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Mercantile Bar Review Material 2
Mercantile Bar Review Material 2
MERCANTILE LAW
VER. 2007.08.13
copyrighted 2007
.
DO NOT MEMORIZE the suggested answers. Some of
the answers were purposely made to be lengthy in order to
serve as explanatory devices. This is so because you do not
have time anymore to refer back to your review materials. If
you still could not understand the concepts after reading these
Notes, then refer to the Doctrines and Illustrative cases as well
as to your other review materials.
AUTHORIZED SIGNATURE:
WARNING:
MERCANTILE LAW
(1) CODE OF COMMERCE
(a)
Merchants and
Transactions . Articles 1 to 63.
Commercial
2. What
a.
b.
(iii)
Receipts
1.
10
3.
(2) Negotiable
2031)
Instruments
1.
11
12
promissory note is merely an assignment of credit, a nonnegotiable instrument open to all defenses available to the
assignor and, therefore, California Finance Corporation is
not a holder in due course.
a) Is the promissory note a mere assignment of
credit or a negotiable instrument ? Why ?
b) Is the California Finance Corporation a holder in
due course ? Explain briefly.
SUGGESTED ANSWER:
a) The promissory note is a negotiable instrument
because it conforms to the requirements of a negotiable
instrument. It is in writing signed by the maker Miky, it contains
an unconditional promise to pay a sum certain in money at a
fixed or determinable future time. The sum is a sum certain
although it is payable in installments with interest.
b) California Finance Corporation is a holder in due
course because it took the instrument complete and regular
upon its face, that it is not overdue and without notice that it had
been previously dishonored, that it took the instrument in good
faith and for value, and that it had no notice of any infirmity in the
instrument or defect in Autocars, Inc.s title.
(Sgd.) Miky
P2,500.00
Autocars, Inc.
By:
(Sgd.) Manager
Because Miky defaulted in the payment of his
installments, California Finance Corporation initiated a
case against her for sum of money. Miky argued that the
13
14
ILLUSTRATIVE PROBLEMS:
BUT DELIVERED INSTRUMENTS.
9.
INCOMPLETE
10.
15
ILLUSTRATIVE PROBLEMS:
NOT DELIVERED INSTRUMENT.
INCOMPLETE
16
ILLUSTRATIVE PROBLEM:
RIGHTS
PARTIES
IN
FORGED
INDORSEMENT
PROMISSORY NOTE PAYABLE TO ORDER.
OF
OF
13.
ILLUSTRATIVE PROBLEM:
RIGHTS OF
PARTIES IN FORGED INDORSEMENT OF BILL OF
EXCHANGE PAYABLE TO ORDER.
17
18
19
insure and to distribute the cost among its customers who use checks
makes the drawee an ideal party to spread the risk to insurance.
(Samsung Construction Company Philippines, Inc., v. Far East Bank
and Trust Company, et al., G. R. No. 129015, August 13, 2004)
g. Bank liability attaches even if not negligent. The
banks liability attaches even if it exerts due diligence and care in
preventing such faulty discharge. Forgeries often deceive the eye of
the most cautious experts, and when a bank has been so deceived, it
is a harsh rule which compels it to suffer although no one has suffered
by its being deceived. The forgery may be so bear like the genuine as
to defy detection by the depositor himself, and yet the bank is liable to
the depositor if it pays the check. .(Samsung Construction Company
Philippines, Inc., v. Far East Bank and Trust Company, et al., G. R. No.
129015, August 13, 2004 citing various authorities)
If a loss, which must be borne be by one or two innocent
persons, can be traced to the neglect or fault of either, such loss would
be borne by the negligent party, even if innocent of intentional fraud.
(PNB v. National City Bank of New York, 63 Phil. 711 (1936) The bank
is so situated that it would have been the last bulwark in the detection
of the forgery.
ILLUSTRATIVE PROBLEM:
RIGHTS OF
PARTIES
IN
FORGED
INDORSEMENT
OF
PROMISSORY NOTE PAYABLE TO BEARER. OR OF
BEARER BILL OF EXCHANGE.
