MS Brewery Corporation (MS) is a manufacturer and distributor of the popular

beer "MS Lite." it faces stiff competition from BA Brewery Corporation (BA)
whose sales of its own beer product, "BA Lighter," has soared to new
heights. Meanwhile, sales of the "MS Lite" decreased considerably. The
distribution and marketing personnel of MS later discovered that BA has
stored thousands of empty bottles of "MS Lite" manufactured by MS in one
of its warehouses. MS filed a suit for unfair competition against BA before
the Regional Trial Court (RTC). Finding a connection between the dwindling
sales of MS and the increased sales of BA, the RTC rules that BA resorted to
acts of unfair competition to the detriment of MS. Is the RTC correct?

SUGGESTED ANSWER:
The RTC is not correct. Hoarding, or the act of accumulating empty bottles to
impede circulation of the bottled product, does not amount to unfair competition.
BA did not fraudulently " pass off " its product as that of MS Lite. There was no
representation or misrepresentation on the part of BA that would confuse or tend to
confuse its goods with those of MS Lite (Coca Cola Bottlers Philippines v. GOMEZ,
G.R. No. 154491, November 14, 2008).

What does doing business in the Philippines under the Foreign Investment Act of
1991 mean?

SUGGESTED ANSWER:
The phrase "doing business in the Philippines " under the Foreign Investments Act
of 1991 include soliciting orders; service contracts; opening offices, whether called
liaison offices or branches; appointing representatives or distributors domiciled in
the Philippines or who in any calendar year stay in the country for a period or
periods totaling 180 days or more; participating in the management, supervision or
control of any domestic business, firm, entity or corporation in the Philippines; and
any other act or acts that imply continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or works; or the exercise of
some of the functions normally incident to and in progressive prosecution of
commercial gain or of the purpose or object of the business organization; provided
that passive equity investment shall not be construed as doing business

Jason is the proud owner of a newly-built house worth P5 Million. As a protection

against any possible loss or damage to his house, Jason applied for a fire
insurance policy thereon with Shure insurance Corporation (Shure) on
October 11, 2016 and paid the premium in cash. It took the company a
week to approve Jason's application. On October 18, 2016, Shure mailed the
approved policy to Jason which the latter received five (5) days later.
However, Jason's house had been razed by fire which transpired a day
before his receipt of the approved policy. Jason filed a written claim with
Shure under the insurance policy. Shure prays for the denial of the claim on
the ground that the theory of cognition applies to contracts of
insurance. Decide Jason's claim with reason

SUGGESTED ANSWER:
The claim shall be denied. What governs insurance contract is the cognition theory
whereby the insurance contract is perfected only from the time the applicant came
to know of the acceptance of the offer by the insurer. In this case, the loss occurred
a day prior to Jason's knowledge of the acceptance by Shure of Jason s application.
There being no perfected insurance contract, Jason is not entitled to recover from
Shure.
ALTERNATIVE ANSWER:
The insurance contract may be deemed perfected allowing Jason to recover from
Shure if there is a binding note or cover receipt duly issued by Shure to Jason.

In 2015, Total Bank (Total) proposed to sell to Royal Bank (Royal) its banking
business for P10 billion consisting of specified assets and liabilities. The parties
reached an eventual agreement, which they termed as "Purchase and Assumption
(P&A) Agreement," in which Royal would acquire Total's specified assets and
liabilities, excluding contingent claims, with the further stipulation that it should be
approved by the Bangko Sentral ng Pilipinas (BSP). BSP imposed the condition that
Total should place in escrow PI Billion to cover for contingent claims against it. Total
complied. After securing the approval of the BSP, the two bank signed the
agreement. BSP thereafter issued a circular advising all banks and non-bank
intermediaries that effective January 1, 2016, "the banking activities of Total Bank
and Royal Bank have been consolidated and the latter has carried out their
operations since then."
(A) Was there a merger and consolidation of the two banks in point of
theCorporation Code?
(B) What is meant by a de facto merger?

SUGGESTED ANSWER:
(A)
There was no merger or consolidation of the two banks from the viewpoint of the
Corporation Code. The Supreme Court ruled in Bank of Commerce v. Radio
Philippine Network, Inc. (G.R. No. 195615, April 21, 2014), that there can be no
merger if the requirements and procedure for merger (plan/articles of merger or
consolidation) were not observed and no certificate of merger was issued by the
SEC.
(B)
De facto merger means that a corporation called the Acquiring Corporation acquired
the assets and liabilities of another corporation in exchange for equivalent value of
shares of stock of the Acquiring Corporation.
Petitioner Zuneca Pharmaceutical has been engaged in the importation, marketing,
and sale of various kinds of medicines and drugs in the Philippines since 1999.
Among the products it has been selling is a drug called carbamazepine under the
brand name "ZYNAPS," which is an anti-convulsant used to control all types of
seizure disorders of varied causes like epilepsy. Natrapharm, on the other hand, is
a domestic corporation engaged in the business of manufacturing, marketing, and
distribution of pharmaceutical products for human relief. One of the products being
manufactured and sold by Natrapharm is citicoline under the trademark "ZYNAPSE,"
which is indicated for the treatment of cerebrovascular
disease or stroke. The trademark "ZYNAPSE" was registered with the Intellectual
Property Office of the Philippines (IPO) on September 24, 2007. Having been the
first to register in good faith, Natrapharm contends that it is the owner of the
trademark "ZYNAPSE" and it has the right to prevent others, including Zuneca, from
registering and/or using a confusingly similar mark. Zuneca, however, contends
that, as the first user, it had already owned the "ZYNAPS" mark prior to
Natrapharm's registration. Is the argument of Zuneca meritorious?
SUGGESTED ANSWER:
No. As expressed in the language of the provisions of the IP Code, particularly
Section 122 in relation to Section 123.1 (d), prior use no longer determines the
acquisition of ownership of a mark in light of the adoption of the rule that
ownership of a mark is acquired through registration made validly in accordance
with the provisions of the IP Code. (Zuneca Pharmaceutical v. Natrapharm, Inc.,
G.R. No. 211850, September 8, 2020)

Explain how a letter of credit functions.

SUGGESTED ANSWER:
A letter of credit is a financial device developed by merchants as a convenient and
relatively safe mode of dealing with sales of goods to satisfy the seemingly
irreconcilable interests of a seller, who refuses to part with his goods before he is
paid, and a buyer, who wants to have control of the goods before paying.
In a letter of credit, the buyer contracts a bank to issue a letter of credit in favor of
the seller so that, by virtue of the letter of credit, the issuing bank can authorize
the seller to draw drafts and engage to pay them upon their presentment
simultaneously with the tender of documents required by the letter of credit. The
buyer and the seller agree on what documents are to be presented for payment,
which ordinarily are documents of title evidencing the shipment of the goods to the
buyer.
Once the credit is established, the seller ships the goods to the buyer and in the
process secures the required shipping documents or documents of title. To get paid,
the seller executes a draft and presents it together with the required documents to
the issuing bank. The issuing bank redeems the draft and pays cash to the seller if
it finds that the documents submitted by the seller conform with what the letter of
credit requires.
The bank then obtains possession of the documents upon paying the seller. The
transaction is completed when the buyer reimburses the issuing bank and acquires
the documents entitling him to the goods. Under this arrangement, the seller gets
paid only if he delivers the documents of title over the goods, while the buyer
acquires the said documents and control over the goods only after reimbursing the
bank (Panacan Lumber Co. v. Solidbank Corp., G.R. No. 226272, September 16,
2020).
Merlin asked to Arthur if he could borrow some cash. Arthur lent Merlin the money
provided that the debt be secured by a surety. Luckily, Lancelot agreed that he
would act as the surety to allow Arthur to secure his loan. Thereafter, when the
debt was about to fall due, Merlin was able to secure an order from the court
declaring him to be in the state of suspension of payments. Because of this, Arthur
proceeded to file his claim against Lancelot as the surety to the loan he extended to
Merlin. Lancelot refused to pay and argues that a suspension order against claims
from Merlin was promulgated by the court and as a surety, he is therefore also
excused from paying the debt until the order of suspension is lifted. Is Lancelot’s
refusal justified?

No. In the case of Far East Bank and Trust Company v. Union Bank of the
Philippines, the Court stated that under the new law on corporate rehabilitation and
insolvency, Republic Act No. 10142 or Financial Rehabilitation and Insolvency Act
(FRIA) of 2010, among those exempted from the coverage of a Stay Order are
actions filed against sureties or persons solidarily liable with the debtor.
The Court also cited Section 18(c) of FRIA which provides that, the Stay or
Suspension Order shall not apply:
xxx
(c) to the enforcement of claims against sureties and other persons solidarily liable
with the debtor, and third party or accommodation mortgagors as well as issuers of
letters of credit, unless the property subject of the third party or accommodation
mortgage is necessary for the rehabilitation of the debtor as determined by the
court upon recommendation by the rehabilitation receiver.
Therefore, the claim filed against Lancelot in this case may proceed since it is not
impeded the suspension order promulgated by the Court (Far East Bank and Trust
Company v. Union Bank of the Philippines, G.R. No. 196637,June 3, 2019).
Since it is the corporation that is the plaintiff in a derivative suit, is a board
resolution authorizing a representative of the corporation to file the suit on behalf
of the corporation and sign the verification of the complaint necessary?

