Professional Documents
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Quamto (1991-2012) : Questions Asked More Than Once in The Bar
Quamto (1991-2012) : Questions Asked More Than Once in The Bar
QuAMTO (1991-2012)
Mercantile Law
ACADEMICS COMMITTEE
ALJON D. DE GUZMAN
MARK KEVIN U. DELLOSA
SHARMAGNE JOY A. BINAY
ANTHONY M. ROBLES
CLARABEL ANNE R. LACSINA
RAFAEL LORENZ SANTOS
JAMES BRYAN V. ESTELEYDES
CHAIRPERSON
VICE-CHAIR FOR ACADEMICS
VICE-CHAIR FOR ADMINISTRATION AND FINANCE
VICE-CHAIR FOR LAYOUT AND DESIGN
MEMBER, LAYOUT AND DESIGN TEAM
MEMBER, LAYOUT AND DESIGN TEAM
VICE-CHAIR FOR RESEARCH
RESEARCH COMMITTEE
JAMES BRYAN V. ESTELEYDES
MARIA JAMYKA S. FAMA
PAULINE BREISSEE GAYLE D. ALCARAZ
ROBBIE BAAGA
MONICA S. CAJUCOM
DOMINIC VICTOR C. DE ALBAN
ANNABELLA HERNANDEZ
MA. CRISTINA MANZO-DAGUDAG
WILLIAM RUSSELL MALANG
CHARMAINE PANLAQUE
OMAR DELOSO
U ST AC AD EM IC S C O M M ITTEE
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QUESTIONS ASKED MORE THAN ONCE IN THE BAR
QuAMTO (1991-2012)
DISCLAIMER
THE RISK OF USE, MISUSE OR NONUSE OF THIS BAR REVIEW MATERIAL
SHALL BE BORNE BY THE USER/
NON-USER.
U ST AC AD EM IC S C O M M ITTEE
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QUESTIONS ASKED MORE THAN ONCE IN THE BAR
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LETTERS OF CREDIT
Q: Explain the nature of Letters of Credit as a financial
devise (2012)
A: 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. The use of
credits in commercial transactions serves to reduce the
risk of nonpayment of the purchase price under the
contract for the sale of goods and to reduce the risk of
nonperformance of an obligation in a non-sale setting
(Transfield Philippines Inc. vs. Luzon Hydro Corp.,
November 22, 2004).
Q: Explain the three (3) distinct but intertwined contract
relationships that are indispensable in a letter of credit
transaction. (2002)
A: The following are the three (3) distinct relationships
arising from a letter of credit:
1.
2.
3.
2.
U ST AC AD EM IC S C O M M ITTEE
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FOB. After inspecting the logs, CD issued a purchase
order.
On the arrangements made upon instruction of the
consignee, H &T Corporation of LA, California, the SP
Bank of LA issued an irrevocable letter of credit
available at sight in favor for the total purchase price of
the logs. The letter of credit was mailed to FE Bank with
the instruction to forward it to the beneficiary. The
letter of credit provided that the draft to be drawn is on
SP Bank and that it be accompanied by, among other
things, a certification from AC, stating that the logs have
been approved prior shipment in accordance with the
terms and conditions of the purchase order.
TRUST RECEIPTS
Q: C contracted D to renovate his commercial building.
D ordered construction materials from E and received
delivery thereof. The following day, C went to F Bank to
apply for a loan to pay the construction materials. As
security for the loan, C was made to execute a trust
receipt. One year later, after C failed to pay the balance
on the loan, F Bank charged with violation of the Trust
Receipts Law.
1. What is a Trust Receipt?
2. Will the case against C prosper? Reason briefly
(2007)
A:
1.
2.
A:
1.
2.
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the sale of the goods, documents or instruments covered
by a trust receipt to the extent of the amount owing to
the entruster or as appears in the trust receipt or to
return said goods, documents or instruments if they
were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of
estafa.
Q: Is lack of intent to defraud a bar to the prosecution
of these acts or omissions? (2006)
A: No. Lack of intent to defraud is immaterial to the
prosecution for estafa under Trust Receipts Law. The
mere failure to account or to return gives rise the crime
which is a malum prohibitum.
2.
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proper recourse of the corporation? Explain.
(2005)
A:
1.
2.
Q:
What is a negotiable instrument? Give the
characteristics of a negotiable instrument (2005)
A: It is a written contract for the payment of money
which is intended as a substitute for money and passes
from one person to another as money, in such a manner
as to give a holder in due course the right to hold the
instrument free from defenses available to prior parties.
th
(Sundiang, Aquino, Reviewer in Commercial Law, p.5, 5
edition) For an instrument to be considered as a
negotiable one, it must comply with Section 1 of the
Negotiable Instruments Law, to wit:
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order to
pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
A negotiable instrument is characterized by negotiability
(capability of being transferred from one person to
another so as to make him a holder who is entitled to the
payment thereof) and its accumulation of secondary
contracts resulting from indorsements at the back
thereof.
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the bodyguard or escort of the holder for 30 days.
(2002)
A: A) paragraph 1: NOT AFFECTED
Date is not one of the requirements for negotiability
therefore it is not essential except when the date is
necessary to determine when the note is due
3.
4.
5.
Letters of Credit
Warehouse Receipts
Treasury warrants payable from a specific fund
(2005)
1.
