
priced that
that
at
and P20
italthough
that
within
is per
nottheshare.
liable
Manila.
note
there because
of
WhenAB was
legislative
specificity,
of the
Later
certificate
against Soya on, franchise
Grace
the
bean
when
orextent any
meal.
with
MT other
is Investment
necessary
of
the
Aside its
form
Regional
difference
from ofor sued
authorization
therequired
Trial her,
fromCourt
Eva would
Firstly,
not
WIC's
Baldo be
inheishis
tender
anclaimed
not possession
apparent
itsoffer
employee.
that was
sale,
the
and announced,
ordinance
Ahe will
Resolve
went retain towas
with
DOP
AB.
the It
forof
information
driver,
raised
from
anMakati.
entity
three
thethegovernment.
to
male
generally
defense
Grace,operate
employees
through
ofas available
absence
Itsupplier
owns of
her Reyes
of
the
lawyer,
previously,
offacilities,
rode filed a nullSUGGESTED
beneficial
was
stocks
reasons.
andthen void ANSWER:
jumped
ownership
(2%)
that
because,EFto P30 found
thereof.
amongper out share.
a)
other
that
Is the AB
Thus
things,
had OBit
electric
and
on consideration,
but
motion
theitsdoes
truck
nature
powertonot with
dismiss
and
and
operate
thereliability.
light
on
check
cargo.the
them.
to its ground
having
While
(Sec.
factory the
30c,
been
thatandtruck
RSA)
EOL
issued
its (a) Yellowamends
arrangement
in effect
already
earned Cab
amade Company
sizable
lawful? payment
hisprofit. (3%) shall
certificate on
Is
b) OB beof
the
If the liable
liable
note.
public
salefor with EF
Can
3c. Revocation
The
employees
was merely
was on its person
doing
as
wayofsecurity
living Certificate
tomay
business
within
Laguna befortheliable
the
two in tothe
compound.
ring 1)
strangers
that aPhilippines
fine
she could of Baldo,
materializes,
convenience,
still
breach claim on
and apayment
asolidary
whatmisuse
thing is itwhich
of basis,
from
called?
confidential
AB?
onlyfor(2%) the Public
Why?
the death
or(3%)
insiderof
Certificate
not SUGGESTED
(1993)
1)
suddenly
not Robert
less
without sell.ofstopped
than Public
ANSWER:
a is
Does P5thaConvenience;
license holder
Evathenor have
and of was
more
truck ainseparability
a certificate
andthan
valid P500th
therefore
hijacked
defense? of thepublic
or
barred passenger
SUGGESTED
Service
information ANSWER:
B. As Commission
a sequel Pietro. to the
gained Baldo
can fromsame is
do her an
facts
under employee
narrated
employment?
Sec of
16 (m) Is
No. Evaand does not have aa valid defense. First, a) No.
Yellow The Cabarrangement
under the is not
boundary lawful. system.It is
of
2)certificate
convenience
imprisonment
cargo.
Explain.
from Investigation
bringing vessel to (1992)
ofoperate
not
suit
by the less
and taxicab
than
police (b)7disclosed service
years
violated nor in
the above,
of the
she Public
also EF, out
liable
Service of
forpity Act.for
damages UnderABto whosaid had
sellers or As
section,
MT
Antonio
Manila Investment
was granted is a a holder
Certificate in of due
Public course an artificial
such,
already the manipulation
paid death of
P1,000.00 passenger ofto the
GH, price
Pietro
decided ofis to is
more
that than
Securities
one ofand21
theyears, suburbs.
Regulation
hijackers 3) or Onewasboth evening,
Code such
armed by with oneand
fine
selling aof his or thebuyers
Commission with whom is empowered she traded? to amend,
If so, what
and,
Convenience
taxicab
imprisonment as such,
units (CPC) holds
was in the
1986
boarded postdated
to by operate
three check
a
robbers free securities.
SUGGESTED
breach
forgive of
ABThis
ANSWER:
and is
contract prohibited
instead of carriage,
go by
after the making
CD who both
bladed
offering weapon toinwhile the
selldiscretion
the other of
securities was the court. the
within modify,
the measure
or revoke of asuch
certificatedamages? of publicExplain
If from
the
ferry
as any
person
between
they defect
escaped is a after
Mindoro of title
corporation,
and of
staging prior
Batangas parties
partnership,
a the
hold-up.using and OB
the is
(Hernandez
Securities
indorsed anRegulation
common insider
the v. carrier
Dolor,
note (as in defined
G.R,
Code.
Yellow
blank No.b)to in
160286,
CabIfhim.Subsection
the and July
sale
Is its
CD 30, still
unarmed.
Philippines For failure
without toregistering
deliver the 400 securities convenience
briefly.
2004) (5%) after notice and hearing.
the from
association
motor
Because defenses
vessel
of or said other
“MV availablejuridical
Lotus.”
incident, the toLTFRB
He prior revoked
entity,
stopped parties
the 3.8(3)
materializes,
employee,
liable of
to the
EF it Securities
is
Baldo,
by called
virtue a
solidarilyof Regulation
wash
the sale
liable.
indorsement or Code) in
sacks,
withFairgoodsthe Philippine sued Dizon SEC for anddamages.thus came to Secondly,
Carriage; he
Breachcontended
ofemployee
Contract; that even if the
Presumption
among
penalty
operations
the shall
certificate themselves.
in be
1988 imposed
of due
public to Eva
upon can
the
unserviceability
convenience invoke
officers of of
of the since she
SUGGESTED
simulated
blank? sale.
Why? is an
ANSWER:
(2%) of the Bank, the
Dizon
court in turn “with setuncleanup a 3rdhands.” party complaint EOL opposed ordinance
of
A.Negligence
Securities was
No.Regulation
EF valid,
(1990)
cannot Code; it Purpose
claim is only the from AB.
the defense
corporation,
vessel.
Robert on ofthe
In absence
1989, etc.
ground ofthat consideration
responsible
Basilio was said granted for
operator aagainst
the financial adviser of DOPpayment, and this
against
the motion
Reyes to
which dismiss, the latter
contending registered that on
it had Commission
Peter
(1998)
WhatEF is
is so
the
not which
hailed
principal
a holder a can
taxicab require
purpose
of the ownedofcompliance
promissory laws and andnote. To
SUGGESTED
MT
violation. ANSWER:
Investment
And ifthe
suchonly if the latter was privy to relationship gives her access to material
CPC
thefailed
No. neverfor the
ground
The
to
hijacking
same
render
established
that route.
in
safe,a an
loss
this
officer
After
proper
physical
was
case duea and
fewis force
presence
cannot to an
months,
adequate
be
alien,in the with its
operated
regulations
make provisions
the by Jimmy
governing
presentment under Cheng Sec
securities
for 17
and (j)
payment,in of said
driven
the it byisthe
he the shall,
discovered
service purpose in that
as required for
addition
Carlos which
under to
was the
Secthe checks
operating
19a penalties
of on
the were information about the issuer (DOP) and
majeure.
Philippines,
considered Did the
force andhijacking
majeure. that all
constitute
Only ofone the of force
activities
the Act and
SUGGESTED
Hermie
Philippines?
necessary since
ANSWER:
Cortez.the
(2%)
to implementation
Peter
exhibit theasked Cortez
instrument, of theto take
which
issued
prescribed,
hisrelated
routeto
Public and,
under
Service be therefore,
deported
Antonio’s
Act.Reyes a) not
CPC.