20
ILLUSTRATIVE PROBLEM:
RIGHTS OF
PARTIES IN
COMPLETE AND DELIVERED
INSTRUMENT BUT MATERIALLY ALTERED.
21
19. Ford Philippines, Inc. issued various crosschecks drawn against CITIBANK, N.A., with the
Commissioner of Internal Revenue. It appears that Rivera
Fords General Ledger Accountant, prepared checks for
payment to the BIR. Instead, however, of delivering the
same to the payee, Rivera passed on the checks to Castro
who was a pro-manager of the San Andres Branch of PCIB.
In connivance with Dulay, PCIBs Asst. Manager at its
Meralco Branch, Castro himself subsequently opened a
Checking Account in a name of a fictitious person
denominated as Reynaldo Reyes in the Meralco Branch
of PCIBank where Dulay works as Asst. Manager. Thus, the
syndicate succeeded in encashing the checks and
appropriating the value.
22
drawee were not altered. The intended payee was the same.
The sum of money due to the payee remained the same.
An innocent alteration (generally, changes on items
other than those required to be stated under Sec. 1, N.I.L.) and
spoliation (alterations done by a stranger) will not avoid the
instrument, but the holder may enforce it only according to its
original tenor. (Vitug cited in Philippine National Bank v. Court of
Appeals, et al., 256 SCRA 491; International Corporate Bank, Inc. v.
Court of Appeals, et al., G. R. No. 129910, September 5, 2006 )
COMPLETE
INSTRUMENT.
BUT
NOT
DELIVERED
a.
23
22.
24
25
29..
30.
31.
33.
34.
26
27
28
29
43.
30
31
Review classes for the Bar she was run over by a bulldozer
which caused her death on the spot. Jeffrey now claims
the life insurance proceeds. Decide.
SUGGESTED ANSWER: Jeffrey could not recover.
There was concealment, which is a neglect to communicate that
which a party knows and ought to communicate. The matter
concealed was material and relevant to the approval and
issuance of the policy, it having probable and reasonable
influence upon the insurers forming an estimate of the
disadvantages of the proposed contract.
Good faith is not a defense to concealment, as
materiality of the information withheld does not depend on the
state of mind of the insured nor on the actual or physical events
which ensue.
It is settled that the insured need not die of the disease
he had failed to disclose to the insurer. It is sufficient that the
non-disclosure misled the insurer in forming his estimates on the
risks of the proposed insurance policy or in making inquiries.
(Sunlife Assurance Company of Canada vs. Court of Appeals,
et al., 245 SCRA 268)
In the above problem, the incontestability clause does
not find application because the two year period has not yet
lapsed.
Supposing under the above set of facts that the
insurance was secured on August 31, 2003, would your
answer be the same ?
SUGGESTED ANSWER: No. Since the policy is two
years old, the incontestability clause has already set in which
defeats the concealment.
Would it make any difference in your answers to the
above if Marion was married to Francis ? What about if it
was Jeffrey who was married to Daniela ?
SUGGESTED ANSWER:
Under the above
circumstances if Marion and Jeffrey were married to persons
other than themselves, then there could be no recovery on the
insurance policy of Marion.
Jeffrey could not be a donee
because of the illicit relationship hence cannot be a beneficiary
in life insurance.
NOTES AND COMMENTS:
6.
32
33
10.
GOYU applied for credit facilities and
accommodations with Rizal Bank. As security for its credit
facilities with Rizal Bank, GOYU executed two real estate
mortgages and two chattel mortgages in favor of Rizal
Bank, with were registered with the Registry of Deeds.
Under the four mortgages, GOYU committed itself to insure
the mortgaged property with MICO, an insurance company
approved by Rizal Bank, and subsequently to endorse and
deliver the insurance policies to Rizal Bank. Alchester,
MICOs underwriter, from whom GOYU secured the
insurance prepared the indorsements but it turned out that
the endorsements do not bear the signature of any officer
of GOYU.
Who could recover on the insurance claim ?
SUGGESTED ANSWER: Rizal Bank could recover up
to the extent of its interest on the mortgage.