SUGGESTED ANSWER:
No. A board resolution is not needed for the institution of a derivative suit. While
the corporate power to sue is exercised by the board of directors and the board
may authorize a representative of the corporation to perform all necessary physical
acts, the recognized rule in derivative suits is different. Since the board is guilty of
breaching the trust reposed in it by the stockholders, it is but logical to dispense
with the requirement of obtaining from it the authority to institute the case and to
sign the certification against forum shopping. It has been held that when "the
corporation x x x is under the complete control of the principal defendants in the
case, x x x it is obvious that a demand upon the [board] to institute an action and
prosecute the same effectively would be useless, and the law does not require
litigants to perform useless acts." Thus, the institution of a derivative suit need not
be preceded by a board resolution. (Ago Realty and Development Corporation v.
Ago, G.R. Nos. 210906 & 211203, October 16, 2019).

Bagong Repormang Samahan ng mga Tsuper (BRST) filed a Petition for Injunction
after their member-jeepney-drivers were prohibited from passing under the Shaw
Boulevard-EDSA flyover to ease traffic congestion. BRST claims rightful passage
through the road under the said flyover based on its members’ Certificate of Public
Convenience to ply along the Pasig-Quiapo via Sta.Mesa route where Shaw
Boulevard was included in the route authorized in the certificates. The City of
Mandaluyong argued that it has the power to regulate traffic under the said flyover
pursuant to the Mandaluyong Traffic Management Code. The Traffic Code
authorized the Traffic Management Officer to regulate turning points and terminals
of public utility buses and jeepneys, and to prescribe loading and unloading points
Does the certificates of public convenience give the member-drivers a clear legal
right to ply through the road under the Shaw Boulevard-EDSA flyover?

SUGGESTED ANSWER:
NO. A Certificate of Public Convenience (CPC) does not vest property rights to its
holder to conduct business along the route covered in it. A CPC is a mere license or
privilege subject to compliance with local traffic regulations, because the LTFRB’s
authority to issue such certificates is only supplemental to the right of local
governments to control and regulate traffic in their localities. The authority to issue
CPCs does not remove a local government's power to regulate traffic in its locality.
A grantee is still required to comply with national laws and municipal
ordinances (Bagong Repormang Samahan ng mga Tsuper v. Mandaluyong, G.R. No.
218593, June 15, 2020).
Kevin signed a loan agreement with ABC Bank. To secure payment, Kevin
requested his girlfriend Rosella to execute a document entitled “Continuing
Guaranty Agreement” whereby she expressly agreed to be solidarily liable for the
obligation of Kevin. Can ABC Bank proceed directly against Rosella upon Kevin’s
default even without proceeding against Kevin first?

SUGGESTED ANSWER:
Yes, ABC Bank can directly proceed against Rosella upon Kevin’s default. ABC Bank
does not need to proceed against Kevin first. Notwithstanding the nomination of the
contract as a “Continuing Guaranty Agreement”, it is the actual terms of the
agreement in the document that shall govern. The contract is not a guaranty but is
actually a suretyship. Rosella having expressly agreed to her being solidarily, and
thus, directly and primarily liable to the ABC Bank to fulfill the obligation of the
principal debtor, Kevin, is not a guarantor but is a surety. As such, she does not
enjoy the benefit of excussion.
The Philippine Tourism Authority Board of Directors approved the creation of a
foundation for the development of the Corregidor Island. Thus, the Corregidor
Foundation, Inc. was incorporated under the SEC with government officials as
incorporators. The Philippine Tourism Authority then executed a Memorandum of
Agreement with Corregidor Foundation, Inc. to centralize the island's planning and
development. The Philippine Tourism Authority agreed to release to the Corregidor
Foundation, Inc. its operating funds based on a budget for its approval. When the
foundation was audited by the COA, the auditing team found that there were
several personnel of the Philippine Tourism Authority who were also concurrently
rendering services in Corregidor Foundation Inc. that received honoraria and cash
gifts. The audit team was of the opinion that the grant of honoraria to these
personnel were contrary to the DBM Circular as well as to the Constitution that
proscribes double compensation. These personnel of the foundation counters that
Corregidor Foundation, Inc. is a non-stock, private corporation created under the
Corporation Code and, therefore, cannot be audited by the Commission on Audit. It
is neither organized as a stock corporation nor is it created by a special law or is
governed by a charter created by a special law. Can a non-stock corporation
organized under the Corporation Code, like Corregidor Foundation, Inc.
likewise be a government-owned or controlled corporation?

SUGGESTED ANSWER:
Yes. A cursory reading of the statutory definitions of "government-owned or
controlled corporation" readily reveals that a non-stock corporation may be
government-owned or controlled. These definitions begin with "a government-
owned or controlled corporation" and refers to a "stock or non-stock
corporation. . ." Furthermore, there is nothing in the law which provides that
government-owned or controlled corporations are always created under an original
charter or special law. As held in the Feliciano case, there are government-owned
or controlled corporations without an original charter, that is, those created under
the Corporation Code.

A government-owned or controlled corporation is a stock or a non-stock

corporation, whether performing governmental or proprietary functions, which is
directly chartered by a special law or if organized under the general corporation law
is owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its
outstanding capital stock or of its outstanding voting capital stock;
In this case, the Corregidor Foundation, Inc. was organized as a non-stock
corporation under the Corporation Code with all of its incorporators as government
officials. Clearly, as the government has substantial participation in the selection of
Corregidor Foundation, Inc.'s governing board, the government then controls
Corregidor Foundation, Inc., thus, making it a government-owned or controlled
corporation (Oriondo, et al. v. Commission on Audit G.R. No. 211293 June 4,
2019).
Royal Links Golf Club obtained a loan from a bank which is secured by a mortgage
on a titled lot where holes 1, 2, 3 and 4 are located. The bank informed the
Board of Directors that if the arrearages are not paid within thirty (30) days,
it will extra-judicially foreclose the mortgage. The Board decided to offer to
the members 200 proprietary membership shares, which are treasury
shares, at the price of P175,000.00 per share even when the current market
value is P200,000.00. In behalf and for the benefit of the corporation, Peter,
a stockholder, filed a derivative suit against the members of the Board for
breach of trust for selling the shares at P25,000.00, lower that its market
value, and asked for the nullification of the sales and the removal of the
board members. Peter claims the Club incurred a loss of P5 million. The
Board presented the defense that in its honest belief any delay in the
payment of the arrearages will be prejudicial to the club as the mortgage on
its assets will be foreclosed and the sale at the lower price is the best
solution to the problem. Decide the suit and explain.

SUGGESTED ANSWER:
The derivative suit will not prosper, because while it was filed by a stockholder on
behalf of the corporation, the complaint did not allege the other elements of
derivative suit namely; a) exhaustion of intra-corporate remedies available under
the articles of incorporation, by-laws and rules and regulations governing the
corporation to obtain the relief the stockholder desires; b) it is not a nuisance suit;
and c) appraisal right is not available (Ching v. Subic Bay Golf and Country Club,
G.R. No. 174353, September 10, 2014).
ALTERNATIVE ANSWER:
The derivative suit will not prosper, because there was no wrongful act on the part
of the board of directors. In accordance with the business judgment rule, since the
board of directors passed the resolution in good faith to prevent the foreclosure on
the mortgage on the assets of the corporation, the court cannot review the decision
of the board of directors even if the selling price is less than the market value of the
shares (Montelibano v. Bacolod Murcia Milling Company, G.R. No. L-15092, May
18,1962).

C Corp. is the direct holder of 10% of the shareholdings in U Corp., a non-listed

(not public) firm, which in turn owns 62% of the shareholdings in H Corp., a
publicly listed company. The other principal stockholder in H Corp. is C Corp. which
owns 18% of its shares. Meanwhile, the majority stocks in U Corp. are owned by B
Corp. and V Corp. at 22% and 30% respectively. B Corp. and V Corp. later sold
their respective shares in U Corp. to C Corp., thereby resulting in the increase of C
Corp's. interest in U Corp., whether direct or indirect, to more than 50%.
(A) Explain the Tender Offer Rule under the Securities Regulation Code.
(B) Does the Tender Offer Rule apply in this case where there has been an indirect
acquisition of the shareholdings in H Corp. by C Corp?
SUGGESTED ANSWER
(A)
A Tender Offer Rule means a publicly announced intention by a person acting alone
or in concert with other persons to acquire the outstanding equity securities of a
public company or outstanding equity securities of an associate or related company
of such public company which controls said public company (Section 19.1.8 of
the SRC Implementing Rules and Regulations).
(B)
Yes, the mandatory Tender Offer Rule is still applicable even if the acquisition,
direct or indirect, is less than 35% when the purchase would result in direct or
indirect ownership of over 50% of the total outstanding equity securities of a public
company (Cemco Holdings v. National Life Insurance Company of the Philippines,
G.R. No. 171815,August 7, 2007).