Was without
the a holder
Because
revocationfurther in due
of latter's securities (shares), which
majeure
two hijackers to
exculpate
plaintiffs
was armed trading
with from in U.S.
any securities ordinance
The him principal
to his was without
purpose
office ofsanction
ingenerally
Malate. laws
he isOn and orthe approval
waytotothe
SUGGESTED
course.
proceedings
Basilio
the filed
certificate
ANSWER:
Second,
aaftercomplaint
of it isfor
service
public not aa bladed
ofillegal ground
sentence.
convenience operations offor the
(Sec EF cannot
information do isbecause
not not in
available
liability
all
The
weapon.
Insider transpired
to
grounds
As
Trading;Dizon?
against outside
ofDiscuss
the
the
Manipulative 4 the
fully.
motion
male Philippines.
to
employees
Practices dismiss If
of you
are of
(j) the
regulations
Malate, Commission,
possession
of the governing
the
Public taxicab
thereof.
Service its enforcement
securities
collided
Act it is within
only was
the
a the
56
withdischarge
RSA)the
Robert Maritime of theIndustry
justified? postdated
Explain. check
Authority,
b)motion
Whenbusiness as against
can the in Philippines public. Accordingly, OB is guilty of insider
are the judge, decide isthe to dismiss unauthorized
B. No, because and
is jeepney,
to illegal.
protect
CDcan asthe 1)
negotiated May
public the reliance
against
both
Reyes,
(1994)
1) SUGGESTED
Give
a
Antonio
2auntenable.
holder
Commission
hijackers,
andcase ANSWER:
in
Carlos where
due
(Board)
EOL
with
course
jointly
only
a person not
filed
exercise
one
that doing
who
an
of
itsit isthem
not
was
power
an
issued
to
passenger
Commissioner
trading under which Section a of thethe
result
require
27 ofSecurities
which
by
1a)
the
being
issuing ruling
No.
armed on
A single
Philippines,
corporation, with theahold-up
andrespective
bladed
director incident
it only
did
weapon, contentions
not which
or officer violate
cannot does of of
the X
OB on
instrument
the compliance
Peter Section
nefarious
is wasalsowith 16
practices
liable
by the
injured, (m)
for
delivery. of
i.e., of
provisions the
damageshe Public
unscrupulous
fractured
oftothe Service
sellers his or left
merely
application
suspend as for
or security.
sale
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through
because of her having unable to take the Far
(per dondee) No, there was breach of LGcommon
Airlinescarrier from when Teheran the accident
to Manila as
East flight. Could either or both airlines be
contract and that she was accommodated happened
evidenced byandLG A Air suffered
Waybillserious injuries. In
which disclosed
held liable to Vivian? Why? (6%)
well with the assistance of PAL employees an action by A against the
that the actual gross weight of the luggage common carrier,
to take the flight without undue delay. the latter claimed that
was 180 kg. Z did not declare an inventory 1) there was a of
Common Carrier; Defenses stipulation in the ticket issued
the contents or the value of the 13 pieces of to A
(2002)
Why is the defense of due diligence in the absolutely
luggage. After exempting
the saidthe carrier
pieces of from
luggage
selection and supervision of an employee liability from the passenger’s
arrived in Manila, the consignee was able death or to
not available to a common carrier? (2%) injuries
claim fromad the notices
cargo were broker posted
only by12 thepieces,
SUGGESTED ANSWER:
common
with a total carrier
weightdispensing
of 174 kg. with the
X advised the
The defense of due diligence in the selection
extraordinary
airline of the lossdiligenceof one of of the
the 13 carrier,
pieces and of
and supervision of an employee is not
2) A was
luggage andgiven
of the a discount
contentson his plane
thereof. fare
Efforts
available to a common carrier because the
degree of diligence required of a common of thereby
the airline reducing
to trace the theliability
missingof theluggage
common
carrier
were with respect
fruitless. Since to theA in particular.
airline faileda)to Are
carrier is not the diligence of a good father
thosewith
comply
SUGGESTED valid thedefenses?
ANSWER: demand(1%) of X b) to What
produce are the
the
of a family but extraordinary diligence, i.e.,
defenses
missing
a) No.luggage, available
These are X filed
not to valid
any common
an action
defenses forcarrier
breach
because to
diligence of the greatest skill and utmost
Common Carrier; Defenses; Fortuitous Events limit
of they or
contract exempt
are contrary it
with to from
damagesliability?
law as they (4%)
against
are in LG
foresight.
(1994)
Marites, a paying bus passenger, was hit Airlines.
violation In ofitstheanswer, LG Airlines
extraordinary diligencealleged
above her left eye by a stone hurled at the that the Warsaw
required of commonConvention carriers.which limits1757,
(Article the
bus by an unidentified bystander as the bus liability
1758 of New theCivil
carrier,
Code) if any, with respect to
was speeding through the National Highway. b) The
cargo to adefenses
sum of $20 available
per kiloto any common
or $9.07 per
The bus owner’s personnel lost no time in carrier
pound, to limit
unless or exempt
a higher value it from liabilityin
is declared
bringing Marites to the provincial hospital are:1 ANSWER:
advance
SUGGESTED and observance
additional charges of extraordinary
are paid by
where she was confined and treated. Yes. diligence,
Unless
the passenger theand contents of a cargo
the conditions of arethe
Marites wants to sue the bus company for declared
contract 2 or or
as thesetthe proximate
contents
forth inofthe acause
lost of
air luggagethe
waybill,
damages and seeks your advice whether she are
expresslyincident
proved byis athe
subject fortuitous
satisfactory
the event or
contract force
evidence
of the
SUGGESTED ANSWER: majeure,
can legally hold the bus company liable. other
carriage than the self-serving
of cargo to the Warsaw declaration
Convention. of
Marites can not legally hold the bus 3 act or omission of the shipper or
What will you advise her? one
May party,
the the contract
allegation ofshould
LG be enforced
Airlines be
company liable. There is no showing that owner of the goods,
as it is the only
sustained? Explain.reasonable basis to arrive at
any such incident previously happened so as
a just 4award.the The character
passenger of the or goods
shipper or is
to impose an obligation on part of the defects in the packing or in the
bound by the terms of the passenger ticket
personnel of the bus company to warn the Common Carrier
or the containers,
waybill. and v Rapadas 209 s 67)
(Panama
passengers and to take the necessary (1996)
Define5a common ordercarrier?
or act of competent public
precaution. Such hurling of a stone SUGGESTED ANSWER:
authority, without the common carrier
constitutes fortuitous event in this case. The A common beingcarrier
guilty of iseven
a person,
simplecorporation,
negligence
Common Carrier; is
Defenses;
not an Limitation
insurer. of Liabilityv CA firm or(Article
association
bus company
(1998)
X took a plane from Manila
(Pilapil
bound for Davao 1734, NCC). in the business
engaged
180 s 346) of carrying or transporting passengers or
via Cebu where there was a change of goods or both, by land, water or air for
planes. X arrived in Davao safely but to his compensation, offering its services to the
dismay, his two suitcases were left behind in public (Art 1732, Civil Code)
Cebu. The airline company assured X that Common Carrier; Breach of Contract; Damages
the suitcases would come in the next flight (2003)
Vivian Martin was booked by PAL, which
but they never did. X claimed P2,000 for the acted as a ticketing agent of Far East
loss of both suitcases, but the airline was Airlines, for a round trip flight on the
willing to pay only P500 because the airline latter’s aircraft, from Manila-Hongkong-
ticket stipulated that unless a higher value Manila. The ticket was cut by an employee
was declared, any claim for loss cannot p.m.