While it is settled that a mortgagor and a mortgagee
have separate and distinct insurable interests in the same
mortgaged property, such that each one of them may insure the
same property for his own sole benefit, the intention of the
parties should govern. In the case at bar the endorsements
made in favor of Rizal Bank, clearly indicate that Rizal Bank is
truly the entity for whose benefit the policies were clearly
intended. (Rizal Commercial Banking Corporation, et al., v. Court of
Appeals, et al., and companion cases. 289 SCRA 1292)
a.
Example where there is no double
insurance. The insurable interests of a mortgagor and a
mortgagee on the mortgaged policy are separate and distinct hence
there is no double insurance if the mortgagor and the mortgagee take
out separate insurances.
12.
What is co-insurance ?
SUGGESTED ANSWER: Where an insured insures his
property for less than its value, he is deemed to have acted as a
co-insurer with the insurer up to the extent of the deficiency. In
such a case, where there is loss or damage, the insurer shall be
liable only for such proportion of the loss or damage that the
amount of insurance bears to the designated percentage of the
full value of the property insured.
For example, property valued as P1,000,000.00 was
insured only for P700,000.00. In such a case there is coinsurance by the insured up to the extent of 30%. In case of
loss there could only be 70% recovery of the damage or loss.
13.
What is reinsurance ?
SUGGESTED ANSWER: This is a situation where the
insurer procures a third party, called the reinsurer, to insure him
against the liability by reason of such original insurance.
Basically, a reinsurance is an insurance against liability which
the original insurer may incur in favor of the original insured.
14.
34
35
36
37
21.
38
39
40
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on the part of either party entitles the other to rescind. However, the
breach must be duly shown by the party alleging the same.
There may be waiver of the right to rescind on the basis of the
breach if the premium was accepted for two consecutive years.
(Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping
Lines, Inc., G. R .No. 151890, June 20, 2006, and companion case)
34.
Distinguish one from the other:
concealment, representation and warranty as used in
insurance.
SUGGESTED ANSWER:
a. Inclusion in contract: The facts concealed are not
part of the contract; representations are mere collateral
inducements to the contract; those warranted are part of the
contract.
b. Nature of statements: Concealment is neglect to
communicate; representations oral or written statement;
warranties may be express or implied.
c. Extent: The facts concealed must be material; so
also with representations, while warranties are conclusively
presumed material.
d. Consequences: Concealment vitiates the contract
and entitles the insurer to rescind, even if the death or loss was
die to a cause not at all related to the concealed matter; if the
representation is false on a material point, the injured party is
entitled to rescind from the time when the representation
becomes false; upon breach of a warranty the insurer has the
right to rescind.
35. On March 13, 2004, Rizal Surety & Insurance
Company issued Fire Insurance Policy No. 45727 in favor
of Transworld Knitting Mills, Inc. for P 1,500,000.00 which
amount was increased to P1,500,000.00 for the period
August 14, 2004 to March 13, 2005. The coverage of the
policy reads, included among others those, xxx contained
and/or stored during the coverage of this Policy in the
premises occupied by them forming part of the buildings
situated within own Compound xxx.
On January 12, 2005, fire broke out in the
compound of Transworld. It razed the middle portion of its
four-span building and partly gutted the left and right
sections thereof. A two-storey building that was behind the
42
43
but it was denied on the ground that his wife who was
driving the car when it was carnapped was in possession
of an expired drivers license, a violation of the authorized
driver clause of the insurance company.
May the insurance company be held liable to
indemnify HL for the loss of the insured vehicle ? Explain.
SUGGESTED ANSWER: Yes. The loss of the car by
theft is a covered loss. It is immaterial that HLs wife was driving
the car with an expired drivers license at the time it was
carnapped. (Perla Compania de Seguros v. Court of Appeals, et al.,
208 SCRA 487)
obligor and the obligee. (Republic v. Court of Appeals, et al., G.R. No.
103073, March 13, 2001)
44
45
4.
lading ?
SUGGESTED ANSWER: A written acknowledgment of
the receipt of goods and an agreement to transport and to
deliver them at a specified place to a person named therein or
on his order.
5.
lading.