A:
3.
4.
5.
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to be payable to bearer, hence the instrument qualifies
as a negotiable instrument
D) No. When the bill is addressed to two or more payees
in the alternative, the law provides in section 128 of the
NIL that it is conditional and therefore non-negotiable.
The objection to the drawers being in the alternative or
in succession is the difficulty in determining the exact
date of dishonor of the bill inasmuch as it cannot be said
that the bill is dishonored until all of the drawers have
dishonored it and if the presentment takes place for a
period covering several days when the last dishonor is
made, the first drawee who dishonored it may have
already been released from his secondary liability due to
the lapse of time before notice of dishonor was made by
the holder. Notice of dishonor could not have been made
earlier by the holder since there is still a remaining
drawee, who has not yet dishonored it.
A:
1.
2.
3.
A:
a)
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instructed Ruth, his secretary, to fill them as payment
for his obligations. Ruth filled one check with her name
as payee, placed P30,000.00 thereon, endorsed and
delivered it to Marie. She accepted the check in good
faith as payment for goods she delivered to Ruth.
Eventually, Ruth regretted what she did and apologized
to Jun. Immediately he directed the drawee bank to
dishonor the check. When Marie encashed the check it
was dishonored.
1. Is Jun liable to Marie?
2. Supposing the check was stolen while in Ruth's
possession and a thief filled the blank check,
endorsed and delivered it to Marie in payment
for the goods he purchased from her, is Jun
liable to Marie if the check is dishonored?
(2006)
A:
1.
2.
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receiving value therefor, and the further fact that Raffy
knew that at the time he took the instrument Jorge had
not received any value or consideration of any kind for
his indorsement. Is Jorge liable? Discuss. (1990, 1996)
A: Yes, Jorge is liable. By the clear mandate of section 29
of the Negotiable Instruments Law, an accommodation
party is "liable on the instrument to a holder for value,
notwithstanding that such holder at the time of taking
the instrument knew him to be only an accommodation
party." It is not a valid defense that the accommodation
party did not receive any valuable consideration when he
executed the instrument (Ang Tiong vs Ting, G.R. No. L26767, February 22, 1968).
b.
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document delivered to Evelyn is in blank and
she was authorized to fill up the amount in the
promissory note, Devi can enforce against Larry
the amount of P5,000.00 as this case falls
squarely under Sec 14 of the Negotiable
Instruments Law. As against a holder in due
course, the instrument is always valid and
enforceable to the full extent. The defense of
filing-up contrary to authorization is a mere
personal or equitable defense (Villanueva,
Commercial Law Review, 2009 edition)
b) Baby cannot enforce the note against Larry since
she is not a holder in due course because Larry
could interpose the real and personal defenses
to defeat the claim of Baby. However, because
of the shelter principle in Negotiable
Instruments Law, Baby could be elevated to a
status of a holder in due course since a person
not holder in due course steps in the shoes of
the prior party. Therefore, Baby could enforce
the note against Larry the same way as Devi
could enforce it.
Q: How does the shelter principle embodied in the
Negotiable Instruments Law operate to give rights of a
holder-in-due course to a holder who does not have the
status of a holder-in-due course? Briefly explain. (2008
Bar Question)
A: The shelter principle provides that a person, to whom
a holder in due course has transferred the negotiable
instrument, as well as any later transferee, will succeed
to the rights of the holder in dues course. As a result,
transferees of holders in due course are generally not
subject to defenses against the payment of an
instrument. This doctrine ensures the free transferability
of the negotiable instrument. Its name derives from the
idea that the transferees take shelter in the rights of
the holder in due course. However, this principle
presupposes that the holder for value is not a party to
the fraud.
A:
A. Since the instrument became a bearer
instrument, EF could no longer claim payment
from AB. EF is not a holder of the promissory
note. To make the presentment for payment, it
is necessary to exhibit the instrument, which EF
cannot do because he is not in possession
thereof.
B. No, because CD negotiated the instrument by
delivery.
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Q: As a rule under the Negotiable Instruments Law, a
subsequent party may hold a prior party liable but not
vice-versa. Give two (2) instances where a prior party
may hold a subsequent party liable. (2008)
A: In case of an accommodated party and in case of an
acceptor for honor. An accommodation party may hold
the party accommodated liable to him, even if the party
accommodated is a subsequent party. The relation
between them is that of a principal and a surety
(Philippine National Bank v. Maza (1925). For the same
reason, an acceptor for honor may hold the party for
whose honor he has accepted a bill of exchange liable to
him (Sec. 161, NIL). A prayer for honor is subrogated to
the rights of the holder as regards the party for whose
honor he paid and all parties liable to the latter (Sec. 175,
NIL)
Q: Distinguish clearly (1) crossed checks from cancelled
checks (2004)
A: A crossed check is one with two parallel lines drawn
diagonally on the left portion of the check. On the other
hand, a cancelled check is one marked or stamped "paid"
and/or "cancelled" by or on behalf of a drawee bank to
indicate payment thereof.
Q: Po Press issued in favor of Jose a postdated crossed
check, in payment of newsprint which Jose promised to
deliver. Jose sold and negotiated the check to Excel Inc.
at a discount. Excel did not ask Jose the purpose of
crossing the check. Since Jose failed to deliver the
newsprint, Po ordered the drawee bank to stop
payment on the check. Efforts of Excel to collect from
Po failed. Excel wants to know from you as counsel:
1) What are the effects of crossing a check?