of PAL.on The05 January 2002 aboard
ticket showed Far East’s
that Vivian was
SUGGESTED ANSWER: Flight F007. Vivian arrived at the Ninoy
exceed P250 for each piece of luggage. X scheduled to leave Manila at 5:30
reasoned out that he did not sign the Aquino International Airport an hour before
stipulation and in fact had not even read it. the time scheduled in her ticket, but was
told that Far East’s Flight F007 had left at
12:10 p.m. It
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) Page 96 of 103 On one occasion, Reynaldo
person
sardineswho wantsand kidnapped
to ride thethe samedriver and his contracted AM to transport for a fee, 100
to signal
hishelper,
intention releasing
to board. them
A publicin Cebu bus,only 2 sacks of rice from Manila to Tarlac.
utilityCity
once
daysit stops,
later. is in effect making a However, AM failed to deliver the cargo,
Pedro Rabor
continuous offersought
to bus to recover
riders. from
It is the duty because its truck was hijacked when the
Alejandrocarriers
of common the value of the sardines.
of passengers The
to stop driver stopped in Bulacan to visit his
latter
their contends that
conveyances for ahe is not liable
reasonable length of a)
girlfriend. May Reynaldo hold AM liable as a
therefore
time in orderbecauseto affordhe is not a common
passengers an carrier?
common
carrier under
opportunity to boardthe Civil Code and,
and enter, even are
and they b) May AM set up the hijacking as a
granting
liable for the
for injuries sake of by
suffered argument
boarding that he is, defeat
defense to Reynaldo’s claim?
SUGGESTED ANSWER:
he is not resulting
passengers liable for from the occurrence
the suddenof the
loss as a) Reynaldo may hold AM Trucking liable as
starting upit orwas due toofatheir
jerking cause beyond his
conveyances
SUGGESTED ANSWER:
control. If you were a common carrier. The facts that AM
while
If I they
were are the doing
Judge, so.theI
judge, would
Santiago,
would
you
by Alejandro
hold
(Dangwa
sustainand Trans Co v CAon95582
thestanding
contention of Oct 7,91of the
Alejandro? Trucking operates only two trucks for hire
stepping
as having engaged as the
a platform
common carrier. A
202s574) on a selective basis, caters only to a few
bus, is already
person who considered hisaBaggages;
passenger andcarry
Common Carrier; Dutyoffers
to Examine services to customers, does not make regular or
is entitled
passengers to all the rights and protection
Railway and Airlineor goods
(1992) for a fee is a common scheduled trips, and does not have a
pertaining
carrier to a contractof of carriage. he has a the law does not distinguishare between
Marino wasregardless
a passenger onwhether a train. Another •certificate of public convenience of no
certificate
passenger, of public
Juancho, had takenconvenience
a gallon of or not, one whose
moment as principal business activity is the
whether
gasoline placedit is inhisa main
plastic business
bag intoorthe incidental carrying of persons or goods or both and
to such
same coachbusiness,
where Marino whether wasitriding.
is scheduled
The or anyone who does such carrying only as an
unscheduled
gasoline ignited service,
and exploded and whether
causing he offers
injury ancillary activity,
his services to the general
to Marino who filed a civil suit for damages public or to a • the law avoids making any distinction
I will however, sustain the contention of between a person or enterprise offering
limited few
against the railway company claiming that
(De Guzman v CA GR 47822
Alejandro that he is not liable for the loss of transportation service on a regular or
27Dec1988)
Juancho should have been subjected to
the goods. A common carrier is not an scheduled basis and one offering such
inspection by its conductor. The railway
insurer of the cargo. If it can be established service on an occasional, episodic or
company disclaimed liability resulting from
that the loss, despite the exercise of unscheduled basis, and
the explosion contending that it was
extraordinary diligence, could not have been • the law refrains from making a
unaware of the contents of the plastic bag
avoided, liability does not ensue against the distinction between a carrier offering its
and invoking the right of Juancho to privacy.
carrier. The hijacking by 3 armed men of the services to the general public and one who
a) Should the railway company be held liable
truck used by Alejandro is one of such cases offers services or solicits business only from
for damages?
Common vs. b) If it were an airline
SUGGESTED ANSWER:
(De Guzman vPrivate
CA GR 47822Carrier; Defenses
27Dec1988). (Pedro de Guzmanthe v CA L-47822 Dec 22,88
company
(2002)
Name involved,
two would
(2)
a) No. The railway company is not your answer
characteristics liablebeforwhich a narrow segment of168s612)
the general population
same?
damages. Explain
differentiate briefly.
In overland a commontransportation,carrierthefrom a SUGGESTED ANSWER:
SUGGESTED
privatecarrier ANSWER: (3%).
carrier.
common is not bound nor empowered b) AM Trucking may not set up the hijacking
Two (2)
to make characteristics
an examination on thethatcontents
differentiate
of a as a defense to defeat Reynaldo’s claim as
common
packages orcarrier from a private
bags, particularly thosecarrier are: the facts given do not indicate that the same
1 A common carrier offers its service to the
handcarried by passengers. was attended by the use of grave or
public;
b) If it were a private
an airline carrier
company, does the
not.common
irresistible threat, violence, or force. It
2
carrier A common
should be made carrier
liable. is In
required
case ofto airobserve would appear that the truck was left
extraordinary
carriers, it is not diligence;
lawful to carry a private carrier is not so
flammable unattended by its driver and was taken
required.
materials in passenger aircrafts, and airline while he was visiting his girlfriend. ( Pedro de
companies may open and investigate Common
Guzman vCarriers;
CA L-47822 Liability for Loss
Dec 22,88 168 scra 612 ).
suspicious packages and cargoes (RA 6235) (1991)
Alejandor Camaling of Alegria, Cebu, is
Common Carrier; Test CommoninCarrier;
engaged buying Duration
copra, of charcoal,
Liability firewood,
(1996)
What is the test for determining whether or (1996)
A bus of GL Transit
and used bottles and in resellingon its way to Davao them in
not one is a common carrier? Cebustopped
City. Heto enable
uses 2 abig passenger
Isuzu trucks to alight.
for theAt
SUGGESTED ANSWER: that moment,
purpose; however, Santiago,
he haswho no had been of
certificate
The test for determining whether or not one waiting
public for a ride, boarded
convenience or franchisethe bus. to do
is a common carrier is whether the person business as a common carrier. Ontothe
However, the bus driver failed notice
return
or entity, for some business purpose and Santiago who was still
trips to Alegria, he loads his trucks standing on thewith
bus
with general or limited clientele, offers the platform, and stepped on
various merchandise of other merchants in the accelerator.