SUGGESTED ANSWER:
a. It is a receipt of the goods shipped; and
b. It is a contract by which three parties, namely, the
shipper, the carrier and the consignee undertake specific
responsibilities and assume stipulated obligations. (Keng Hua
Paper Products Co., Inc. v. Court of Appeals, et al., 286 SCRA 257)
contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of the stipulations shall control.
(Provident Insurance Corporation v. Court of Appeals, et al., G. R. No.
118030, January 15, 2004)
a. Stipulations considered
46
unreasonable, unjust
47
9.
48
10.
49
12.
Harold just arrived from Singapore.
He
immediately proceeded to Manila North Harbor where he
boarded a boat bound for Cebu City. He loaded on the
same boat two balikbayan boxes full of goodies for
"pasalubong" to his relatives. Each of the boxes contained
goods worth P15,000.00. The shipping agent issued to him
a bill of lading for the two boxes. When he claimed the
boxes at the Cebu City terminal of the shipping lines he
b.
Shipper could collect higher value despite
limitation on the bill of lading unless a higher freight payment is
made, where the value of the articles are specifically declared on the
face of the bill of lading even if no higher freight payment was made.
50
13.
14.
In going home, Noe boarded a Fiera
passenger jeepney driven by Geminiano and owned by
Cecilia. On the way the jeepney picked up an old woman
passenger so Noe offered his seat and he proceeded to
hung or stood on the left rear carriage of the jeepney.
Further along the route the jeepney stopped at the right
shoulder of the road to pick up other passengers.
Suddenly a cargo truck driven by Bienvenido and owned
by Larry hit the rear end portion of the jeepney causing
Noe to fall and lost his leg.
Rule on the following defenses raised by Larry to
negate liability for the damages caused to Noe.
a.
That before the cargo truck was dispatched
for the trip, it was properly checked by a mechanic and
found to be in good condition; that he check Bienvenidos
drivers license; that he rode together with Bienvenido on
his first two trips to determine his competence, that he
hired a mechanic to continuously check the condition of
the cargo truck; that he exercised the diligence of a good
father of a family in the selection and supervision of
Bienvenido and maintaining his cargo truck roadworthy
and in good operating condition. However, no records
were submitted to support the defenses.
SUGGESTED ANSWER:
All of the above were
disregarded because of failure to support the same with
evidence.
As Bienvenidos employer, Larry is primarily and solidarily liable
for the quasi-delict committed by the former. Larry is presumed
to be negligent in the selection and supervision of his employee
by operation of law and may be relieved of responsibility for the
negligent acts of his driver, who at the time was acting within the
51
15.
52
16.
53
(c)
Maritime Commerce (Code of
Commerce, Arts. 573 to 736; also Arts. 580-584
of Code of Commerce, as superseded by R.A.
6106; Arts. 806 to 845 of the Code of
Commerce); Paragraph 6 of Section 3 of
Carriage of Goods by Sea Act (Com. Act 65)
1. On December 19, 1987, motor tanker MT Vector
left Limay, Bataan enroute for Masbate loaded with
petroleum products shipped by Caltex. On December 20,
1987, the passenger ship MV Dona Paz owned and
operated by Sulpicio Lines, Inc, left the port of Tacloban
headed for Manila with a complement of 59 crew and 1,493
manifested passengers.
On December 20, 1987 the two vessels collided in
the open sea. All the crew members of Dona Paz died, and
of the estimated 4,000 passengers (unmanifested), only 24
survived. Two survived from MT Vector. The issues are
whether Caltex, Inc, the charterer of MT Vector is liable to
the passengers, and whether Sulpicio Lines is the one
liable for the passengers.
e.
54
55
d.
carrier.
e. Where the vessel is insured; and
f.
In Workmens Compensation claims.
(Monarch
Insurance Co., Inc., et al. v. Court of Appeals, et al., G.R. No. 92735
and companion cases, June 8, 2000)
56
8.
57
SUGGESTED ANSWER:
1. Since both of them are fault then each must bear its
own damage.
2. Where fault is established but it cannot be determined
which of the two vessels was at fault, the doctrine of inscrutable
fault finds application and both shall be deemed to be at fault.
Consequently, each vessel shall bear their respective damages.
3. Nobody. The carrier is not liable if the cause is a
fortuitous event since it is not an insurer of loss or damage.