2) Whether as second indorser and holder of the
crossed check, is it a holder in due course?
3) Whether Pos defense of lack of consideration as
against Jose is also available as against Excel? (1994,
1995, 2005)
A:
1.
2.
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to pay still falls on the drawee bank for having
guaranteed the genuineness of all prior indorsements.
However, a collecting bank is not guilty of negligence
over a forged indorsement on checks for it has no way of
ascertaining the authority of the indorsement unless it
further indorses the forged check wherein he becomes
liable upon the same as a general indorser. (Traders
Royal Bank v. RPN, G.R. No. 138510, October 10, 2002).
INSURANCE CODE
Q: Juan de la Cruz was issued Policy No. 8888 of the
Midland Life Insurance Co. on a whole life plan for
P20,000 on August 19, 1989. Juan is married to Cynthia
with whom he has three legitimate children. He,
however, designated Purita, his common-law wife, as
the revocable beneficiary. Juan referred to Purita in his
application and policy as the legal wife. Three (3) years
later, Juan died. Purita filed her claim for the proceeds
of the policy as the designated beneficiary therein. The
widow, Cynthia, also filed a claim as the legal wife. To
whom should the proceeds of the insurance policy be
awarded? (1998 Bar Question)
A: The estate is entitled to claim for the proceeds of the
insurance policy. As a general rule, the insured may
designate anyone he wishes to be his/her beneficiary.
However, Art. 2012 of the Civil Code, which applies
suppletorily to the Insurance Code, provides that any
person who is forbidden from receiving any donation
under Art. 739 cannot be named beneficiary of a life
insurance policy by the person who cannot make any
donation to him, according to said article. Art. 739
specifically bars the donations as between persons who
were guilty of adultery or concubinage. Since Purita is a
common-law wife of Juan, she falls squarely in to this
category therefore she is disqualified to receive
insurance proceeds and when this happens, the estate of
the deceased is the one entitled to the proceeds (Insular
Life Assurance Company, Ltd. vs. Capronia Ebrado, G.R.
No. L-44059, October 28, 1977).
2.
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provided that the total amount that he will
recover does not exceed his loss.
Q: M/V Pearly Shells, passenger and cargo vessel, was
insured for P40,000,000.00 against constructive total
loss. Due to a typhoon, it sank near Palawan. Luckily,
there was no casualties, only injured passengers. The
shipowner sent a notice of abandonment of his interest
over the vessel to the insurance company which then
hired professionals to afloat the vessel for P900,000.00.
When re-floated, the vessel needed repairs estimated
at P2,000,000.00. The insurance company refused to
pay the claim of the shipowner, stating that there was
no constructive total loss.
1. Was there constructive total loss to entitle
the shipowner to recover from the insurance
company? Explain.
2. Was it proper for the shipowner to send a
notice of abandonment to the insurance
company? Explain
3. When does double insurance exist?
4. What is the nature of liability of the several
insurers in double insurance? (2005)
A:
1. No. A constructive total loss is one which gives
the insured the right to abandon. (Sec 131,ICP)
Abandonment of the thing insured may be
availed of if the loss is more than three-fourths
of its value or the expense to recover it from
peril (Sec 139, ICP). In this case, the constructive
loss claimed by the shipowner pertains to the
vessel. The expenses for refloating and
estimated repairs did not amount to threefourths of the value of the vessel , hence, there
is no constructive total loss to speak of.
2. No. The case did not qualify as one for total
constructive loss. Deduced from the facts of the
case, the loss incurred during the peril did not
amount to three-fourths of its value. As
provided in Sec. 139, abandonment may be
availed of if the loss is more than three-fourths
of its value or the expense to recover it from
peril.
3. Sec.93 of the Insurance Code provides that
double insurance exists where the same person
is insured by several insurers separately, in
respect to the same subject and interest.
4. In double insurance, the insurers are considered
as co-insurers. Each one is bound to contribute
ratably to the loss in proportion to the amount
for which he is liable under his contract. This is
known as the principle of contribution or
contribution clause. (Sec. 94 [e])
Q: On a clear weather, M/V Sundo, carrying insured
cargo, left the port of Manila bound for Cebu. While at
sea, the vessel encountered a strong typhoon forcing
the captain to steer the vessel to the nearest island
where it stayed for seven days. The vessel ran out of
provisions for its passengers. Consequently, the vessel
proceeded to Leyte to replenish its supplies.
1.
2.
A:
1.
2.
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QUESTIONS ASKED MORE THAN ONCE IN THE BAR
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uses 2 big Isuzu trucks for the purpose; however, he
has no certificate of public convenience or franchise to
do business as a common carrier. On the return trips
to Alegria, he loads his trucks with various
merchandise of other merchants in Alegria and the
neighboring municipalities of Badian and Ginatilan. He
charges them freight rates much lower than the
regular rates. In one of the return trips, which left
Cebu City at 8:30 p.m. 1 cargo truck was loaded with
several boxes of sardines, valued at P100th, belonging
to one of his customers, Pedro Rabor. While passing
the zigzag road between Carcar and Barili, Cebu, which
is midway between Cebu City and Alegria, the truck
was hijacked by 3 armed men who took all the
boxes of sardines and kidnapped the driver and his
helper, releasing them in Cebu City only 2 days later.