Alpha is a locator at the Cagayan Export Zone and is principally engaged in

the manufacturing and sale of motor vehicles. It is 100% owned by Japanese
investors. Alpha consistently sold 51% of its annual manufacturing output to Japan
and other ASEAN countries.
A) Is Alpha an export enterprise under the Foreign Investment Act (FIA)?
B) Distinguish domestic market enterprises from export enterprises under the FIA.
SUGGESTED ANSWER:
A) Alpha is not an export enterprise under the Foreign Investment Act (FIA).
An "export enterprise" is an enterprise which exports sixty percent or more of its
goods or services. Since Alpha exports only fifty one percent of its manufacturing
output, it will not qualify as an export enterprise under the Foreign Investment Act
(Sec.3 (e) of the FIA).
B) Under Sec. 3 (f) of the FIA, a domestic market enterprise shall mean an
enterprise which produces goods for sale, or renders services to the domestic
market entirely or if exporting a portion of its output, fails to consistently export at
least sixty percent (60%) thereof.
On the other hand, Sec. 3 (e) of the FIA defines export enterprise as an
enterprise that exports sixty percent (60%) or more of its output or where a trader
purchases products domestically, exports sixty percent (60%) or more of such
purchases.

B Bank, a large universal bank, regularly extends revolving credit lines to business
establishments under what it terms as socially responsible banking and private
business partnership relations. All loans that are extended to client have a common
"Escalation Clause," to wit: "B Bank hereby reserves its right to make successive
increases in interest rates in accordance with the bank's adopted policies as
approved by the Monetary Board; provided that each successive increase shall be
with the written assent of the depositor."
(A) X, a regular client of the bank, contends that the "Escalation Clause" is unfair,
unconscionable and contrary to law, morals, public policy and customs. Rule on the
issue.
(B) Suppose that the "Escalation Clause" instead reads: "B Bank hereby reserves
the right to make reasonable increases in interest rates in accordance with bank
policies as approved by the Monetary Board; Provided, there shall be corresponding
reasonable decreases in interest rates as approved by the Monetary Board." Would
this be valid?
SUGGESTED ANSWER:
(A)
The "escalation clause" is valid because each successive increase shall be with the
written assent of the depositor. This stipulation does not violate the principle of
mutuality of contracts. The stipulation would have been void if the supposed
consent is given prior to the increase in interest rate.
(B)
It is not valid. An escalation clause with a de-escalation clause would be valid
provided that the client's consent is still secured prior to any increase in
interest rate. Otherwise, the escalation clause is void. Client's consent to the
increase is not necessary if the escalation clause provides that: 1) there can be an
increase in interest rates if allowed by law or by the Monetary Board; and 2) that
there must be a stipulation for the reduction of the stipulated interest rate in the
event that the applicable maximum rates of interest are reduced by law of the
Monetary Board. This is not the case obtaining in this problem because the increase
is still based on the bank policies and not by law or the Monetary Board.

What are the two tests in determining whether or not a case involves an intra-
corporate controversy?

SUGGESTED ANSWER:
To determine whether or not a case involves an intra-corporate dispute, two tests
are applied -- the relationship test and the nature of the controversy test. Under
the relationship test, there is an intra-corporate controversy when the conflict is (1)
between the corporation, partnership, or association and the public; (2) between
the corporation, partnership, or association and the State insofar as its franchise,
permit, or license to operate is concerned; (3) between the corporation,
partnership, or association and its stockholders, partners, members, or officers;
and (4) among the stockholders, partners, or associates themselves. On the other
hand, in accordance with the nature of controversy test, an intra-corporate
controversy arises when the controversy is not only rooted in the existence of an
intra-corporate relationship, but also in the enforcement of the parties' correlative
rights and obligations under the Corporation Code and the internal and intra-
corporate regulatory rules of the corporation (Angcao v. Ozamiz, G.R. No. 190590,
July 12, 2017).
Explain the useful article doctrine.

The useful article doctrine states that things which are, by their nature, functional
and utilitarian are not primarily artistic creations but rather objects of utility
designed to have aesthetic appeal. These things are intrinsically
useful articles, which are not eligible for copyright (Sison Olano, et al v. Lim Eng
Co, G.R. No. 195835, March 14, 2016).
ABC Corp. is engaged in the pawnshop business involving cellphones, laptops and
other gadgets of value. In order to expand its business and attract investors,
it offered to any person who invests at least P100,000.00 a "Promissory
Note" where it obligated itself to pay the holder a 50% return on investment
within one month. Due to the attractive offer, many individuals invested in
the company but not one of them was able to realize any profit after one
month. Has ABC Corp. violated any law with its scheme?

SUGGESTED ANSWER:
Yes, ABC Corporation violated the provisions of the Securities Regulation Code that
prohibits the sale of securities to the public, like promissory notes, without a
registration statement filed with and approved by the Securities and Exchange
Commission.

In 2016, X Corp. obtained a loan worth P50,000,000.00 from J Bank, which

was secured by a third-party mortgage executed by Y, Inc. in favor of X Corp. Since X Corp. was not
able to settle its loan obligation to J Bank when it fell due, and despite numerous demands, J Bank
foreclosed the mortgaged properties. The properties were sold in a foreclosure sale for P35,000,000.00,
thereby leaving a P15,000,000.00 deficiency. For failure of X Corp. to pay said deficiency, J Bank filed a
complaint for sum of money against X Corp., its President, Mr. P, and Y, Inc. With respect to Mr. P, J
Bank argued that he should be held solidarily liable together with X Corp. because he signed the loan
document on behalf of X Corp. in his capacity as President. Is J Bank correct?

SUGGESTED ANSWER:
No. Mr. P is not liable. The corporation being a mere artificial person can only act through its
representative. The corporate representative is not liable for any act taken on behalf of the corporation
unless he acted in bad faith or with gross negligence in directing the affairs of the corporation or
made himself liable solidarily with the corporation. In this case, P, as President, signed the loan document
not for himself but on behalf of X Corporation. Nothing in the facts indicated show that he bound himself
liable with the corporation or he acted in bad faith or with gross negligence. Hence, J Bank is incorrect.

In 2016, X Corp. obtained a loan worth P50,000,000.00 from J Bank, which

was secured by a third-party mortgage executed by Y, Inc. in favor of X Corp. Since X Corp. was not
able to settle its loan obligation to J Bank when it fell due, and despite numerous demands, J Bank
foreclosed the mortgaged properties. The properties were sold in a foreclosure sale for P35,000,000.00,
thereby leaving a P15,000,000.00 deficiency. For failure of X Corp. to pay said deficiency, J Bank filed a
complaint for sum of money against X Corp., its President, Mr. P, and Y, Inc. With respect to Y, Inc., J
Bank contended that Y, Inc. should be held solidarily liable because the shareholdings of both
corporations are identically owned and their operations are controlled by the same people; hence, Y, Inc.
is a mere alter ego of X Corp. Is J Bank correct?

SUGGESTED ANSWER:
No. Y, Inc. is not liable. Interlocking shareholders, directors and officers, per se, is not enough reason to
set aside the separate legal personalities of X and Y. Piercing the corporate veil based on the alter ego
theory requires the concurrence of three elements, namely: 1) Control, not mere majority or complete
stock control, but complete domination, not only of finances but of policy and business practice in respect
to the transaction attacked so that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own; 2) Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act
in contravention of plaintiff’s legal right; and 3) The aforesaid control and breach of duty must
have proximately caused the injury or unjust loss complained of. Here, the facts do not show that the
control over the corporation was used to perpetuate fraud or violate a positive legal duty in contravention
of J Bank’s right and that such control and breach of duty was the proximate cause suffered by the Bank.
Hence, J Bank is incorrect (Development Bank of the Philippines v. Hydro Resources Contractors
Corporation, G.R. No. 167603, March 13, 2013).

What is meant by splitting of deposits?

SUGGESTED ANSWER:
Under the PDIC Law, splitting of deposits occurs whenever a deposit account with an outstanding
balance of more than the statutory maximum amount of insured deposit maintained under the name
of natural or juridical persons is broken down and transferred into two (2) or more accounts in the name/s
of natural or juridical persons or entities who have no beneficial ownership on transferred deposits in their
names within one hundred twenty (120) days immediately preceding or during a bank-declared bank
holiday, or immediately preceding a closure order issued by the Monetary Board of the Bangko Sentral ng
Pilipinas for the purpose of availing of the maximum deposit insurance coverage.