service of carrying or transporting Because
Alegria and ofthethe sudden motion,
neighboring Santiago of
municipalities
passengers or goods or both for slipped
Badian and fell
andANSWER: down suffering
Ginatilan. He charges serious them
Common Carriers; Defenses SUGGESTED
compensation. injuries.
freight ratesMay Santiago
much lower holdthanGL Transit
the liable
regular
(1996)
1) AM Trucking, a small company, operates Santiago may hold GL Transit liable for
for
rates. breach
In one of contract
of the return of carriage?
trips,Itwhich Explain.
left
two trucks for hire on selective basis. It breach of contract of carriage. was the
caters only to a few customers, and its CebudutyCity
of at
the 8:30
driver, p.m.
when 1 hecargo
stopped truckthe was
bus,
trucks do not make regular or scheduled loaded
to do with
no several
act that boxes
would of
have sardines,
the valued
effect of
trips. It does not even have a certificate of at P100th,
increasing belonging
the periltotoone of his customers,
a passenger such as
public convenience. Pedro Rabor. While passing
Santiago while he was attempting the zigzag road
to board
between Carcar and Barili, Cebu,
the same. When a bus is not in motion there which is
midway between
is no necessity for aCebu City and Alegria, the
truck was hijacked by 3 armed men who took
all the boxes of
Mercantile
Mercantile
LawLaw
Bar Bar
Examination
Examination
Q &QA&
(1990-2006)
A (1990-2006) Page 98 97
Page of 103of 103 “received
policy and forPage 99 of 103
shipment”
therefore void
and and
seemingly inadequate despite its efforts of Trusts
contained
inexistent. Receipt
an entry Law
(Art. 1409[1],
indicating Civil
transshipment
Code)
Trust Receipts
improving the same. Law; Pasok LiabilityTransportation,
for estafa (2003)
in Hongkong.
PB & Co., Inc., The President
a manufacturer of JRT of steel and
(1991)
Mr.
Inc., Noble,
now applies as forthe the President
issuance ofto ABCit byTrading
the personally
steel products,received and signed thecertain
imported bill of raw
IncTransportation
Land executed a trust receipt inand
Franchising favor of BPI lading Kabit
materials
andSystem; forAgent
despite usethe byofentries,
itthein Registered
thehemanufacture Owner
delivered of
Bank toBoard
Regulatory secure of a the importation
certificate of public by his the(2005) Procopio
corresponding
its products. purchased
The check inanpayment
importation Isuzu was ofpassenger
the
effected
company of
convenience forcertain
the same goods. After release and freight.
Manila-Tarlac- jeepney
through from
Theashipment
trust receiptEnteng,
was arrangement a holder
delivered at the withof ABa
sale route.
Manila of theCould imported Bayangoods, Bus Lines, the Inc.,
proceeds port certificate
of discharge
Banking of but
corporation. public theWhen convenience
buyer itrefused
appliedto for the
for the
SUGGESTED ANSWER: operation of public utility vehicle
fromthe
invoke the“prior
sale operator”
were not rules turned over to BPI. accept
against issuancethe anahaw by AB fans Banking because thereplying
Corporation was ofthe a
(per Dondee)
SUGGESTED No,be Bayan
ANSWER: Bus Lines, Inc., Calamba-Los Baños
Would
Pasok BPI
Transportation, justified
Inc.? in Why? filing(6%) a case for no letter on-board bill of
of credit, PB & route.
lading, Co.,andInc., While
there did was Procopio
not make
BPI
cannot would
invoke be Noble?
the justified
“prior operator” in filingrules a case for continued offering
estafa against transshipment
any representation since the tothe thejeepney
goods bankwere that forit would
public
estafaPasok
against under PD 115 againstInc.
Transportation, Noble.because The fact transport services, he did
transferred
be sellinginwhat Hongkong it had from
imported.MVnot Ithave
Pacific,failedthe to
that
such the trust
“Prior or OldreceiptOperator wasRule” issued in favor
under the of registration ofWhen
theMV vehicle transferred
thepay
feederthe vessel,
bank. to demand
Oriental, was made in
a mother uponhis
a bank,
Public Service instead
Act only of applies
a seller,asto secureofthe
a policy name. Neither did he secure for to himself
vessel.
it to JRT argued
account for thatthe the same cannot
importation, bereturna
theimportation
law of the Public of theService goods Commission
did not preclude to certificate ofor public convenience for its
considered
the articles,transshipment to turn-over because the both proceeds of
thea application
issue certificate ofofpublic the Trust
convenience Receipt to Law.
a operation. Thus, per thebank, records of Co.,
the Land
vessels
the sale belong thereofto the to same
the shipping PB & Inc.,
(PD operator
second 115) Under whenthe priorlaw, any officer
operator is or Transportation Franchising andPBRegulatory
company.
also failed. 1) WasThe there bank
transshipment?
sued & Co.’s
employee
rendering of a corporation
sufficient, adequate and responsible for Board, Enteng remained its registered
ALTERNATIVE ANSWER: Explain
President 2) JRT who further
was the argued that assuming
signatory of theowner trust
the violation
satisfactory service, of a and trust who receipt
in all is subject to
things and operator. One day,
The filing of a case for estafa under the that receipt
there was
for estafa.
transshipment, The while itthe
President cannotjeepney
putbe up wasthe
andthe penal liability
respects is complying thereunder
with the(Sia rulev andPeople traveling southbound, it collided with a ten-
penal provisions of the RPC would not be deemed
defense to have
that agreed
he could thereto not even
be if
made it liable
166s655)
regulation of the Commission. In the facts of wheeler truck owned by Emmanuel. The
justified. It has been held in Sia v People signed
because
Procopiothe bill there
sued of lading
was
Emmanuel nocontaining
deceit resulting
for damages, such in but the
the case at bar, Bayan Bus Lines service driver of the truck admitted responsibility
(161 s 655) that corporate officers and entry because
violation
SUGGESTED
the latterANSWER: ofit was
the made
trust
moved to dismiss the case on theknown
receipt. to theHe also
became seemingly inadequate despite its for
directors are not criminally liable for a shipping No, the
submitted
SUGGESTED
ground lines
the accident,
ANSWER: that
from
defenses
that there
Procopio the explaining
are start
was
is not
not that
nothe that the oftruck
violation
sustainable.
real partyThe the
in
efforts of improving the same. Hence, in the lost its brakes.
Registered
violation Owner; of Conclusive
said Code. Presumption2 conditions are transshipment trust
1) Yes.
lack
interest receipt
Transshipment
of was
deceit
since because
he prohibited
is is
should
not the
the
the raw
act
notunderof be
registered the
materials
taking were
sustained
owner
interest of providing efficient public
(1990)
Johnny ownsbefore
required a Saraoa jeepney. corporate Heofficer
asked his may be letter not
cargo
of of
sold
out
because
the credit but
oftheone
jeepney. andused
ship
mere that,
Resolveby
and
failuretherefore,
the thecorporation
loadingtomotion ititinhad
account with no
in the
for the
transport
1 Van services,
There the
must use be ofa the 'priorprovision of intention
specific
neighbor
criminally if he could
liable for anoperate
offense the said
committed manufacture
by another. It
importation,
SUGGESTED
reasons. (3%)tois allow oftransshipment
immaterial
ANSWER: or its products.
whether
return of
or
the the
Would
not the those
articles
operator' and the 'priority of filing' rules
the law
jeepney mandating
under
corporation; Van’sviz: a corporation
certificate to act or not to subject
of public sameTheperson,
defenses motion
cargo.
constitutes befirm,
Is
theto ordismiss
sustainable?
the argument
abuse entity ofWhy?should
owns tenable?