Pedro Rabor sought to recover from Alejandro the value
of the sardines. The latter contends that he is not liable
therefore because he is not a common carrier under the
Civil Code. If you were the judge, would you sustain
the contention of Alejandro? (1991)
A: If I were the Judge, I would hold Alejandro as having
engaged as a common carrier. A person who offers his
services to carry passengers or goods for a fee is a
common carrier regardless of whether he has a certificate
of public convenience or not, whether it is his main
business or incidental to such business, whether it is
scheduled or unscheduled service, and whether he offers
his services to the general public or to a limited few (De
Guzman v CA GR 47822, December 27, 1988)
Q: Discuss whether or not the following stipulations in a
contract of carriage of a common carrier are valid:
1. A stipulation limiting the sum that may be
recovered by the shipper or owner to 90% of
the value of the goods in case of loss due to
theft.
2. A stipulation that in the event of loss,
destruction or deterioration of goods on
account of the defective condition of the
vehicle used in the contract of carriage, the
carriers liability is limited to the value of the
goods appearing in the bill of lading unless the
shipper or owner declares a higher value (2002)
A:
1.
2.
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A: Article 1734 provides the following defenses available
to limit or exempt carrier from liability
1. Observance of extraordinary diligence is also a valid
defense.
2. Flood, storm, earthquake, lightning or other natural
disaster or calamity;
3. Act of public enemy during war, whether
international or civil
4. Act or omission of the shipper or owner of the
goods;
5. The character of the goods or defects in the packing
or in the containers;
6. Order or act of competent authority.
Q: Suppose A was riding on an airplane of a common
carrier when an accident happened and A suffered
injuries. In an action by A against the common carrier,
the latter claimed that:
1.) There was a stipulation in the ticket issued to A
absolutely exempting the carrier from liability
from the passengers death or injuries and
notices were posted by the common carrier
dispensing with the extraordinary diligence of
the carrier, and
2.) A was given a discount on his plane fare
thereby reducing the liability of the common
carrier with respect to A in particular. Are
those valid defenses? (2001)
A: No. Article 1757 provides that responsibility of a
common carrier for the safety of passengers as required
in Articles 1733 and 1755 cannot be dispensed with or
lessened by stipulation, by the posting of notices, by
statements on tickets, or otherwise.
Related Articles: Art. 1733. Common carriers, from the
nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the
passengers transported by them, according to all the
circumstances of each case.
Such extraordinary diligence in the vigilance over the
goods is further expressed in Articles 1734, 1735, and
1745, Nos. 5, 6, and 7, while the extraordinary diligence
for the safety of the passengers is further set forth in
Articles 1755 and 1756.
SUBSECTION 2. - Vigilance Over Goods
Art. 1734. Common carriers are responsible for the loss,
destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural
disaster or calamity;
(2) Act of the public enemy in war, whether international
or civil;
(3) Act of omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or
in the containers;
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Q: A bus of GL Transit on its way to Davao stopped to
enable a passenger to alight. At that moment, Santiago
who had been waiting for a ride, boarded the bus.
However, the bus driver failed to notice Santiago who
was still standing on the bus platform, and stepped on
the accelerator. Because of the sudden motion,
Santiago slipped and fell down suffering serious
injuries. May Santiago hold GL Transit liable for breach
of contract of carriage? Explain (1996)
A: Yes, Santiago may hold GL Transit liable for breach of
contract of carriage. It was the duty of the driver, when
he stopped the bus, to do no act that would have the
effect of increasing the peril to a passenger such as
Santiago while he attempting to board the same. When a
bus is not in motion there is no necessity for a person
who wants to ride the same to signal his intention to
board. A public utility bus, once it stops, is in effect
making continuous offer to bus riders. It is the duty of
common carriers of passengers to stop heir conveyances
while they are doing so. Santiago, by stepping and
standing on the platform of the bus is already considered
as a passenger and is entitled to all the rights and
protection pertaining to a contract of carriage. (Dangwa
Trans. Co. v. CA, Oct. 7, 1991)
Q: Discuss the kabit system in land transportation and
its legal consequences (2005)
A: The kabit system is an agreement whereby a person
who has been granted a certificate of convenience allows
another person who owns motor vehicles to operate
under such franchise for a fee. It has been identified as
one of the root causes of the prevalence of graft and
corruption in the government transportation offices. It is
recognized as a contract which is against public policy
and therefore void and inexistent under Art. 1409 (Lita
Enterprises, Inc. vs. IAC, G.R. L-64693, April 27, 1984). As
a consequence, both the owner of the certificate of
public convenience and the actual owner of the motor
vehicle should be held jointly and severally liable for
damages to third persons as a consequence of the
negligent operation of the motor vehicle.
Q: Procopio purchased an Isuzu passenger jeepney from
Enteng, a holder of certificate of public convenience for
the operation of public utility plying the Calamba-Los
Baos route. While Procopio continued offering the
jeepney for public transport services, he did not have
the registration of the vehicle transferred in his name.
Neither did he secure for himself a certificate of public
convenience for its operation. Thus, per the records of
the Land Transportation Franchising and Regulatory
Board, Enteng remained its registered owner and
operator. One day, while the jeepney was traveling
southbound, it collided with a ten-wheeler truck owned
by Emmanuel. The driver of the truck admitted
responsibility for the accident, explaining that the truck
lost its brakes.