W Medical, Inc. operated a full-service hospital named WMed. Using its stockholders' advances and a
mortgage loan from Bank X, W Medical, Inc. commenced the construction of a new 11-storey
WMed Annex Building. Unfortunately, due to financial constraints, only seven (7) floors were
constructed and the WMed Annex Building remained unfinished. Despite the non-completion of
the WMed Annex Building, W Medical, Inc. continued its operations and earned modest
revenues. While W Medical, Inc.' s assets are more than its liabilities and it is able to turn a
monthly profit, it could not pay its loan installments to Bank X as they fall due in the ordinary
course of business. May W Medical, Inc. be considered" insolvent under the Financial
Rehabilitation and Insolvency Act (FRIA)?

SUGGESTED ANSWER:
Yes. According to Section 4 (p) of FRIA, insolvent shall refer to the financial condition of a debtor that
is generally unable to pay its or his liabilities as they fall due in the ordinary course of business or has
liabilities that are greater than its or his assets. Based on this definition of insolvency under FRIA,
W Medical may be considered insolvent even though its assets are more than its liabilities as it can not
pay its liabilities as they fall due in the ordinary course of business.
What is insurable interest in property?

SUGGESTED ANSWER:
Insurable interest in property is every interest in property, whether real or personal, or any relation
thereto, or liability in respect thereof, of such nature that a contemplated peril might indirectly damnify
the insured. It may consist of an existing interest, an inchoate interest founded on an existing interest, or
an expectancy coupled with an existing interest in that out of which the expectancy arises (Sections 13
and 14, Insurance Code).

In May 2018, ABCCorp. entered into a merchandising contract which terms and conditions were totally
lopsided in favor of the counterparty, XYZ, Inc. As a result, ABC Corp. suffered tremendous
financial losses. A year after, or in May 2019, Mr. X became a stockholder of ABC
Corp. Learning about the circumstances surrounding the merchandising contract, Mr. X filed a
derivative suit against ABC Corp. 's directors to claim damages on behalf of ABC Corp. due to
their mismanagement. will the suit prosper?

SUGGESTED ANSWER:
No. One of the requisites of derivative suit is that the person filing the suit must be a stockholder of
the corporation at the time the acts or transactions subject of the action occurred and the time the action
was filed. In the present case, the
transaction subject of the derivative suit occurred when X was not yet a stockholder. In fact, X only
became a stockholder one year thereafter. Hence, the derivative suit will not prosper.

ABC Corp. is a company which shares are listed in the Philippine Stock Exchange. In 2015, 25% of
ABC Corp.'s shareholdings were acquired by XYZ, Inc., while 40% of the same were acquired
by RST, Inc., both of which are nonlisted private corporations. Meanwhile, the remaining 35%
of ABC Corp.'s shareholdings are held by the public. In 2018, or three years (3) after it acquired
its 25% stake in ABC Corp., XYZ, Inc. sought to obtain an additional 12% shareholding in ABC
Corp. by purchasing some of the shares owned by RST, Inc. therein. The new acquisition will
not, however, result in XYZ, Inc. gaining majority control of ABC Corp.'s Board. Is XYZ, Inc.
required to conduct a tender offer?

SUGGESTED ANSWER:
No. Under the IRR of the Securities Regulation Code, while purchase of equity securities covering 35%
of the public company is subject to mandatory tender offer, the equity securities should have been
acquired during a 12-month period. In this case, the additional 12% equity stake to bring XYZ’s
acquisition to 37% was acquired after 3 years from the first purchase transaction. It must be noted that is
only when the acquisition would result in ownership of over fifty percent (50%) of the total outstanding
equity securities of a public company that the acquirer shall be required to make a tender offer, regardless
of the time he acquired the shares that brought his equity stake to over 50% of the public company.
Hence, XYZ is not required to conduct a tender offer.

In January 2016, Mr. H was issued a life insurance policy by XYZ Insurance Co., wherein his wife,
Mrs. W, was designated as the sole beneficiary. Unbeknownst to XYZ Insurance Co., however,
Mr. H had been previously diagnosed with colon cancer, the fact of which Mr. H had concealed
during the entire time his insurance policy was being processed. In January 2019, Mr. H
unfortunately committed suicide. Due to her husband's death, Mrs. W, as beneficiary, filed a
claim with XYZ Insurance Co. to recover the proceeds of the late Mr. H's life insurance policy.
However, XYZ Insurance Co. resisted the claim, contending that: 1. the policy is void ab
initio because Mr. H fraudulently concealed or misrepresented his medical condition, i.e., his
colon cancer; and 2. as an insurer in a life insurance policy, it cannot be held liable in case of
suicide. Rule on each of XYZ Insurance Co. 's contentions.

SUGGESTED ANSWER:
The first contention is not tenable. Under the incontestability clause provision of the Insurance Code, after
a policy of life insurance made payable upon the death of the insured shall have been in force during the
lifetime of the insured for a period of two years from the issuance of the policy or last reinstatement, the
insurer must make good on the policy even though the policy was obtained through fraud, concealment or
misrepresentation. Hence, even if Mr. H had concealed or misrepresented that he was previously
diagnosed with colon cancer, XYZ can no longer rescind the policy since it has been in force already for
three years.
On the second contention, XYZ Insurance is liable despite the suicide of Mr. H. Under the Insurance
Code, the insurer is liable when suicide is committed after the policy has been in force for a period of two
years from the date of issue or its last reinstatement. Here, Mr. H committed suicide three years after
issuance of the policy. Thus, XYZ should be liable to the beneficiary of Mr. H.

W Medical, Inc. operated a full-service hospital named WMed. Using its stockholders' advances and a
mortgage loan from Bank X, W Medical, Inc. commenced the construction of a new 11-storey
WMed Annex Building. Unfortunately, due to financial constraints, only seven (7) floors were
constructed and the WMed Annex Building remained unfinished. Despite the non-completion of
the WMed Annex Building, W Medical, Inc. continued its operations and earned modest
revenues. While W Medical, Inc.' s assets are more than its liabilities and it is able to turn a
monthly profit, it could not pay its loan installments to Bank X as they fall due. May W Medical
Inc. file a petition for suspension of payment?

SUGGESTED ANSWER:
No. According to Sec. 94 of the FRIA, a petition for suspension of payment is not available to a juridical
insolvent debtor but only to insolvent individual debtor. Hence, W Medical Inc. cannot avail of such
remedy.
KLM Printers, Inc. operated a small outlet located at the ground floor of a university building in
Quezon City. It possessed soft copies of certain textbooks on file, and would print "book-alikes"
of these textbooks (or in other words, reproduced the entire textbooks) upon order and for a fee.
It would even display samples of such "book-alikes" in its stall for sale to the public. Upon
learning of KLM Printers, Inc. 's activities, the authors of the textbooks filed a suit against it for
copyright infringement. In its defense, KLM Printers, Inc. invoked the doctrine of fair use,
contending that the "book-alikes" are being used for educational purposes by those who avail of
them. Is KLM Printers, Inc.'s invocation of the doctrine of fair use proper in this case?

SUGGESTED ANSWER:
In determining whether the use made of a work in any particular case is fair use, the factors to be
considered shall include: a) The purpose and character of the use, including whether such use is of a
commercial nature or is for non-profit educational purposes; b) The nature of the copyrighted work; c)
The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and d)
the effect of the use upon the potential market for or value of the copyrighted work (Section 185.1 of the
Intellectual Property Code).
Based on these factors, the invocation of the doctrine of fair use is not proper. The reproduction of the
copies is commercial in nature, where the entire book is reproduced thereby violating the economic right
of the author and the offer to the public of copies of the book has an injurious effect upon the potential
market or value of the copyrighted work.

Explain the concept of pre-emptive right under the Corporation Code

SUGESSTED ANSWER:
Pre-emptive right is the right of the stockholders to subscribe to any and all issuance or disposition of
shares of any class by the corporation in proportion to their shareholding in the corporation. This means
that except in the cases provided by law, shares of stock of the corporation should first be offered to the
stockholders prior to any offer to non-stockholders. This rule is intended to prevent the dilution of
stockholder’s equity stake in the corporation (Section 38 of the Revised Corporation Code).

Mayor J has two (2) bank accounts: 1. a Peso savings account with Bank P; and 2. a U.S. Dollar
savings account with Bank D. In 2018, Mayor J's former business partner, Mr. K, filed a civil
case for collection of sum of money against him. In the same year, a criminal case for Direct
Bribery under the Revised Penal Code was filed against Mayor J. It was alleged in the
Information that in exchange for the expeditious approval of various permits and licenses, Mayor
J received kickbacks which amounts were deposited to his bank accounts. In the event Mayor J is
held ultimately liable in the civil case filed by Mr. K, may Mayor J's bank accounts in Bank P
and Bank D be subject to garnishment?

SUGGESTED ANSWER:
The peso savings account of Mayor J with Bank P may be garnished. The prohibition against examination
or inquiry into bank deposits under R.A. 1405 is not a bar to the garnishment of the deposit because the
disclosure is only incidental to the execution process and there is nothing in the records of Congress that
would indicate that Philippine Currency bank deposits are beyond the reach of judgment creditor (China
Bank v. Ortega, G.R. No. L- 34964, January 31, 1973).
The dollar savings account with Bank D, however, can not be garnished. Except in case of written
consent of depositor or in case of court order for violation of the Anti-Money Laundering law, foreign
currency deposits are exempt from garnishment under R.A. 6426 (GSIS v. Court of Appeals,
G.R. 189206, June 8, 2011).