(6%)
the
confidence be
twodenied
in the
shall isact;
untenable n this case.
andVan agreed and, accordingly, because
convenience. Reason.
vessels.
crime of Procopio,
(Magellan estafa. v CA as201
The thefacts real
102)that ownerthe of the
goods
Johnny2registered Therehis must be anunder
jeepney explicit Van statement in 2) No. JRTsold
jeepney,
aren’t is isbound
but the byreal
are the terms
used party
in the of manufacture
the bill
in interest.
name. the law itself
On June that, in
10, 1990, one caseof theof such violation by of lading
of its when
Procopio it accepted
falls
products under
is immaterial the
thebillKabit of because
lading system. a
a corporation,
passenger jeepneys operated the officers by Vanand bumped
directors with full
However, knowledge
the legal of its contents
restriction
violation of the trust receipts law happened as which
regards the
Tomas.thereof
Tomas are wastoinjuredbe personally
and in due andtime,criminally included when transshipment
Kabit system
it failed does to account in Hongkong.
not apply
for the in this
goods caseor
he filedliable therefore.
a complaint for damages against Van Acceptance
because under
the publicUsury Law
such
return them to the Bank upon demand. atcircumstances
large is not deceived
and his driver for the injuries he suffered. makes
nor the bill of (Lim
involved. ladingv.aCourt binding of contract.
Appeals, G.R.
Usury Law
The court rendered judgment in favor of
These conditions are not met in the penal
(Magellan
No.
(199)
Borrower
In
Trust Receipts Law
any event,
v Ca 201January
125817, obtained
s 102) 16, 2002, citing
Procoprio a loan isofdeemed from toa be money
Tomas and ordered Van and his driver, jointly Baliwag Transit v. Court Appeals, G.R."theNo.
provisions of the RPC on trust receipts. lending
agent" enterprise
of the for
registered which owner. (Firsta
he issued
and severally, to pay Tomas actual and moral 57493,
Trust Receipts January
Law; Acts7, & 1987)
Omissions; Covered
The Sheriff levied on the jeepney belonging promissory
Malayan Leasing note undertaking
v. Court of Appeals, to pay atG.R. the
damages,
Trust attorney’s
Receipts Law; fees, andfor
Liability costs.
Estafa (2006)
Whatend acts
of a or omissions
period of 30 are
days penalized
the principal plus
to Johnny but registered in the name of Van. No. 91378, June 9,1992; and "F" Transit Co.,
(1997)
A buys
Johnny filedgoods
a 3rdfrom party a foreign
claim with the using his under
supplier Inc. the
interest
SUGGESTED
Trust
at the Receipts
v. NLRC, rate 5.5%Law?
ANSWER:G.R. Nos, 88195-96, January
per month (2.5%) plus 2%
credit
Sheriff line with
alleging a bank of
ownership tothe payjeepney
for the goods. per annum
Maritime
27, 1994) as
Commerce;service charge.
Bareboat
TheOn Trust Receipts Lawloan, (P.D. borrower
No. 115) failed to
Upon
levied uponarrival
and of the goods
stating that the at the pier, the
jeepney wasbank declares For maturity
(2003) thethe
of the
transportation
failure to turn of
over its goods
cargoor from the
requiresinAthe
registered to name
sign aoftrust receipt to
Van merely before A is pay
Port theManila
of principal to the debt Port as ofwell Kobe, as Japan,
the
proceeds
stipulated realized from sale
interest and thereof,
service as acharge.
allowed to take
enable Johnny to make use of Van’s delivery of the goods. The Osawaoffense & Co.,under chartered “bareboat” M/V Ilog
Kabit System criminal
Hence,1 he How would
wasCorporation.
sued. Art. you 315(l)(b)
dispose of
ofmetthe a sea
trust receipt
certificate of public contains
convenience.the usual May language.
the A of Karagatan M/V Ilog
(2005)
Discuss thethe “kabit system” in land Revised Penalraised
issues Code.by The law is violated
SUGGESTED
disposes
Sheriff
ANSWER:
proceed of withgoods the publicand receives
auction ofpayment whenever accident theresulting
entrustee inthe the borrower?
loss of to
or person the cargo and
whom
transportation
Yes, the
but doesSheriff may
not pay and its
proceed legal
the bank. with consequences.
the
The bank files a 2
thereceipts
death ofwere That some the stipulated
of thefails seamen interest
manning rate the
Johnny’s
SUGGESTED jeepney.
ANSWER: Discuss with reasons. trust issued to: (a) return
(2%)
auction
criminalsale of Johnny’s jeepney. In is excessive and unconscionable? (3%)
The kabitaction
contemplation system
of law
against
isasan A for violation
arrangement
regards thethat publicwhere of the
a vessel.
(Metropolitan
theSUGGESTED
goods Who
3thecovered
Bank should
Is the
ANSWER:
v.byTonda,
the
interest
bear trusttheNo.
G.R. loss
ratereceipts;
of the
134436,
usurious?
cargo
orAugust
Trust Receipts Law. A asserts the trust 16, and
2000). death of the seamen? Why? (4%)
andperson grantedtheavehicle
third persons,
receipt is only to secure
certificate
is considered
his
of public
debttoand
(b)(per
that a Is lack
return the proceeds
Dondee)
(3%) Osawa of and theCo. saleshall of said bear the
convenience allows other persons operate goods of intent to defraud a bar to the
thecriminal
propertyaction of thecannot registered operator
lie against him because loss because under a demise or bareboat
theirv motor vehicles prosecution of these acts or omissions?
Trans-Shipment;
SUGGESTED
(Santos
that Sibug
would
Bill
ANSWER:
104
be
of S 520)under
Lading;
violative
binding his
of his
license,
contract for a
constitutional charter,ANSWER:
SUGGESTED the charterer (Osawa & Co.) mans
JRTNo.
IncViolation
fee
(1993) or percentage
entered of a atrust
into receipt
of their
contract is C
earnings
with criminal of as
Co(Lim v. (2.5%)
right against “imprisonment for nonpayment No. the
The vessel
Trust with
Receiptshis own Lawpeople is violated and becomes,
it istopunished
Court
Japan of Appeals
export as and
anahaw estafa fans under
Gonzalez, valued Artat
G.R, 315125817,
No. of the in
whenever effect, the the owner
entrustee for failsthe voyage
to: (1) turnor service
of
RPC.a debt.”
There Isishe correct?
a public policy involved
January
$23,000. As16,payment
2002, citing Baliwag
thereof, Trannit
a letter of v.which
Court
overstipulated,
the proceeds subject of the tosale liability
of thefor goods,damages
is to
of
credit assure
Appeals,
was issued theNo.
G.R. toentruster
57493,
JRT by the thebuyer.