Procopio sued Emmanuel for damages, but the latter
moved to dismiss the case on the ground that Procopio
2.
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a)
1.
2.
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organization, or regulation of private corporations.
Government-owned and controlled corporations may be
created or established by special charters in the interest
of the common good and subject to the test of economic
viability
1.
4.
2.
3.
5.
A:
1.
2.
3.
5.
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2.
3.
4.
2.
A:
1.
4.
Q:
1.
3.
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person buys stock in a corporation he does so with the
knowledge that its affairs are dominated by a majority of
the stockholders. Such amendment made in the by-laws
is valid.
Q: Under the articles of incorporation of Manila
Industrial Corp., its principal place of business shall be
in Pasig, Metro Manila. The principal corporate offices
are at the Ortigas Center, Pasig, Metro Manila, while
factory processing leather products is in Manila. The
corporation holds its annual stockholders' meeting at
the Manila Hotel in Manila and its BOD meeting at a
hotel in Makati, Metro Manila. The by-laws are silent as
to the place of meetings of the stockholders and
directors.
1. Who shall preside at the meeting of the
directors?
2. Can Ting, a stockholder, who did not attend the
stockholders' annual meeting in Manila,
question the validity of the corporate
resolutions passed at such meeting?
3. Can the same stockholder question the validity
of the resolutions adopted by the BOD at the
meeting held in Makati? (1993)
A:
1.
2.
3.
A:
a)
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increase or diminution of the capital stock, or
the incurring, creating or increasing any bonded
indebtedness. Written notice of the proposed
increase or diminution of the capital stock or of
the incurring, creating, or increasing of any
bonded indebtedness and of the time and place
of the stockholders meeting at which the
proposed increase or diminution of the capital
stock or the incurring or increasing of any
bonded indebtedness us to be considered, must
be addressed to each stockholder at his place of
residence as shown on the books of the
corporation deposited to the addressee in the
post office with postage prepaid, or served
personally. In the present case, the resolutions
are not binding on the corporation and its
stockholders including Jimmy Morato. While
these resolutions were approved by the
stockholders, the directors approval, which is
required by law in such case, does not exist.
b) Jimmy Morato can petition the RTC to declare
the 2 resolutions, as well as any and all actions
taken by the BOD thereunder, null and void.
Q: Divine corporation is engaged in the manufacture of
garments for export. In the course of its business, it was
able to obtain loans from individuals and financing
institutions. However, due to the drop in the demand
for garments in the international market, Divine
Corporation could not meet its obligations. It decided to
sell all its equipment such as sewing machines, permapress machines, high speed sewers, cutting tables,
ironing tables, etc., as well as its supplies and materials
to Top Grade Fashion Corporation , its competitor.
1. How would you classify the transaction?
2. Can Divine Corporation sell the aforesaid items
to its competitor, Top Grade Fashion
Corporation? What are the requirements to
validly sell the items? Explain. (2005)
A:
1.
2.
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stockholders representing at least two-thirds of
the outstanding capital stock in a meeting called
for the purpose: Provided, that full disclosure of
the adverse interest of the directors or trustees
involved is made at such meeting: Provided,
however, That the contract is fair and
reasonable under the circumstances.
b) Valid Approval of the stockholders is not
required in declaring cash dividends
c) Void This is an ultra vires act on part of XL
Foods Corporation, and is not one of the
powers provided for in Sec. 36 of the
Corporation Code. It can be ratified provided it
is not illegal per se but merely beyond the
power of the corporation by the approval of
the majority of the board and vote of the
stockholders representing at least two thirds of
the outstanding capital stock. Where the
contract or act is not illegal per se but merely
beyond the power of the corporation, the same
is merely voidable and may be enforced by
performance, ratification, or estoppels, or on
equitable grounds (Republic v. Acoje Mining
Co., Inc) especially if no creditors are
prejudiced thereby and no rights of the state
or the public are involved (Flecher, p.585).
Q: Under what circumstances may a corporation declare
dividends? (2005)
A: A corporation may declare dividends when there is
unrestricted retained earnings, a resolution of the Board
of Directors and in case of declaration of stock dividends,
a ratification of the stockholders representing two-thirds
(2/3) of the outstanding capital stock
Q: From what funds are cash and stock dividends
sourced? Explain why (2005)
A:
1.
2.
a)
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Q: ABC Management Inc. presented to the DEF
Mining Co, the draft of its proposed Management
Contract. As an incentive, ABC included in the terms of
compensation that ABC would be entitled to 10% of any
stock dividend which DEF may declare during the
lifetime of the Management Contract. Would you
approve of such provision? If not, what would you
suggest as an alternative? (1991)
A: I would not approve a proposed stipulation in the
management contract that the managing corporation,
as an additional compensation to it, should be entitled
to 10% of any stock dividend that may be declared.
Stockholders are the only ones entitled to receive stock
dividends (Nielsen & Co v Lepanto Mining 26 s 569) I
would add that the unsubscribed capital stock of a
corporation may only be issued for cash or property or
for services already rendered constituting a demandable
debt (Sec 62 Corp Code). As an alternative, I would
suggest that the managing corporation should instead
be given a net profit participation and, if it later so
desires, to then convert the amount that may be due
thereby to equity or shares of stock at no less than the
par value thereof.