EFG, Inc. is indebted to Bank Y in the amount of P50,000,000.00. The loan was secured by a suretyship
agreement issued by Z Insurance Co. Due to EFG, Inc's default, Bank Y filed a case against Z Insurance
Co. as surety. There is also a pending criminal case for violation of the Bouncing Checks Law against the
President of EFG, Inc., Mr. P, who signed the check as signatory for the company. Unable to meet its
obligations as they fell due, EFG, Inc. filed a petition for rehabilitation. Finding the petition sufficient in
form and substance, the court issued a Commencement Order, which was thereafter published.
Should the criminal case filed against Mr. P be suspended in light of the Commencement Order?

SUGGESTED ANSWER:
No. Under FRIA, the suspension of claims in corporate rehabilitation does not extend to criminal action
against the distressed corporation or its directors and officers [Section 18 (g)]. This is because the
prosecution of the officers has no bearing on the pending rehabilitation of the insolvent debtor.
Hence, The criminal case against Mr. P is not suspended by the commencement order. (Panlilio v.
Regional Trial Court, G.R. No. 173846, February 2, 2011).

F Corp., a corporation engaged in the export of fertilizers, entered into a sale of its products with Mr. P.
In this relation, Bank C, F Corp. 's bank, received an irrevocable letter of credit, payable on sight,
issued by Bank I for the account of its client, Mr. P, in the amount of P1,000,000.00. to cover the
purchase price of the sale. In the letter of credit, Bank C was designated as the confirming
bank. After being presented the required documents under the letter of credit, Bank C issued in
favor of F Corp. a cashier's check in the amount of P1,000,000.00. Bank C then informed Bank I
of the payment made pursuant to the letter of credit. Thereafter, Bank C transmitted the
documents presented by F Corp. to Bank I and sought to be reimbursed for the amount it paid to
F Corp. Bank I, however, refused to reimburse Bank C for the reason that it received an e-mail
coming from Mr. P that the latter will not make any payment to Bank I in relation to the letter of
credit because the products shipped to him by F Corp. were of substandard quality. Is Bank I's
refusal to reimburse Bank C warranted?

SUGGESTED ANSWER:
No, under the doctrine of independence, as long as the stipulated documents are presented, the issuing
bank has the obligation to pay even if the buyer should later on refuse payment. The obligation to pay on
the part of the issuing bank does not depend on the fulfillment or non-fulfillment of the main contract
underlying the letter of credit but simply upon submission of the stipulated documents. To allow Bank I
to refuse to honor the Letter of Credit simply because it could not collect first from Mr. P, the buyer, is to
countenance a breach of the Independence Principle. Hence, Bank I’s refusal to reimburse Bank C is
unwarranted (The Hongkong & Shanghai Banking Corporation, Limited v. National Steel Corporation
and Citytrust Banking Corporation, G.R. No. 183486, February 24, 2016).

EFG, Inc. is indebted to Bank Y in the amount of P50,000,000.00. The loan was secured by a
suretyship agreement issued by Z Insurance Co. Due to EFG, Inc's default, Bank Y filed a case
against Z Insurance Co. as surety. There is also a pending criminal case for violation of the
Bouncing Checks Law against the President of EFG, Inc., Mr. P, who signed the check as
signatory for the company. Unable to meet its obligations as they fell due, EFG, Inc. filed a
petition for rehabilitation. Finding the petition sufficient in form and substance, the court issued a
Commencement Order, which was thereafter published. Should the case filed against Z
Insurance Co. be suspended in light of the Commencement Order?

SUGGESTED ANSWER:
The case against Z Insurance Co should not be suspended despite the commencement order. Under the
Financial Rehabilitation and Insolvency Act, the stay order, which is included in the commencement
order, does not cover a claim against the surety of the insolvent debtor (Section 18 (c) FRIA) for the
simple reason that it is not the one subject of the petition for rehabilitation.

Yeti Export Corporation (YEC), through its President, negotiated for Yahoo Bank of Manila (YBM) to
issue a letter of credit to course the importation of electronic parts from China to be sold and distributed
to various electronic manufacturing companies in Manila. YBM issued the letter of credit and forwarded
it to its correspondent bank, Yunan Bank (YB) of Beijing, to notify the Chinese exporters to submit the
bill of lading in the name of YBM covering the goods to be exported to Manila and to pay the Chinese
exporters the purchase price upon verification of the authenticity of the shipping documents. The
electronic parts arrived in the Port of Manila, and YBM released them to the custody of YEC as
an entrustee under a trust receipt. When YEC unpacked the imported parts in its warehouse, it
found that they were not only of inferior quality but also did not fit the descriptions contained in
the bill of lading. YEC refused to pay YBM the amount owed under the trust receipt. YBM
thereafter commenced a civil suit to hold YB liable for failure to ensure that the electronic parts
loaded for exportation in China corresponded with those described in the bill of lading. Is there
any merit in the case against YB?

SUGGESTED ANSWER:
No. YB only acted as an advising bank whose only obligation after determining the apparent authenticity
of the letter of credit was to transmit a copy thereof to the beneficiary of the letter of credit. It had no
obligation to ensure that the goods loaded for exportation corresponded with those described in the bill of
lading (Bank of America v. Court of Appeals, G.R No. 105395, Dec. 10, 1993). YB cannot be considered
a confirming bank, because to be one it must have assumed a direct obligation to the seller as if it had
issued the letter of credit (Marphil Export Corporation v. Allied Banking Corporation, G.R. No. 187922,
September 21, 2016). YB is not a negotiating bank either, because it did not buy the draft of the
beneficiary’s letter of credit. Even if, however, YB acted as a confirming or negotiating bank, such kind
of correspondent bank has no similar obligation to ensure that the goods shipped match with those
described in the bill of lading. Hence, there is no merit in the case against YB.

Yeti Export Corporation (YEC), through its President, negotiated for Yahoo Bank of Manila (YBM) to
issue a letter of credit to course the importation of electronic parts from China to be sold and distributed
to various electronic manufacturing companies in Manila. YBM issued the letter of credit and forwarded
it to its correspondent bank, Yunan Bank (YB) of Beijing, to notify the Chinese exporters to submit the
bill of lading in the name of YBM covering the goods to be exported to Manila and to pay the Chinese
exporters the purchase price upon verification of the authenticity of the shipping documents. The
electronic parts arrived in the Port of Manila, and YBM released them to the custody of YEC as an
entrustee under a trust receipt. When YEC unpacked the imported parts in its warehouse, it found that
they were not only of inferior quality but also did not fit the descriptions contained in the bill of lading.
YEC refused to pay YBM the amount owed under the trust receipt. YBM thereafter commenced a
criminal suit against YEC and its President for estafa, and sought payment of the amount covered in the
trust receipt. The defense of the YEC President is that he cannot be held liable for a transaction of the
corporation, of which he only acted as an officer, and that it is YEC as the principal that should be held
liable under the trust receipt, which was entered into in the name of YEC and pursuant to YEC’s
corporate purposes. He cited as his legal ground the “Doctrine of Separate Juridical Personality.” Is the
President’s contention meritorious?

SUGGESTED ANSWER:
No. The President of YEC cannot invoke as a defense the doctrine of separate juridical personality to
avoid criminal liability. The law specifically makes the director, officer, or any person responsible for the
violation of the Trust Receipt agreement criminally liable precisely for the reason that a Corporation,
being a juridical entity, cannot be the subject of the penalty of imprisonment. Nevertheless, following the
same doctrine of separate legal personality, he cannot be civilly liable there being no showing that he
bound himself with YEC to pay the loan. Only YEC is liable to pay the loan covered by the letter of
credit/ trust receipt (Ching v. Secretary of Justice, G.R. No. 164317, February 6, 2006; and Section 13,
PD 115).

Ysidro, a paying passenger, was on board Bus No. 904 owned and operated by Yatco Transportation
Company (“Yatco”). He boarded the bus at Muñoz, Nueva Ecija with Manila as his final destination. He
was seated on the first row, window seat on the left side of the bus. As the bus was negotiating the
national highway in front of the public market of Gerona, Tarlac, the bus came to a full stop because of
the traffic. The driver of the bus took this opportunity to check on the tires of the bus and to relieve
himself. As he was alighting from the bus to do these, an unidentified man standing along the highway
hurled a huge rock at the left side of the bus and hit Ysidro between his eyes. He lost consciousness and
immediately the driver, with the conductor, drove the bus to bring him to the nearest hospital. He expired
before the bus could reach the hospital. Ysidro’s wife and children brought a civil action to collect
damages from Yatco, alleging that, as a common carrier, it was required to exercise
extraordinary diligence in ensuring the safety of its passengers. They contended that in case of
injuries and/or death on the part of any of its passengers, the common carrier is presumed to be at
fault. In its defense, Yatco alleged that it is not an absolute insurer of its passengers and that
Ysidro’s death was not due to any defect in the means of transport or method of transporting
passengers, or the negligent acts of its employees. Since the accident was due to the fault of a
stranger over whom the common carrier had no control, or of which it did not have any prior
knowledge to be able to prevent it, the cause of Ysidro’s death should be considered a fortuitous
event and not the liability of the common carrier. Is a common carrier presumed to be at fault
whenever there is death or injury to its passengers, regardless of the cause of death or injury?