58
13.
The consignee of a shipment of drilling
equipment from Norway filed suit against the carrier for
59
60
4.
61
5.
62
63
11.
64
5. Corporation Law
1.
May Congress, by law, create a private
corporation ? Reason out briefly.
SUGGESTED ANSWER: Congress cannot enact a law
creating a private corporation. The Constitution emphatically
prohibits the creation of private corporations except by a general
law applicable to all citizens. (Feliciano, etc. v. Commission on
Audit, etc., G. R. No. 147402, January 14, 2004 citing National
Development Company v. Philippine Veterans Bank, G. R. No.
84132-33, 10 December 1990, 192SCRA 257)
The purpose of this constitutional prohibition is to ban
private corporations created by special charters, which
historically gave certain individuals, families or groups special
privileges denied to other citizens. (Feliciano, etc. v. Commission
65
66
4.
Fifteen individuals formed a private
corporation pursuant to the provisions of the Corporation
Code of the Philippines (Batas Pambansa Blg. 68).
Incorporator Mr. Leon was elected director and president
general manager. Part of his emolument is a Mercedes
Benz, which the corporation owns. After a few years, Mr.
Leon lost his corporate positions but he refused to return
the motor vehicle claiming that as a stockholder with a
substantial equity share, he owns that portion of the
corporate assets now in his possession. Is the contention
of Mr. Leon valid ? Explain.
SUGGESTED ANSWER: No. The corporation has a
personality distinct and separate from that of its stockholders.
Consequently, corporate property such as the Mercedes Benz is
not property of any stockholder such as Mr. Leon.
NOTES AND COMMENTS:
a. Corporate property not owned by stockholders.
The distinction between the title of a corporation, and the interest of its
members or stockholders in the property of the corporation is familiar
and well-settled. The ownership of that property is in the corporation,
and not in the holders of shares of its stock. The interest of each
stockholder consists in the right to a proportionate part of the profits
whenever dividends are declared by the corporation, during its
existence, under its charter, and to a like proportion of the property
remaining, upon the termination or dissolution of the corporation after
payment of its debts. (Mobilia Products, Inc. v. Umezawa, G. R. No.
149357, March 4, 2005 and its companion case)
5.
67
9.
?
SUGGESTED ANSWER:
The following were the
instances where the Supreme Court ruled that the veil of
corporation fiction may be pierced:
a. When the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime or
when a corporation is the mere alter ego or business conduit of
a person. (Pamplona Plantation, Inc. v. Tinghil, et al., G.R. No.
159121, February 3, 2005 citing various cases) To disregard the
separate juridical personality of a corporation, the wrong-doing
must be clearly and convincingly, established. It cannot be
presumed. ( Yu, et al vs. NLRC, et al., G.R.. Nos. 111810-11, June
16, 1995)
68
f.
Where badges of fraud exist, where public
convenience is defeated; where a wrong is sought to be justified,
the corporate fiction or the notion of legal entity should come to
naught. (Lim v. Court of Appeals, et al., G.R. No. 124715, January 24,
2000)
69
13.
15.
70
16.
Corporate mergers take effect after SEC
approval. (Associated Bank v. Court of Appeals, et al., G.R. No.
123793, June 29, 1998)
71
(SRC Rule
72
b.
73
e.
When he consents to the issuance of watered
stocks or who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection thereto;
f.
When he agrees to hold himself personally and
solidarily liable with the corporation; or
g.
When he is made, by a specific provision of law,
to personally answer for the corporate action. (FCY Construction
Group, Inc., et al. v. Court of Appeals, et al., G. R. No. 123358,
February 1, 2000 citing Tramat Mercantile, Inc. et al., v. Court of
Appeals, et al., 238 SCRA 14)
b.
Meaning of bad faith to hold a director,
trustee or officer personally liable. Bad faith is never presumed.
Bad faith does not connote bad judgment or negligence.
Bad faith imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, (Filipinas Port Services, Inc., etc., v.
Go, et al., G. R No. 161886, March 16, 2007) a breach of a known duty
through some ill motive or interest. bad faith partakes of the nature of
fraud. (Ibid., citing Philippine Stock Exchange v .Court of Appeals, G.