Q: A became a stockholder of Prime Real Estate
Corporation (PREC) on July 10, 1991, when he was
given one share by another stockholder to qualify him
as a director. A was not re-elected director in the
July 1, 1992 annual meeting but he continued to be a
registered shareholder of PREC.
When he was still a director, A discovered that on Jan
5,1991, PREC issued free of charge 10,000 shares to X a
lawyer who assisted in a court case involving PREC.
a) Can A now bring an action in the name of
the corporation to question the issuance of
the shares to X without receiving any
payment?
b) Can X question the right of A to sue him in
behalf of the corporation on the ground
that A has only one share in his name?
c) Can the shares issued to X be considered as
watered stock? (1993)
A:
a)
2.
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1.
A:
2.
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which Gabriel allegedly refused to turn over, and which
remained in the offices of MFF. Is there an intracorporate controversy in this case? (1996)
A: Yes. In the case of Lim vs. DPDCI G.R. 194024, it was
held that an intra-corporate controversy is one which
"pertains to any of the following relationships: (1)
between the corporation, partnership or association and
the public; (2) between the corporation, partnership or
association and the State in so far 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." It is therefore clear that there exists an
intra-corporate controversy between MFF Co and CLO
Inc. Furthermore, in the case of SEC vs. CA, G.R. 93832, it
was held that the fact that when the complaint in SEC
Case No. 03328 was filed with the SEC, the private
respondents Ban Hua Uy-Flores and Ban Ha Uy-Chua
were no longer stockholders of the UBS Marketing
Corporation did not divest the SEC of its jurisdiction over
the case. Hence, there exists an intra-corporate
controversy.
SECURITIES REGULATION CODE
Q: Grand Gas Corporation, a publicly listed company,
discovered after extensive drilling a rich deposit of
natural gas along the coast of Antique. For five (5)
months, the company did not disclose the discovery so
that it could quietly and cheaply acquire neighboring
land and secure mining rights to the land. Between the
discovery and its disclosure of the information to the
Securities and Exchange Commission, all the directors
and key officers of the company bought shares in the
company at very low prices. After disclosure, the price
of the shares went up. The directors and officers sold
their shares at huge profits.
1. What provision of the Securities Regulation
Code (SRC) did they violate, if any? Explain.
2. Assuming that the employees of the
establishment handling the printing work of
Grand Gas Corporation saw the exploration
reports which were mistakenly sent to their
establishment together with other materials to
be printed. They too bought shares in the
company at low prices and later sold them at
huge profits. Will they be liable for violation of
the SRC? Why? (2008)
A:
1.
2.
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percent (35%) or more of equity shares in a
public company. They must however, disclose
the intention to acquire the shares
contemporaneously with the tender offer.
2.) Any person or group of persons acting in
concert, who intends to acquire thirty-five
percent (35%) or more of equity shares in a
public company in one or more transactions
within a period of twelve (12) months, shall be
required to make a tender offer to all holders of
such class for the number of shares so acquired
within the said period.
3.) If any acquisition of even less than thirty-five
percent (35%) would result in ownership of over
fifty-one percent (51%) of the total outstanding
equity securities of a public company, the
acquirer shall be required to make tender offer
for all the outstanding equity securities to all
remaining stockholders of the said company at a
price supported by a fairness opinion provided
by an independent financial advisor or
equivalent third party. The acquirer in such a
tender offer shall be required to accept any and
all securities thereof.
BANKING LAWS
Q: Pio is the president of Western Bank. His wife
applied for a loan with the said bank to finance an
internet cafe. The loan officer told her that her
application will not be approved because the grant of
loans to related interests of bank directors, officers, and
stockholders is prohibited by the General Banking Law.
Explain whether the loan officer is correct. (2006)
A: No. The loan officer should have advised the wife to
ask her husband to secure the approval of the banks
Board of Directors for the intended loan and to limit the
same in an amount not to exceed its unencumbered
deposits and book value of its paid in capital contribution
in the bank; if the intended loan should exceed the
foregoing limit, the borrower should have the same
secured by a non-risk assets as determined by the
Monetary Board, unless the loan shall be in the form of a
fringe benefit (Sec. 36, General Banking Law of 2000).
Q: The Blue Star Corporation filed with the Regional
Trial Court a petition for rehabilitation on the ground
that it foresaw the impossibility of paying its obligations
as they fall due. Finding the petition sufficient in form
and substance, the court issued an Order appointing a
rehabilitation receiver and staying the enforcement of
all claims against the corporation. What is the rationale
for the Stay Order? (2006)
A: The reason behind the indiscriminate suspension or
stay order in relation to the creditors claims is to
expedite the rehabilitation of the distressed corporation
by enabling the management committee or the
rehabilitation receiver to effectively exercise its/his
powers free from any judicial or extrajudicial
interference that might unduly hinder or prevent the
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1. Upon written consent of the depositor. (Sec. 2)
2. In cases of impeachment. (Sec. 2)
3. Upon order of competent court in cases of bribery or
dereliction of duty of public officials. (Sec. 2)
4. In cases where the money deposited or invested is the
subject matter of the litigation. (Sec. 2)
5. Upon order of the Commissioner of Internal Revenue
in respect of the bank deposits of a decedent for the
purpose of determining such decedents gross estate.