SUGGESTED ANSWER:
Yes. By express provision of law, in case of death or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they exercised
extraordinary diligence. Hence, a common carrier is presumed to be at fault whenever there is death or
injury to its passengers, regardless of the cause of death or injury (Art. 1756, Civil Code).

Yelp Pictures Inc., a movie production company based in California, USA, entered into a contract with
Yehey Movies Inc., a Filipino movie production and distribution company which is registered in the
Philippines under the Securities Regulation Code (SRC) and listed in the Philippine Stock Exchange Inc.
(PSE), for the exclusive distribution in the Philippines of movies produced in the USA by Yelp Pictures
Inc. Yehey Movies is currently owned 85% by Yavic Yamson, and the balance, by the public in the
Philippines. For purposes of entering into the contract, suing for breach of such contract, and prosecuting
unauthorized showing of movies produced by Yelp Pictures, it appointed Atty. Yson, a local lawyer, as its
attorney-in-fact. Simultaneously with the execution of the film distribution agreement, Yehey
Movies also granted Yelp Pictures an option to acquire up to 40% of the total outstanding capital
stock in Yehey Movies post-exercise of the option, at the option price of Php.01 per number of
shares covered by the option, exercisable within a period of one year from the date of the grant,
at the exercise price of PhP 100 per share. Once exercised, Yelp Pictures was granted the right to
nominate two (2) directors to the Board of Yehey Movies, and Yavic Yamson agreed to vote all
his shares for the election of directors to be nominated by Yelp Pictures. May the acts of entering
into the film distribution contract, the subsequent execution and performance of the terms of the
contract in the Philip pines, and the appointment of Atty. Yson, be considered as acts of “doing
business” in the Philippines that will require Yelp Pictures to register as a foreign corporation
and obtain a license to do business in the Philippines?

SUGGESTED ANSWER:
No. Jurisprudence provides that a foreign Corporation which owns the Copyright to foreign films and
exclusive distribution rights in the Philippines and appoints an attorney-in-fact to file criminal cases on
behalf of the corporation is not doing business in the Philippines, because the contract was executed
abroad and the hiring of the attorney-in-fact is merely for the protection of its property rights. For this
reason Yelp Pictures cannot be considered as doing business in the Philippines (Columbia
Pictures v. Court of Appeals, G.R. No. 110318, August 28, 1996).

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

SUGGESTED ANSWER:
No. According to the Insurance Code, the insured shall have the right to change the beneficiary he
designated in the policy, unless he has expressly waived this right in the policy. There is nothing in the
life insurance policy taken by Yang which indicated that the designation of Yin was irrevocable. As such,
it is deemed to be revocable. Hence, Yang is not correct.

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

SUGGESTED ANSWER:
Yessel has no insurable interest on the life of Yin, because she cannot be lawfully designated as
beneficiary. The law provides that persons who are proscribed to become donees under the rules on
donation cannot be designated as beneficiary in life insurance. These include persons in illicit relations as
in the case of Yin and Yessel. Yinsel, however, has insurable interest on the life of Yin. There is no
proscription in naming an illegitimate child as a beneficiary (Heirs of Loreta Maramag v. Maramag, G.R.
No. 181132, June 5, 2009).

Yenkell Cement Corporation (YCC) is a public corporation whose shares are listed at the PSE. It is 60%
owned by Yenkell Holdings Corporation (YHC) and 20% by Yengco Exploration Inc. (YEI). The
remaining 20% is held by the public. YHC is a private non-listed corporation which, in turn, is 60%
owned by Yatlas Mines Inc. (YMI), and 40% by Yacnotan Consolidated Inc. (YCI). On August 8, 2008,
the Board of Directors of YEI passed a resolution approving the acquisition of 50% and 25% of the shares
held by YMI and YCI, respec tively, in the authorized capital stock of YHC. In acquiring 75% of the total
capital stock of YHC, should YEI be required to do a mandatory offer?

SUGGESTED ANSWER:
Yes. The Securities Regulation Code provides that once a person singly or in concert with others acquires
more than 50% of the voting stock of a public company, the mandatory tender offer rule applies. The
tender offer rule covers not only direct acquisition but also indirect acquisition or any type of acquisition.
Whatever may be the method by which control of a public company is obtained either through the direct
purchase of its stocks or through indirect means, mandatory tender offer rule applies. Here, by acquiring
the combined 75% shareholdings of YMI and YCI in YCC, YEI effectively owns 45% of YCC. Add that
to the 20% it directly owns in YCC, YEI now owns and controls 65% of YCC. Hence, in acquiring 75%
of the total capital stock of YHC, YEI should be required to do a mandatory tender offer (Cemco
Holdings v. National Life Insurance Company, G.R. No. 171815, 7 August 2007).

Yenkell Cement Corporation (YCC) is a public corporation whose shares are listed at the PSE. It is 60%
owned by Yenkell Holdings Corporation (YHC) and 20% by Yengco Exploration Inc. (YEI). The
remaining 20% is held by the public. YHC is a private non-listed corporation which, in turn, is 60%
owned by Yatlas Mines Inc. (YMI), and 40% by Yacnotan Consolidated Inc. (YCI). On August
8, 2008, the Board of Directors of YEI passed a resolution approving the acquisition of 50% and
25% of the shares held by YMI and YCI, respectively, in the authorized capital stock of
YHC. Yolly, one of the staff members in the office of the Corporate Secretary of YEI was
immediately asked to type the resolution and file the disclosure with the PSE and the Securities
and Exchange Commission (SEC). Before doing that, she secretly called her brother who works
with a stock brokerage company, to purchase, in the name of Yolly’s husband, 5,000 shares in
YCC. After the acquisition was disclosed to the SEC and the PSE, the market price of YCC
increased by 50%. Can Yolly be held liable for insider trading?

SUGGESTED ANSWER:
No. The Securities Regulation Code provides that insider trading is the buying and selling of securities by
an insider while in the possession of a material non-public information. While Yolly is an insider, because
she has access to material non-public information by reason of her relation ship with the Issuer, she did
not buy or sell securities. She is liable, however, for having communicated material non-public
information about the issuer to a broker who by virtue of such communication becomes an insider
considering that Yolly, the insider communicating the information knows or has reason to believe that the
broker will likely buy or sell a security of the issuer while in possession of such information (Section
27.3 SRC). The law makes no distinction that the insider is buying for himself or for the account of
another. As such, it is immaterial that the broker purchased securities for the account of Yolly’s husband.
The information about the acquisition is also material as it will likely affect the decision of a reasonable
person to buy or sell the securities. Hence, while Yolly cannot be held liable for insider trading, she can
be held liable for communicating non-public information.

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

SUGGESTED ANSWER:
Yes. Jurisprudence provides that transferees of shares of stock are real parties in interest having a cause of
action for mandamus to compel registration of the transfer and the corresponding issuance of stock
certificates even without the written authority from the seller to cancel the certificate and register the
shares in the books of the corporation. Thus, Ynchon has a cause of action to file the petition
for mandamus to compel the corporation to register the 500 shares in the corporation’s books (Andaya v.
Rural Bank of Cabadbaran, G.R. No. 188769 August 3, 2016).

Yenetic Corporation wants to increase its Authorized Capital Stock (which is currently fully subscribed
and issued) to be able to increase its working capital to undertake business expansions. Once the increase
in the Authorized Capital Stock of Yenetic has been legally effected with the SEC, can the new shares
from the unissued shares be offered to a new limited group of investors without having to offer them to
the shareholders of record since no pre-emptive right is provided for in the AOI and By-laws of Yenetic?

SUGGESTED ANSWER:
No. The Revised Corporation Code provides that provides that all stockholders of a stock corporation
shall enjoy preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to
their respective shareholdings, unless such right is denied by the articles of incorporation or an
amendment thereto. Here, as pre-emptive rights are not explicitly denied in the articles of incorporation,
the new shares from the unissued shares cannot be validly offered to a new limited group of investors
without having to offer to shareholders of record. Hence, there need not be an explicit grant of pre-
emptive rights in the articles of incorporation for it to be exercised.

Yenetic Corporation wants to increase its Authorized Capital Stock (which is currently fully subscribed
and issued) to be able to increase its working capital to undertake business expansions. Can Yenetic’s
AOI be formally amended to remove the right of appraisal on all dissenting stockholders in all
matters under the law which requires a ratification vote of the stockholders?