January The The
reimbursement
7, 1987) caused by negligence.
or (2) return the goods covered by the trust
lawof
of
letter theenjoining
amount
credit requiredthe kabit
advancedthe issuance system
or the ofaims
balance
an to Prior ifOperator
receipts the goodsRule are not sold. The mere
identify
thereof the
for the person
goods
on-board bill of lading and prohibited the responsible
subject of for
the an
trust (2003)
Bayan
failure to account Bus Lines or return hadgives been rise to operating
the
accident
receipt.
transshipment. Thein order
execution
The to
President of protect
the of trust
JRT the
receipt
then ridingor satisfactorily
crime which is a
malum bus service
prohibitum. over There the isroute
The law does not penalize the parties to a
public.
the use
contracted The
thereof policy
a shipping But promoteshas
agent nothe force
to ship smooth when flow theof Manila to Tarlac and vice versa via the
kabit agreement. the kabitthe system is no requirement to prove intent to defraud
public
commerce
anahaw at large
as
fanstothrough it helpsis neither
the importer deceived or nor
buyer McArthur Highway. With the upgrading of
contrary public O Containers Lines, (Ching v. Secretary of Justice, G.R. No. 164317,
involved.
of the goods covered thereby.
specifying the requirements of the letter of the new North Expressway,
February 6, 2006; Colinares v. Court of Appeals, Bayan Bus Lines
credit. However, the bill of lading issued by G.R.service
No. 90828, became September 5, 2000; Ong v. Court
the shipping lines bore the notation of Appeals, G.R. No. 119858, April 29, 2003).
Mercantile Law Bar Examination Q & A (1990-2006)
b. The interest cannot be considered
usurious. The Usury Law has been
suspended in its application, and the
interest rates are made “floating.”

Warehouse Receipts Law

Bill of Lading
(1998)
1. What do you understand by a “bill of
2. Explain
lading?” the two-fold character of a “bill of
(2%)
lading.” (3%)
SUGGESTED ANSWER:
1. A bill of lading may be defined as a written
acknowledgement of the receipt of goods and
an agreement to transport and to deliver them
at a specified place to a person named therein
or on his order.
2. A bill of lading has a two-fold character,
namely, a) it is a receipt of the goods to be
transported; and b) it constitutes a contract of
carriage of the goods.
Delivery of Goods; Requisites
(1998)
Luzon Warehousing Co received from Pedro
200 cavans of rice for deposit in its
warehouse for which a negotiable receipt
was issued. While the goods were stored in
said warehouse, Cicero obtained a judgment
against Pedro for the recover of a sum of
money. The sheriff proceeded to levy upon
the goods on a writ of execution and
directed the warehouseman to deliver the
SUGGESTED ANSWER:
goods. Is the warehouseman under
No. There was a valid negotiable receipt as
obligation to comply with the sheriffs order?
there was a valid delivery of 200 cavans of
(5%)
rice for deposit. In such case, the
warehouseman (LWC) is not obliged to
deliver the 200 cavans of rice deposited to
any person, except to the one who can
1
comply surrender
with sec 8 theof
receipt
the ofWarehouse
which he is a
holder;
Receipts Law, namely:
2 willing to sign a receipt for the
delivery of the goods; and
3 pays the warehouseman’s liens that is,
his fees and advances, if any.
The sheriff cannot comply with these
requisites especially the first, as he is not
the holder of the receipt.
Delivery of the Goods
(1991)
When is a warehouseman bound to deliver
the goods, upon a demand made either by Recommendation: Since the subject matter
the holder of a receipt for the goods or by of these two (2) questions is not included
SUGGESTED ANSWER:
the depositor? within the scope of the Bar Questions in
The warehouseman is bound to deliver the Mercantile Law, it is suggested that
goods upon demand made either by the whatever answer is given by the examinee,
holder of the receipt for the goods or by the or the lack of answer should be given full
SUGGESTED
credit.ANSWER:
If the examinee gives a good answer,
depositor if the demand is accompanied by
1 an offer to satisfy the warehouseman’s a. The rate of
he should beinterest of 5.5%credit.
given additional per month is
lien, excessive and unconscionable.
2 an offer to surrender the receipt, if
negotiable, with such indorsements as would be
necessary for the negotiation thereof,
 Page 100 of 103
3. and readiness and willingness to sign
when the goods are delivered if so requested
by the warehouseman (Sec 8 Warehouse
Receipts Law).
Garnishment or Attachment of Goods
(1999)
A Warehouse Company received for
safekeeping 1000 bags of rice from a
merchant. To evidence the transaction, the
Warehouse Company issued a receipt
expressly providing that the goods be
delivered to the order of said merchant. A
month after, a creditor obtained judgment
against the said merchant for a sum of
money. The sheriff proceeded to levy on the
rice and directed the Warehouse Company to
1
deliver What
to himadvice will you give
the deposited rice.the
Warehouse Company? Explain (2%)
2 Assuming that a week prior to the
levy, the receipt was sold to a rice mill on
the basis of which it filed a claim with the
sheriff. Would the rice mill have better
SUGGESTED ANSWER:
rights to the rice than the creditor? Explain
1 The 1000
your answer. (2%)bags of rice were delivered
to the Warehouse Company by a merchant,
and a negotiable receipt was issued therefor.
The rice cannot thereafter, while in the
possession of the Warehouse Company, be
attached by garnishment or otherwise, or be
levied upon under an execution unless the
receipt be first surrendered to the
warehouseman, or its negotiation enjoined.
The Warehouse Company cannot be
compelled to deliver the actual possession of
the rice until the receipt is surrendered to it
or impounded by the court.
2 Yes. The rice mill, as a holder for
value of the receipt, has a better right to the
rice than the creditor. It is the rice mill that
can surrender the receipt which is in its
possession and can comply with the other
requirements which will oblige the
warehouseman to deliver the rice, namely, to
sign a receipt for the delivery of the rice, and
to pay the warehouseman’s liens and fees
and other charges.
 Mercantile Q
Mercantile Law Bar Examination Law
& ABar Examination Q & A (1990-2006)Page
(1990-2006) 101 of Page
103 103 102 of 103
SN Warehouse
equal protection canof file
law an clause
this additional
There was noduty, misdelivery
the current by low theprice carrier of 2. of
INTERPLEADER
The the Chief
Constitution. Justice to Fourth,
compel
also said EJ
thereand isMelchor
that no the
since the
sugar in the cargo world wasmarketconsidered will surelyconsigned pull to to litigate
impairment
judiciary must against
of"safeguard
dueeach process other
the herefor because
the and
liberty"
the domestic Miscellaneous
Sugar central priceper to levels
the “Shipper’s
lower than Order”
the ownership
violators
"nurture theofof the the law goods.
prosperity" will be Sec.
ofpunished
17
ourof people.
theonly
(Eastern
cost to producer
Shipping domestic
Lines v CA sugar 190– sa 512) Warehouse
after
Explain "proper
this Receipts
trial." Fifth,
philosophy. Law
Cite states,
the issue
Decisions "If of
more
of"just
the
ALTERNATIVE
situation that ANSWER: could spell the demise of the than one
compensation"
Supreme Courtperson does
claims
implementing notthe arise,title
each because
orof these the
Energy
There Regulatory
was Commission:
misdelivery. Jurisdiction
ThetheB/L &was ofa SUGGESTED
possession
property ANSWER:
ofofof
Mrs. theBC goods,is not the beingwarehouse
Phil sugar industry. a) Discuss validity twin beacons the Chief Justice. (2.5%) may,
Power (2004)
negotiable document of title because it was Theexpropriated.