(Sec. 6[F][1], NIRC)
6. Upon the order of the Commissioner of Internal
Revenue in respect of bank deposits of a taxpayer who
has filed an application for compromise of his tax liability
by reason of financial incapacity to pay his tax liability.
(Sec. 6[f][1],NIRC)
7. In case of dormant accounts/deposits for at least 10
years under the Unclaimed Balances Act. (Sec. 2, Act No.
3936).
8. When the examination is made by the BSP to insure
compliance with the Anti-Money Laundering Law in the
course of a periodic or special examination
9. With court order: a. In cases of unexplained wealth
under Sec. 8 of the Anti-Graft and Corrupt Practices Act
(PNB v. Gancayco, L-18343, Sept. 30, 1965); b.In cases
filed by the Ombudsman and upon the latters authority
to examine and have access to bank accounts and
records (Marquez v. Desierto, GR 138569, Sept. 11, 2003)
10.Without court order: If the AMLC determines that a
particular deposit or investment with any banking
institution is related to the following: a.Hijacking, b.
Kidnapping, c. Murder, d. Destructive, Arson, and e.
Violation of the Dangerous Drugs Act.
Q: The Law on Secrecy of Bank Deposits provides that
all deposits of whatever nature with banks or banking
institutions are absolutely confidential in nature and
may not be examined, inquired or looked into by any
person, government official, bureau or office. However,
the law provides exceptions in certain instances. Which
of the following may not be among the exceptions:
1. In cases of impeachment.
2. In cases involving bribery
3. In cases involving BIR inquiry.
4. In cases of anti-graft and corrupt practices.
5. In cases where the money involved is the subject of
litigation.
Explain your answer or choice briefly. (2004)
A: Under Section 6(F) of the National Internal Revenue
Code, the Commissioner of Internal Revenue can inquire
into the deposits of a decedent for the purpose of
determining the gross estate of such decedent. Apart
from this case, a BIR inquiry into bank deposits cannot be
made. Thus, exception 3 may not always be applicable.
Turning to exception 4, an inquiry into bank deposits is
possible only in prosecutions for unexplained wealth
under the Anti-Graft and Corrupt Practices Act, according
to the Supreme Court in the cases of Philippine National
Bank v. Gancayco, 15 SCRA 91 and Banco Filipino Savings
and Mortgage Bank v. Purisima, 161 SCRA 576. However,
all other cases of anti-graft and corrupt practices will not
warrant an inquiry into bank deposits. Thus, exception 4
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deposited in a bank by Socorro and paid out to several
persons, who participated in the concealment and
dissipation of the amount that Socorro had erroneously
received. Socorro moved to strike out said testimonies
from the record invoking the law on secrecy of bank
deposits. If you were the Judge, would you issue an
order to strike them out? Why? (1992)
A: If I am the judge I would not issue an order to strike
them out. The testimonies of the bank officials showing
that the funds were in fact deposited in a bank by
Socorro and paid out to several persons, who
participated in the concealment and dissipation of the
amount that Socorro had erroneously received, were
presented in the course of the trial. Therefore, the said
testimonies must be considered as involved in the
litigation. In the case of Mellon Bank vs. Magsino 190
SCRA 633, it was held that RA 1405 allows the disclosure
of bank deposits in cases where the money deposited is
the subject matter of litigation. In an action filed by a
bank to recover money it transmitted by mistake,
necessarily, an inquiry to its whereabouts of the amount
extends to whatever concealed by, being held or
recorded in the name of the persons other than the one
responsible for illegal acquisition. Hence, in the case at
bar, the disclosure should be allowed and it should not
be subject to an order to strike out.
Q: GP is a suspected jueteng lord who is rumored to be
enjoying police and military protection. The envy of
many drug lords who had not escaped the dragnet of
the law, GP was summoned to a hearing of the
Committee on Racketeering and Other Syndicated
Crimes of the House of Representatives, which was
conducting a congressional investigation in aid of
legislation on the involvement of police and military
personnel, and possibly even of local government
officials, in the illegal activities of suspected gambling
and drug lords. Subpoenaed to attend the investigation
were officers of certain identified banks with a directive
to them to bring the records and documents of bank
deposits of individuals mentioned in the subpoenas,
among them GP. GP and the banks opposed the
production of the bank records of deposits on the
ground that no such inquiry is allowed under the Law on
Secrecy of Bank Deposits (RA 1405 as amended). Is the
opposition of GP and the banks valid? Explain. (2000)
A: Yes. The opposition is valid. GP is not a public official.
The investigation does not involve one of the exceptions
to the prohibition against disclosure of any information
concerning bank deposits under the Law on Secrecy of
Bank Deposits. The Committee conducting the
investigation is not a competent court or the
Ombudsman authorized under the law involving such
disclosure.
INTELLECTUAL PROPERTY LAW
Q: Cezar works in a car manufacturing company owned
by Joab. Cezar is quite innovative and loves to tinker
with things. With the materials and part of the car, he
2.
3.
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2
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the consent of the authors thereof and subsequently
published the same in violation of the latters economic
rights.