R. No. 125469, October 27, 1997, 281 SCRA 232; Carag v. National
Labor Relations Commission, et al., G. R. No. 147590, April 2, 2007)
c.
Bad faith does not arise automatically just
because a corporation fails to comply with the notice
requirement of labor laws on company closure or dismissal
of employees. The failure to give notice is not an unlawful act
because the law does not define such failure as unlawful. Such failure
to give notice is a violation of procedural due process but does not
amount to an unlawful or criminal act. Such procedural defect is
called illegal dismissal because it fails to comply with mandatory
procedural requirements, but it is not illegal in the sense that it
constitutes an unlawful or criminal act. (Carag v. National Labor
Relations Commission, et al., G. R. No. 147590, April 2, 2007)
d.
Patently unlawful acts are those declared
unlawful by law which imposes penalties for commission of such
unlawful acts. There must be a law declaring the act unlawful
and penalizing the act. (Carag v. National Labor Relations
Commission, et al., G. R. No. 147590, April 2, 2007)
74
e.
Directors and/or officers not liable if the
cause of losses is merely error in business judgment, not
amounting to bad faith or negligence. (Filipinas Port Services,
Inc., etc., v. Go, et al., G. R No. 161886, March 16, 2007 citing Board
of Liquidators v. Heirs of Maximo M. Kalaw, et al., G. R. No. L- 18805,
August 15, 1967, 20 SCRA 987)
b.
Courts bereft of authority to substitute its
judgment with that of the board of directors. Questions of
policy or of management are left solely to the honest decision of
the board as the business manager of the corporation and the
court is without authority to substitute its judgment for that of the
board, and as long as it acts in good faith and in the exercise of
honest judgment in the interest of the corporation, its orders are
not reviewable by the courts. (Philippine Stock Exchange, Inc. v.
Court of Appeals, G. R. No. 125469, October 27, 1997, 281 SCRA 232
cited in Filipinas Port Services, Inc., etc., v. Go, et al., G. R No.
161886, March 16, 2007)
23.
D is the stockholder of almost all the
stockholdings in XYZ Corporation. XYZ owns a parcel of
land which W claiming to have been authorized by D
has offered to various parties the sale of the XYZ property.
B acting on the representations of W made an offer to
buy the land which W forwarded the offer to to D, who
accepted Is the corporation bound by Ds acceptance ?
75
23-A.
What is the nature of an executive
committee ?
SUGGESTED ANSWER: The executive committee is as
powerful as the board of directors and in effect acting for the
board itself. It should be distinguished from the other committees
which are within the competency of the board to create at any
time and whose actions require ratification and confirmation by
the board. (Filipinas Port Services, Inc., etc., v. Go, et al., G. R No.
161886, March 16, 2007)
The by-laws of a
corporation may create an executive committee, composed of not less
than three members of the board, to be appointed by the board. Said
committee may act, by majority vote of all its members on such
specific matters within the competence of the board, as may be
delegated to it in the by-laws or on a majority vote of the board, except
with respect to:
1) approval of any action for which shareholders
approval is also required;
2) the filling of vacancies in the board;
3) the amendment or repeal of by-laws or the adoption of
new by-laws;
4) the amendment or repeal of any resolution of the
board which by its express terms is not so amendable or
repealable; and
5) a distribution of cash dividends to the shareholders.
(Sec. 35, Corporation Code, arrangement supplied)
b.
Supreme Court did not rule as illegal or
unlawful the creation by the board of directors of an
executive committee notwithstanding the silence in the by-
laws. There were two reasons advanced by the Supreme Court for
not so ruling:
1) There is absence of showing of as to the true nature
and functions of said executive committee considering that the
executive committee referred to in Section 35 of the
Corporation Code is as powerful as the board of directors and in
effect acting for the board itself, as distinguished from other
committees which are within the competency of the board to
create at any time and whose actions require ratification and
confirmation by the board.
2) the board of directors has the power to create
positions not provided for in the by-laws since the board is the
corporations governing body, upholding thereby the power of
the board to exercise its prerogatives in managing the business
affairs of the corporation. (Filipinas Port Services, Inc., etc., v.