ChiefasJustice's
either a defense On philosophy
the tocontrary,
an action "Safeguarding
asbrought
a citizen of
this proposal to impose an additional levy on
CG,to acustomer,
the “Shipper’s sued MERALCO
Order.” Hence, in the
the MM
common Liberty,
against
LVM, Nurturing
Mrs.himBC Prosperity"
forisnon-delivery
freely allowed ofembodies
the goodsthe
to engage or
in
imported sugar (3%) b) Would the proposal
Regional
carrier Trial
should Court have to disclose the basis of to Supreme Court's approach in decision-making
be consistent with thedelivered
tenets of the the cargo
World as an original
domestic timber suit,tradewhichever
in LVM.is appropriate,
thethe computation
Central only of uponthe purchased
surrender of power
the B/L. in Tariff
the exercise
require and Customs
all known ofCode:
itsclaimants
constitutional
Violation oftoCustoms power of
interplead."
Trade Organization (WTO)? (3%)
adjustment
The non-surrender (PPA). Theoftrial
Recommendation: the Sincecourt
B/L will theruled make it it
subject judicial
Unpaid(2004)
Laws review
Seller; which of provides:
Negotiation the Receipt In cases
hadliable
no jurisdiction
tomatter
holders of over
these
in due the
two case because, isasnot
(2) questions
course. (1993)
involving
A purchased
The liberty,
Collector ofthe
from Sscales
Customs150 cavans of justice
ordered of the should
palay on
Ownership
contended byof the
included Goods
within
defendant,Stored
the scope the customer of the Bar weight
credit.
seizure heavily
Aand deposited against
forfeiture theof government
palay
new in W’s and in
electronic
(1992)
To guarantee
Questions
not only demanded a breakdown the payment
in Mercantile of a loan Law, obtained
it
of is favor of theshipped
warehouse.
appliances W poor,
issued bythe
toTONA aoppressed,
negotiable
Corp. from the
from a suggested
MERALCO's bank, billRaul pledged
that
with whatever
respect 500to bales
answer PPAof isbut
given marginalized,
warehouse for
Hongkong theviolation
receipt dispossessed
in the ofname
customsand of the
A.
laws weak;
tobaccobydeposited
questioned asthe wellexaminee,
theinimposition or the lack
a warehouse of the toofsaid
answer
PPA, andbecausethat they
Thereafter, laws andfalsely
A negotiated
were action the that as
receipt
declared restrict
toused
B who
should be given full credit.
bank and
a matter toendorsed
be decided in blank by the BoardIf ofthe
the warehouse fundamental
purchased
office equipment rights
the said come
and receiptto the
then for court
value "with
undervalued andfor ina
receipt. examinee gives a good answer, he loan,
should
Energy,
SUGGESTED theBefore
regulatory
ANSWER: Raul couldagency pay for the
which should heavy
good faith.presumption
1) Who has
purposes of customs duties. TON filed a a against
better right to their
the
SUGGESTED ANSWER:
the be
tobacco given additional
disappeared credit.
from the suit. Is
alsoa) The
have proposal
jurisdiction to over
impose the an additional
instant duty constitutional
deposit, S, before
complaint validity.
the theOn
unpaid theRegional
vendor
MM other or b, hand,Trialas a
the
Thewarehouse.
trial court's Who rulingshould is correct. As held in
the ontrialimportedcourt's sugarruling on bear top the
correct of the loss
or –not?
the
current general
purchaser
Court rule, the
of the
for replevin, Supreme
receipt
alleging Court
for that
valuemusttheand adoptin a
Customs
Manila Electric
SUGGESTED
pledgor ANSWER:
or the Company
bank?not v.
Why? Court of Appeals,
tariff briefly.
Reason rate is valid, being prohibited by
The pledgor
271SCRA 417 (5%) should the
(1997), bear Boardthe loss. of Energy In the deferential
good faith?
officials
SUGGESTED ANSWER:
orWhy?
erred respectful
in the2) When attitude
can the and
classification towards
the Constitution. It would enable producers actions taken by
warehouseman
valuation the governmental
be obliged towelldeliver agencies
the
hadpledge
the power of ato regulate warehouse
to realize reasonable profits, and would
and receiptfix power the 1) B has aof its shipment,
better right than as S. Theasright in theof
ownership
rates to be charged of theby goods franchised remain electric with thatpalay have
issuance to A? primary
of the warrant responsibility
of seizure. for the
The
allow the sugar industry of the country to the unpaid seller, S, to the goods was
depositor economic
Collector development
moved to dismissof the the country;
suit for and
lack
utilities
b) No.like
survive. Theor his transferee.
MERALCO.
proposal In fact
would notAny becontract
pursuant consistent toor Decisions
only
defeatedimplementing
SUGGESTED
when
by
ANSWER:
an
the act
act has
of Athe
been
"safeguarding
in endorsing
clearly made
the
real
with the tenets of the WTO which call not
Executive security,
Order among
No. them
478 a
(April pledge, 17, does
1998), for
of jurisdiction
of receipt
The
liberty"
Collector's
to B. include on the
motion part
those shouldof the
involving trial
be granted. theor
court.
thisamount to hasor result executed
Should with
the grave
Collector's abuse of
motion discretion
be granted doesor
thepowerliberalization been ofintrade.
an assumption
transferred However, to ofthe risk
such 2) The Section
Under
constitutionality
the Court
denied?
warehouseman
get
Reasoninvolved
602(g)ofof
briefly.in
can the
policy
(5%)
beTariff
obliged andto
Presidential
issues.
of
Energy loss
proposal by
Regulatorymay thebe creditor.
Board (now
acceptable Thethe Warehouse
Energy
within the deliver the
Proclamation
Customs palay
Code, No. the to Bureau
1017 A if (David
B negotiates
of Customs
v. Arroyo, backhas
Receipts
Regulatory
allowable Law did notunder
Commission).
period deviate Under from WTO
the this rule.
Section for G.R.the receipt
exclusive
No. 171390, to A.May
original Injurisdiction
that case, A
3, 2006); over
thebecomes
seizure
validity a
Right
43(u) to the
of the Electric Goods Power Industry Reform holder
of and
Calibrated NOTE:
again
forfeiture (This
of the
Pre-emptive question
receipt,
cases under is outside
and
Response A can
the tariff (CPR) the
and coverage of
adjustment of the local industry
Act(2005)
Jojoofdeposited
Power of 2001, the State:several
the cartons
Energy
Regulating ofofDomestic
goods
Regulatory with SN
Trade comply
andcustoms
B.P. Big. Bar
the
with Examinations.
laws.
880 Sec or8the of the ItWarehouse
Public is therefore
AssemblyrecommendedAct
Warehouse Corporation. The corresponding Validity whatever
that answer made by the candidate should
Commission
(2004)
In its exercise has of original
police power and and exclusive
business Receipts
(Bayan v.ofErmita,
stipulations
given
Law. G.R.
full
excusing
credit.)