Q: In a written legal opinion for a client on the
difference between apprenticeship and learnership, Liza
quoted without permission a labor law expert's
comment appearing in his book entitled "Annotations
on the Labor Code." Can the labor law expert hold Liza
liable for infringement of copyright for quoting a
portion of his book without his permission? (2006)
A: No. One of the limitations on copyright is the making
of quotations from a published work if they are
compatible with fair use, provided that the source and
the name of the author, if appearing on the work, are
mentioned. The legal opinion made by Liza is consistent
with fair use since the quoted part is merely used to
explain a concept of law for the benefit of the client and
not to defeat the rights of the author over his copyright
(Sec. 184.1 (b), Intellectual Property Code).
Q: May a person have photocopies of some pages of the
book of Professor Rosario made without violating the
copyright law? (1998)
A: Yes, a person may photocopy some of pages of
Professor Rosarios book for as long as it is not for public
use or distribution and it does not copy the substantial
text or heart of the book. It is considered as fair use of
the copyrighted work.
Q: BR and CT are noted artists whose paintings are
highly prized by collectors. Dr. DL commissioned them
to paint a mural at the main lobby of his new hospital
for children. Both agreed to collaborate on the project
for a total fee of 2 million pesos to be equally divided
between them. It was also agreed that Dr. DL had to
provide all the materials for the painting and pay for the
wages of technicians and laborers needed for the work
on the project.
Assume that the project is completed and both BR and
CT are fully paid the amount of P2M as artists' fee by
DL. Under the law on intellectual property, who will
own the mural? Who will own the copyright in the
mural? Why? Explain. (2004)
A: According to Section 178.4 of the IPC, when the work
is commissioned by a person other than an employer of
the author, the owner of the work shall be the one who
commissioned the work, but the copyright of the work
shall be owned by the person who is responsible for its
creation, unless there is a written stipulation to the
contrary. Hence, DL owns the mural while both BR and
CT jointly own the copyright thereto. This is so because
the mural was commissioned by DL and a consideration
was paid to BR and CT in exchange thereof.
Q: The Victoria Hotel chain reproduces videotapes,
distributes the copies thereof to its hotels and makes
them available to hotel guests for viewing in the hotel
guest rooms. It charges a separate nominal fee for the
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mortgagor is a juridical person and the mortgagee is a
bank, quasi-bank or a financial institution. Clearly, the
Red Corporation cannot anymore redeem the said
property since three (3) months had already passed
when they wanted to redeem the property; thus, the
ownership was consolidated to Blue Bank since
November 2, 2004 which is three (3) months after the
registration of sale.
A:
A:
1.
2.
1.
2.
3.
4.
5.
6.
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Q: Name at least five (5) predicate crimes to money
laundering (2007)
A: Republic Act 10365 enumerated the predicate crime
to money laundering, to wit:
(1) Kidnapping for ransom under Article 267 of Act No.
3815, otherwise known as the Revised Penal Code, as
amended;
(2) Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of
Republic Act No. 9165, otherwise known as the
Comprehensive Dangerous Drugs Act of 2002;
(3) Section 3 paragraphs B, C, E, G, H and I of Republic
Act No. 3019, as amended, otherwise known as the AntiGraft and Corrupt Practices Act;
(4) Plunder under Republic Act No. 7080, as amended;
(5) Robbery and extortion under Articles 294, 295, 296,
299, 300, 301 and 302 of the Revised Penal Code, as
amended;
(6) Jueteng and Masiao punished as illegal gambling
under Presidential Decree No. 1602;
(7) Piracy on the high seas under the Revised Penal
Code, as amended and Presidential Decree No. 532;
(8) Qualified theft under Article 310 of the Revised
Penal Code, as amended;
(9) Swindling under Article 315 and Other Forms of
Swindling under Article 316 of the Revised Penal Code, as
amended;
(10) Smuggling under Republic Act Nos. 455 and 1937;
(11) Violations of Republic Act No. 8792, otherwise
known as the Electronic Commerce Act of 2000;
(12) Hijacking and other violations under Republic Act
No. 6235; destructive arson and murder, as defined
under the Revised Penal Code, as amended;
(13) Terrorism and conspiracy to commit terrorism as
defined and penalized under Sections 3 and 4 of Republic
Act No. 9372;
(14) Financing of terrorism under Section 4 and offenses
punishable under Sections 5, 6, 7 and 8 of Republic Act
No. 10168, otherwise known as the Terrorism Financing
Prevention and Suppression Act of 2012:
(15) Bribery under Articles 210, 211 and 211-A of the
Revised Penal Code, as amended, and Corruption of
Public Officers under Article 212 of the Revised Penal
Code, as amended;
(16) Frauds and Illegal Exactions and Transactions under
Articles 213, 214, 215 and 216 of the Revised Penal Code,
as amended;
(17) Malversation of Public Funds and Property under
Articles 217 and 222 of the Revised Penal Code, as
amended;
(18) Forgeries and Counterfeiting under Articles 163,
166, 167, 168, 169 and 176 of the Revised Penal Code, as
amended;
(19) Violations of Sections 4 to 6 of Republic Act No.
9208, otherwise known as the Anti-Trafficking in Persons
Act of 2003;
(20) Violations of Sections 78 to 79 of Chapter IV, of
Presidential Decree No. 705, otherwise known as the
Revised Forestry Code of the Philippines, as amended;
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3.
4.
A:
1.
2.
3.
4.
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