Go, et al., G. R No. 161886, March 16, 2007)
c.
RTC has the discretion to grant or deny an
application for the creation of a management committee.
This was part of the former powers of the SEC, under P. D .No. 902-A,
which were transferred to the RTC through Rep. Act No. 8799.
(Punongbayan v. Punongbayan, Jr., G. R. No. 157671, June 20, 2006)
24.
Dico is the registered owner of Proprietary
Ownership Certificate (POC) No. 0668 in the Cebu Country
Club. Subsequently, he resigned as proprietary member of
said club, which resignation was duly entered in the
minutes of the meeting of the Clubs Board of Directors.
Dico then transferred the POC to Garcia.
In a case filed by the spouses Atinon against Dico,
the prevailing spouses levied on the POC and a schedule
for public auction was set. Garcia then claimed that the
POC was his. He further alleged that Dico is the manager
of
his
(Garcias)
business,
and
that
the
POC was merely used by Dico in order to assist him in
entertaining clients.
Who has a better right to the POC, the spouses
Atinon or Garcia? Explain.
SUGGESTED ANSWER: The spouses Atinon have a
better right. The transfer was not recorded in the corporate
books, hence it does not bind other parties. (Garcia v. Jomoaud,
et al., G.R. No. 133969, January 26, 2000)
76
b.
c.
stocks:
shares from the lawful owner to the new transferee. (Bitong, v. Court
of Appeals, et al., 281 SCRA 503)
25.
Litton Mills, Inc. (Litton) entered into an
agreement with Empire Sales Philippines Corporation, as
local agent of Gelhaar Uniform Company (Gelhaar), a
corporation organized under the laws of the United States,
whereby Litton agreed to supply Gelhaar 7,770 dozens of
soccer jerseys. Considering this single transaction, is
Gelhaar doing business in the Philippines?
SUGGESTED ANSWER: Yes. It is not really the fact
that there is only a single act done that is material to the
consideration of whether a foreign corporation is doing business
in the Philippines. Where a single act or transaction of a foreign
corporation is not merely incidental or casual but is of such
character as distinctly to indicate a purpose on the part of the
foreign corporation to do other business in the state, such act
will be considered as constituting doing business.
Gelhaars act in purchasing soccer jerseys to be within
the ordinary course of business of the company considering that
it was engaged in the manufacture of uniforms. The acts noted
above are of such a character as to indicate a purpose to do
business. (Litton Mills, Inc. v. Court of Appeals, et al., G.R. No. 94980,
May 15, 1996)
Examples:
1) A foreign corporation performing acts pursuant to its
primary purpose and functions as regional/area headquarters for its
77
78
79
A
corporation continues to be a body corporate for three (3) years after
its dissolution for purposes of prosecuting and defending suits by and
against it and for enabling it to settle and close its affairs, culminating
in the disposition and distribution of its remaining assets. It may,
during the three (3) year term, appoint a trustee or a receiver who may
act beyond that period.
The termination of the life of a juridical entity does not by itself
cause extinction or diminution of the rights and liabilities of such
entity., nor those of its owners and creditors.
If the three-year extended life has expired without a trustee or
receiver having been expressly designated by the corporation within
that period,, the board of directors (or trustees) itself, may be permitted
to continue as trustees by legal implication to complete the corporate
liquidation. Still in the absence of a board of directors or trustees,
those having any pecuniary interest in the assets, including not only
the shareholders but likewise the creditors of the corporation, acting
for and its behalf, might make proper representations with the
Securities and Exchange Commission, which has primary and
sufficient broad jurisdiction in matters of this nature, for working out a
final settlement of the corporate concerns. (Clemente, et al., vs. Court
of Appeals, et al., G.R. No. 82407, March 27, 1995)
b.
28.
80
3.
4.
What are the civil cases involving
corporations, partnerships, or associations relations
which fall within the jurisdiction of the regular courts ?
SUGGESTED ANSWER: These are the civil cases
involving the following:
a. Devices or schemes employed by, or any act of, the
board of directors, business associates, officers or partners,
amounting to fraud or misrepresentation which may be
detrimental to the interest of the public and/or of the
stockholders, partners, or members of any corporation,
partnership, or association;
b.