SUGGESTED ANSWER:
No. Yenetic’s AOI cannot be amended to remove the appraisal right of the stockholders on matters
requiring their approval in cases where the law grants them such appraisal right, like:
i) In case any amendment to the articles of incorporation has the effect of changing or restricting the
rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those
of outstanding shares of any class or of extending or shortening the term of corporate existence;
ii) In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets;
iii) In case of merger;
iv) In case of investment of funds in the secondary purpose of other business.
Hence, as appraisal right is a statutory right, it cannot be denied to the stockholders in cases where the law
allows such right. However, for all other matters under the Revised Corporation Code, which require
ratificatory approval of the shareholders, the AOI may be formally amended to remove appraisal right.

Yenetic Corporation wants to increase its Authorized Capital Stock (which is currently fully subscribed
and issued) to be able to increase its working capital to undertake business expansions. If the increase in
Authorized Capital Stock is formally submitted to the stockholders in a meeting duly called for the
purpose, what is the vote necessary for the stockholders’ ratification, and would the dissenting
stockholders have a right to exercise their right of appraisal?

SUGGESTED ANSWER:
The Revised Corporation Code provides that any provision or matter stated in the articles of incorporation
may be amended by a majority vote of the board of directors and the vote or written assent of the
stockholders representing at least 2/3 of the outstanding capital stock. Thus, the same vote is necessary in
this case.
However, in case of amendment to the articles of incorporation to increase capital stock, dissenting
stockholders cannot exercise any appraisal right. This is because this is not one of the cases allowed by
the Revised Corporation Code where appraisal right may be exercised.
The newly restored Ford Mustang muscle car was just released from the car restoration shop to its owner, Seth,
an avid sportsman. Given his passion for sailing, he needed to go to a round-the-world voyage with his crew on
his brand-new 180-meter yacht. Hearing about his coming voyage, Sean, his bosom friend, asked Seth if he
could borrow the car for his net roadshow. Sean, who had been in display the restored car of Seth in major
cities of the country. Seth agreed and lent the Ford Mustang to Sean. Seth further expressly allowed Sean to
use the car even for his own purposes on special occasions during his absence from the country. Seth and Sean
then went together to Bayad Agad Insurance Co. (BAIC) to get separate policies for the car in their respective
names. Can they do so?

SUGGESTED ANSWER:
Yes, considering that Seth and Sean have separate insurable interest. Insurable interest is that interest
which a person is deemed to have in the subject matter of the insured where he has a relation or
connection to it such that the person will derive pecuniary benefit or advantage from the preservation of
the subject matter or will suffer pecuniary loss or damage from its destruction, termination or injury by
the happening of the event insured against it. Here, Seth’s insurable interest is his legal and and/or
equitable interest over the vehicle as an owner while Sean’s insurable interest is the safety of the vehicle
which may become the basis of liability in case of loss or damage to the vehicle. Hence, they can get
separate insurance policies for the same car in their respective names [(Malayan Insurance v. Philippine
First Insurance Co., 676 SCRA (2012)].

Alfredo took out a policy to insure this commercial building fire. The broker for the insurance company agreed
to give a 15-day credit within which pay the insurance premium. Upon delivery of the policy on May 15, 2021,
Alfredo issued a postdated check payable on May 30, 2021. On May 28, 2021, a fire broke out and destroyed
the building owned by Alfredo. May Alfredo recover on the insurance policy?

SUGGESTED ANSWER:
Yes. It is valid to stipulate that the insured will be granted credit term for payment of premium. Payment
by means of a check which was accepted by the insurer, bearing a date prior to the loss, would be
sufficient. The subsequent effects of encashment retroact to the date of the check. Hence, Alfred may
recover on the policy (UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc., 356 SCRA 307
[2001]).

Carlo and Bianca met in the La Boracay festivities. Immediately, they fell in love with each other and got
married soon after. They have been cohabiting blissfully as husband and wife, but they did not have any
offspring. As the years passed by, Carlo decided to take out an insurance on Bianca’s life for P1,000,000.00
with him (Carlo) as sole beneficiary, given that he did not have a steady source of income and he always
depended on Bianca both emotionally and financially. During the term of the insurance, Bianca died of what
appeared to be a mysterious cause so that Carlo immediately requested for an autopsy to be conducted. It was
established that Bianca died of a natural cause. More than that, it was also established that Bianca was a
transgender all along – a fact unknown to Carlo. Can Carlo claim the insurance benefit?

SUGGESTED ANSWER:
Yes The Insurance Code provides that every person has an insurable interest in the life and health of any
person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary
interest. Considering that Carlo always depended on Bianca both emotionally and financially, then he has
insurable interest. Insurable interest upon the life of another under the aforesaid provision need not be
based on kinship or legal obligation to give support..The fact that their marriage may be void is thus
irrelevant. Hence, Carlo can claim the insurance benefit.

On October 30, 2017, M/V Pacific, a Philippine registered vessel owned by Cebu Shipping Company
(CSC), sank on her voyage from Hong Kong to Manila. Empire Assurance Company (Emprire) is the
insurer of the lost cargoes loaded on board the vessel which were consigned to Debenhams Company.
After it indemnified Debenhams, Empire as subrogee filed an action for damages against CSC. Assume
that the vessel was seaworthy. Before departing, the vessel was advised by the Japanese Meteorological
Center that it was safe to travel to its destination. But while at sea, the vessel received a report of a
typhoon moving within its general path. To avoid the typhoon, the vessel changed its course. However, it
was still at the fringe of the typhoon when it was repeatedly hit by huge waves. The captain and the crew
were saved, except three (3) who perished. Is CSC liable to empire? What principle of maritime law is
applicable?
SUGGESTED ANSWER:
No. Jurisprudence provises that the common carrier incurs no liability for the loss of the cargo during a
fortuitous event, if the following circumstances are present: (1) the fortuitous event was the cause of the
loss; (2) the carrier did not contribute to the loss; and (3) the carrier exercised extraordinary diligence in
order to minimize the attendant damage before, during and after the typhoon. Here, it was the typhoon
that was the proximate cause of the loss, the M/V Pacific was absolutely faultless and it exercised
extraordinary diligence before, during and after by being seaworthy prior to departure, changing its
course as soon as it received news of the typhoon and there is no showing of any lack of extraordinary
diligence after the loss. Accordingly, under the maritime principle that the obligations of the owner of a
vessel are hypothecary in nature, the liability of the owner of the vessel is limited to the vessel itself.
Hence, CSC is not liable to Empire.

On December 1, 2018, Kore A Corporation shipped from South Korea to LT Corporation in

Manila some 300,000 sheets of high-grade special steel. The shipment was insured against all
risks by NA Insurance (NA). The carrying vessel arrived at the Port of Manila on January 10,
2019. When the shipment was discharged, it was noted that 25,000 sheets were damaged and in
bad order. The entire shipment was turned over to the custody of ATI, the arrastre operator, on
January 21, 2019 for storage and safekeeping, pending its withdrawal by the consignee’s
authorized customs broker, RVM. On January 26 and 29, 2019, the subject shipment was
withdrawn by RVM from the custody of ATI. On January 29, 2019, prior to the withdrawal of
the last batch of the shipment, a joint inspection of the cargo was conducted per the Request for
Bad Order Survey (RBO) dated January 28, 2019. The examination report showed that 30,000
sheets of steel were damaged and in bad order. NA Insurance paid LT Corporation the amount of
P30,000,000.00 for the 30,000 sheets that were damaged, as shown in the Subrogation Receipt
dated January 13, 2021. Thereafter, NA Insurance demanded reparation against ATI for the
goods damaged in its custody, in the amount of P5,000,00.00. ATI refused to pay claiming that
the claim was already barred by the statute of limitations. ATI alleged that the Carriage of Goods
by Sea Act (COGSA) applies in this case since the goods were shipped from a foreign port to the
Philippines. NA Insurance claims that the COGSA does not apply, since ATI is not a shipper or
carrier. Who is correct?

SUGGESTED ANSWER:
NA Insurance is correct. The Carriage of Good by Sea Act (COGSA) applies only to carriers or ships. A
“carrier”, under the COGSA, “includes the owner or the charterer who enters into a contract of carriage
with a shipper”, while a “ship” is defined thereunder as “any vessel used for the carriage of goods by
sea.” The COGSA does not apply to ATI as it is neither a “carrier” nor a “ship”, much less a “shipper.” It
is simply an arrastre operator. Moreover, the COGSA does not mention that an arrastre operator may
invoke the prescriptive period of one year; hence, it does not cover the arrastre operator (Insurance Co. of
North America vs. Asian Terminals, Inc., G.R. 180784, February 15, 2012).

Onassis Shipping, Inc. (Onassis) operated passenger vessels and cargo trucks, and offered its services to the
general public. In line with its vision and mission to protect the environment, Go-Green Asia (Go-Green), an
NGO affiliated with Greenpeace, entered into a contract with Onassis whereby Go-Green would operate
with its own crew the M/V Dolphin, an ocean-going passenger vessel of Onassis. While on its
way to Palawan carrying Go-Green’s invited guests who were international and local observers
desirous of checking certain environmental concerns in the area, the M/V Dolphin encountered
high waves and strong winds caused by a typhoon in the West Philippine Sea. The rough seas led
to serious physical injuries to some of the guests. Discuss the liabilities of Onassis and Go-Green
to the passengers of the M/V Dolphin.