No. 169848,warehouseman April 25,
Fourwarehouse
ACID Problems receipt of wasPhilippine Judiciary be
jurisdiction
regulation, over casesissued
thealllegislature contesting to the order of
of LVM powerState from negligence
2006); and the (2000) legality of Executive Order
(2006)
In several
Jojo. Hepolicy endorsed addresses
the warehouse extensively receipt to EJ
rates.
passed a law prohibiting aliens from No.S stored
464 and hardware materials inexercise
the President's the bonded of
covered
who paid by media the valuesince his of the appointment
goods deposited. on On the other hand, cases
engaging in domestic timber trade. Violators warehouse
Executive of W,
Privilege a (Senate relate
licensed that
warehousemanof theto
Before EJ
December 21,could
2005,withdraw
Chief Justice the goods,Artemio Melchor
V. "nurturing
under the the
General prosperity"
Bonded of the
Warehouse peopleLaw
including dummies would, after proper trial, Philippines v. Ermita, G.R. No. 169777, April
informed vowed
Panganiban SN Warehouse
to leave a Corporation
judiciary that the include the question the constitutionality of
be
goods fined and imprisoned
belonged to him and orwere deported.
takeninbyMrs. Jojo
20,(Act
2006). 3893 as amended). W issued the
characterized by "four Ins" and to focus thecorresponding
Mining Law (La Bugal-B'Laan
warehouse receipt v. in
Ramos,
the form
BC,
without a citizen of LVM but married to ZC, an
solving thehis "four consent.
ACID"Melchor problems wants
that to get the G.R.heNo. 127882,uses
ordinarily Dec. for 1,such
2004) and theinWTO
purpose the
alien
goods,the merchant
but EJhasalsoa wantsof PNG, to withdrawfiled suit to
•
corrode Who administration better right
of to the
justice inthe our same.
goods? Government
course ofDeregulation
Agreement (Tanada
his business. vs. All
v. Angara, Privatization
theG.R. of an
118295,
essential terms
invalidate
SUGGESTED
Why? ANSWER: the law
(5%) Explain this "four Ins" and "four
SUGGESTED ANSWER: or exempt from its Industry (2004) under Section 2 of the Warehouse
country.
She contended that office,
the law is, inter alia, May 2,1997).
required
Uponcoverage
EJ has assuming
a their
better timber
his rightbusiness.
to the Chief goods, Justice
being What is the Law difference between government
ACID"
gravelyproblems. oppressive and discriminatory. It Receipts (Act 2137 as amended) are
Panganiban
covered byvowed a negotiable to lead document a judiciary of title, Negotiable
deregulation Documents
and the of Title
privatization of an
violated
characterized the Universal
by the "four DeclarationIns:"issued of Human
Integrity, embodied in the form. In addition, the
namely the warehouse receipts to the (1992)
SUGGESTED
Forreceipt
a cargo
industry? ANSWER:
Explain of to machinery
briefly. (2%) shipped from
issued S contains a stipulation
Rights (UDHR)
Independence,
"order of Jojo."
passed in 1948
Industry
Underand the Intelligence;
by the United
Sales provisions one of Government
abroad to deregulation
anot sugar central is theinfor relaxation that
Dumaguete, or
thatNations,
is morally of which
courageous LVM istoa resist member, she said,
influence, W would
removal Oriental,
of regulatory be responsible
constraints the loss
on firms oforall
the Civil Code on negotiable documents of Negros the Bill of Lading (B/L)
or any portion of the hardware
as well as indifference
interference, the reciprocity provisions
title, and under the and insolence.
provisions
of the
of He the individuals,
stipulated “to with
shipper’s a order,”
view with to materials
promoting
notice of
World Trade
envisions a judiciary Organization
that isLaw, (WTO) Agreement
impervious covered by the receipt even if such loss is
Warehouse Receipts when to goods the competition
arrival to be and market-oriented
addressed to the approaches
Central. The
of
plague 1994, of which PNG and LVM are parties. causedpricing, by the negligenceentry, of W or his other
deposited with the bailee are covered by a
of undue influence brought about toward
cargo arrived at output, destinationS and
itsemployees. and was
Aside from
kinship, denying them
relationship, equal protection, representatives or endorsed
negotiable document friendship of title, and the related
released economic
to the decisions.
Central without surrender of
according
fellowship. to
He calls BC, the law will also deprive and negotiated
Privatization ofthe antheindustry
warehouse refersreceipt to to theB,
endorsement andon the judiciary
delivery of the to battle
document thewho B/L on basis of the latter’s
theher "Four family ACID" their livelihood
problems without due
corroding transfer demanded
of ownership delivery andof the goods.
control by W the
transfers ownership of the goods toour the undertaking to hold the carrier free and
process
justice system: nor (1)just compensation. Assuming could
government not deliver
of assets, because
firms the
and goods
operationswere
transferee.
SUGGESTED ANSWER: Bylimited operation access to of justice law, by the Subsequently,
SUGGESTED
harmless from
ANSWER:a Bank
anyfound to
liability. whom the central
thethat
poor;
Mrs. the
BC's (2)legal systemis of
corruption;
contention (3) LVM is similar
incompetence; to in
was nowhere
No.
an I do not
industry
indebted, to tobe
agree
private
claimedwith in his
thewarehouse.
the
investors. contention
cargo and HeW.
of
transferee obtains the not direct tenable.obligation First, the of
ours,
andUDHR would Mrs. BC's contention be tenable claims
Political
The he
Law;
stipulation is not
WTO liable
that W because
would of
not the
be free-
the(4) delay
baileedoestonot in
hold the
purport
the
(NOTA
delivery
to
goods limit
BENE: in ofhis
the quality
It right
is of
name." presented the original of the B/L stating
or not? Reason
judgments.
states The briefly.
judicial (5%)
department should thatfrom-liability
(1999)
Government
responsible
the Central plans
forclause
the
had stipulated
to loss
impose of allan
failed toorinsettle
theportion
additional
any receipt.
its
(Art. (like 1513, LVM) Civilto regulate
Code;
respectfully domestic
Section
suggested 41, trade.
discharge
Second, itsthe functions
WTO with
Agreement transparency, dutyDoon
of you
the
obligations agree
imported
hardware
with the with
sugar W’s
materials
Bank. oncontention?
top of the current
covered Explain.
by the
Warehouse Receipts that Law) all BarSince EJ involves
Candidates is the
•
accountability
internationalIf SN and Warehouse
dignity.
trade between Corporation states is
or Was (5%)
tariff rate.even
receipt
there The ifintent
misdelivery such loss is
by to isensure
the carrierthat
caused bytothe the
the
holder of the warehousereceive receipt,
a 2.5% bonus he hasforthe
uncertain
governments, as not to domestic
who is
the above entitled
trade in to the
timber
question or landed
sugar cost ofconsidering
negligence
central sugar
of W orshall notnon-surrender
his representative
the be lower than or
better right to the goods. SN Warehouse is
property, what is the properof recourse ofisthe P800
SUGGESTED per
employees
of the B/L? bag.
ANSWER:
Why? This The
is void. is the lawprice requires at which
that a
other
obligedcommodities.
SUGGESTED hold theregardless
toANSWER: Third,
goods in his the
nationality
name.answer) an
corporation? Explain.
accepted norm for making classifications that locally
warehouseman should exercise duesold in
produced sugar would be
do not run counter to the order to enable
diligence in thesugar care and producerscustodytoofrealize the
reasonable
things deposited profits. Without in his warehouse.