SUGGESTED ANSWER:
The contract that Onassis and Greenpeace entered into is a bareboat or demise charter because
Greenpeace was not only given possession of the vessel but also the command and control of the
navigation as a result of its authority to hire its own crew who will man the vessel. The bareboat charter
effectively converts Onassis from a common carrier to a private carrier. Being a mere lessor and having
ceased to be the owner of the vessel with respect to the navigation, Onassis has no liability to the
passengers who contracted with Greenpeace. Greenpeace is the one liable to the passengers for the
injuries they sustained in the course of the navigation (Federal Phoenix Assurance v. Fortune Sea Carrier,
G.R. No. 188118, Nov. 23, 2015).

Due to growing financial difficulties, Z Bank was unable to finish construction of its 21-storey building
on a prime lot located in Makati City. Inevitably, the Bangko Sentral ordered the closure of Z Bank and
consequently placed it under receivership. In a bid to save the bank’s property investment, the President
of Z Bank entered into a financing agreement with a group of investors for the completion of the
construction of the 21-storey building in exchange for a ten-year lease and the exclusive option to
purchase the building. Is the act of the President valid?

SUGGESTED ANSWER:
No. According to the New Central Bank Act, the appointment of a receiver operates to suspend the
authority of the bank and its officers over the bank’s assets and properties, such authority having being
reposed in the receiver. Here, Z Bank was ordered closed and placed under receivership. Control over the
properties of Z Bank passed to the receiver. As such, the Bank President had no authority to enter into the
financing agreement. Hence, his act is invalid [(Abacus Real Estate Development Center, Inc. v. Manila
Banking Corporation, 455 SCRA 97 (2005)].

Due to growing financial difficulties, Z Bank was unable to finish construction of its 21-storey building on a
prime lot located in Makati City. Inevitably, the Bangko Sentral ordered the closure of Z Bank and
consequently placed it under receivership. In a bid to save the bank’s property investment, the President of Z
Bank entered into a financing agreement with a group of investors for the completion of the construction of the
21-storey building in exchange for a ten-year lease and the exclusive option to purchase the building. Will a
suit to enforce the exclusive right of the investors to purchase the property prosper?

SUGGESTED ANSWER:
No. According to the NCBA, the properties of a bank under receivership are administered only by the
receiver for the benefit of the bank's creditors. These properties can only be disposed for the purpose of
paying such creditors. As such, the Bank President's agreement with the investors, having been entered
into after the bank has already been placed under receivership, is unenforceable. Consequently, a suit to
enforce the alleged exclusive right of the investors to purchase the proper will not prosper.

Maharlikang Pilipino Banking Corporation (MPBC) operates several branches of Maharlikang

Pilipino Rural Bank in Eastern Visayas. Almost all the branch managers are close relatives of the
members of the Board of Directors of the corporation. Many undeserving relatives of the branch
managers were granted loans. In time, the branches could not settle their obligations to
depositors and creditors. Receiving reports of these irregularities, the Supervising and Examining
Department (SED) of the Monetary Board prepared a detailed report (SED Report) specifying
the facts and the chronology of events relative to the problems that beset MPBC rural bank
branches. The report concluded that the bank branches were unable to pay their liabilities as they
fell due, and could not possibly continue in business without incurring substantial losses to its
depositors and creditors. May the Monetary Board order the closure of the MPBC rural banks
relying only on the SED Report, without need of an examination?

SUGGESTED ANSWER:
Yes. Upon receipt of the report of the SED, the Monetary Board is authorized to take any of the actions
enumerated under the New Central Bank Act, including closure, leading to the receivership and
liquidation of a bank or quasi-bank. There is no requirement that an examination be first conducted.
Hence, the Monetary Board can order the closure of MPBC rural banks relying only on the SED report
[Rural Bank of Buhi v. Court of Appeals, 162 SCRA 288 (1988)].

Raymond invested his money in securities issued by the Philippine government, through his bank.
Subsequently, the Bureau of Internal Revenue asked his bank to disclose his investments. His bank refused the
request for disclosure on the ground that the investments are confidential under the Secrecy of Bank Deposits
Law (RA 1405). Is the bank's refusal justified?

SUGGESTED ANSWER:
It is justified. Section 2 of RA 1405 provides that all deposits of whatever nature with banks or banking
institutions in the Philippines, including investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely
confidential nature and may not be examined, inquired or looked into by any person, government official,
bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon
order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where
the money deposited or invested is the subject matter of the litigation.None of the exceptions apply in the
present case. Hence, the bank's refusal is justified.

Eloise, an accomplished writer, was hired by Petong to write a bimonthly newspaper column for
Diario de Manila, a newly-established newspaper of which Petong was the editor-in-chief. Eloise
was to be paid P1,000 for each column that was published. In the course of two months, Eloise
submitted three columns which, after some slight editing, were printed in the newspaper.
However, Diario de Manila proved unprofitable and closed only after two months. Due to the
minimal amounts involved, Eloise chose not to pursue any claim for payment from the
newspaper, which was owned by New Media Enterprises. Three years later, Eloise was planning
to publish an anthology of her works, and wanted to include the three columns that appeared in
the Diario de Manila in her anthology. Does Eloise have to secure authorization from New
Media Enterprises to be able to publish her Diario de Manila columns in her own anthology?

SUGGESTED ANSWER:
No. Under the Intellectual Property Code, original intellectual creations in the literary and artistic domain
are protected from the moment of their creation and shall include those in periodicals and newspapers.
Copyright ownership belongs to the author and in case of commissioned work, the person who so
commissioned work shall have ownership of work, but copyright shall remain with creator, unless there is
a written stipulation to the contrary. As the author, copyright of the columns belonged to Eloise and as
there is no stipulation to the contrary, the copyright remained with her. Hence, Eloise may publish the
columns without securing authorization from New Media Enterprises.

Eloise, an accomplished writer, was hired by Petong to write a bimonthly newspaper column for
Diario de Manila, a newly-established newspaper of which Petong was the editor-in-chief. Eloise
was to be paid P1,000 for each column that was published. In the course of two months, Eloise
submitted three columns which, after some slight editing, were printed in the newspaper.
However, Diario de Manila proved unprofitable and closed only after two months. Due to the
minimal amounts involved, Eloise chose not to pursue any claim for payment from the
newspaper, which was owned by New Media Enterprises. Assume that New Media Enterprises
plans to publish Eloise’s columns in its own anthology entitled, ―The Best of Diario de
Manila. Eloise wants to prevent the publication of her columns in that anthology since she was
never paid by the newspaper. Name one irrefutable legal argument Eloise could cite to enjoin
New Media Enterprises from including her columns in its anthology.

SUGGESTED ANSWER:
Eloise could invoke that under Section 177 of the Intellectual Property Code, as the owner of the
copyright to the columns, she can either "authorize or prevent" reproduction of the work, including the
public distribution of the original and each of the work by sale or other forms of transfer of ownership.
While the anthology as a derivative work is protected as a new work it does not affect the force of the
copyright of Eloise upon her columns and does not imply any right to New Media Enterprises to use the
columns without Eloise's consent (Section 173,2, IPC).

When can the Insurance Commission deny the registration of pre-need plans?

SUGGESTED ANSWER:
According to the Pre-need Code, the Insurance Commission shall deny the registration of pre-need plans
of a pre-need company if on the basis of its lates audited financial statements trust fund annual
statements, and reserves valuation report, it has solvency or trust fund deficiencies, or paid-up capital
impairment.

When is an entity in a dominant position?

SUGGESTED ANSWER:
Under the Philippine Competition Act, an entity is in a dominant position in the market if it is in a
position of economic strength which makes it capable of controlling the relevant market independently
from any or a combination of the following: competitors, customers, supplier, or consumers. It must be
noted that an entity's dominance in a market is not per se anti-competitive. What is prohibited is the abuse
of such dominance that would substantially prevent, restrict or lessen competition.

Dielle, Karlo and Una are general partners in a merchandising firm. Having contributed equal amounts to
the capital, they also agreed on equal distribution of whatever net profit is realized per fiscal period. After
2 years of operation, however, Una conveys her whole interest in the partnership to Justine without the
knowledge and consent of Dielle and Karlo. What are the rights of Justine, if any, should she desire to
participate in the management of the partnership and in the distribution of a net profit of P360,000.00
which was realized after her purchase of Una's interest?

SUGGESTED ANSWER:
According to the Civil Code, a conveyance by a partner of his whole interest in the partnership does not,
in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in
the management or administration of the partnership business or affairs, or to require any information or
account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee
to receive in accordance with his contract the profits to which the assigning partner would otherwise be
entitled. Hence, Justice cannot interfere or participate in the management of the partnership. She may,
however, receive the net profits to which Una would have otherwise been entitled, which in this case is
P120,000.00.