Controversies arising out of intra-corporate,
partnership, or association relations between and among
stockholders, members, or associates; and between, any or all
of them and the corporation, partnership, or association of which
they are stockholders, members, or associates, respectively;
c. Controversies in the election or appointment of
directors, trustees, officers, or managers of corporations,
partnerships, or associations;
d. Derivative suits; and
e. Inspection of corporate books. (Sec. 1, Rule 1, Interim
Rules of Procedure Governing Intracorporate Controversies under R.
A. No. 8799)
81
6.
7.
b.
He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws or
rules governing the corporation or partnership to obtain the relief
he desires; [Has made a demand on the board of directors for the
appropriate relief but the latter has failed or refused to heed is plea
(Filipinas Port Services, Inc., etc., et al., v. Go, et al., G. R. No. 161886,
March 16, 2007 citing San Miguel Corporation, etc., v. Khan, G. R. No.
85339, August 11, 1989, 176 SCRA 447, 462)]
82
c.
No appraisal rights are available for the act or
acts complained of; and
d.
The suit is not a nuisance or harassment suit .
(Sec. 1, Rule 8, Interim Rules of Procedure Governing Intra-Corporate
Controversies under R. A. No. 8799)
e.
The cause of action actually devolves on the
corporation, the wrongdoing or harm having been, or being
caused to the corporation and not to the particular stockholder
bringing the suit. (Filipinas Port Services, Inc., etc., et al., v. Go, et
al., G. R. No. 161886, March 16, 2007 citing San Miguel Corporation,
etc., v. Khan, G. R. No. 85339, August 11, 1989, 176 SCRA 447, 462)]
83
b.
Rationale for the suspension of claims
against the corporation sought to be rehabilitated. This
arrangement provided by law is intended to give the receiver a
chance to rehabilitate the corporation if there should still be a
possibility for doing so, without being unnecessarily disturbed by
the creditors action against the distressed corporation.
However, in the event that rehabilitation is no longer feasible
and the claims against the distressed corporation would
eventually have to be settled, the secured creditors shall enjoy
preference over the unsecured creditors. (Rizal Commercial
Banking Corporation v. Intermediate Appellate Court, G. R. No.
74851m December 9, 1999, 320 SCRA 279 cited in Metropolitan Bank
& Trust Company v. ASB Holdings, Inc., et al., G. R. No. 166197,
February 27, 2007)
7 B.
What is the purpose of corporate
rehabilitation proceedings ? Explain briefly.
SUGGESTED ANSWER: The purpose of rehabilitation
proceedings is to enable the company to gain new lease on lie
and thereby allows creditors to be paid their claims from its
earnings. [Metropolitan Bank & Trust Company v. ASB Holdings, Inc.,
et al., G. R. No. 166197, February 27, 2007 citing Rubberworld
(Phils.), Inc. v. National Labor Relations Commission, G. R. No.
126773, April 14,1999, 305 SCRA 721]
contemplate
Rehabilitation
contemplates a continuance of corporate life and activities in an effort
to restore and reinstate the financially distressed corporation to its
former position of successful operation and solvency. (Metropolitan
Bank & Trust Company v. ASB Holdings, Inc., et al., G. R. No. 166197,
February 27, 2007 citing Ruby Industrial Corporation v. Court of
Appeals, G. R. Nos. 124185-87, January 20, 1998, 284 SCRA 445)
This is in consonance with the States objective to promote a wider
and more meaningful equitable distribution of wealth to protect
investments and the public. (Ibid., citing P. D. 902-A, as amended
,first Whereas clause)
Approval of the Rehabilitation Plan is in furtherance of the
rationale behind P.D. No. 902-A, as amended which is to effect a
feasible and viable rehabilitation (Ibid., citing Rizal Commercial
Banking Corporation v. Intermediate Appellate Court, G. R. No. 74581,
September 14,1992, 213 SCRA 830)of ailing corporations which
affect the public welfare.
11.
84
(SRC Rule
85
142.
Who is an insider ?
SUGGESTED ANSWER:
a. The issuer;
b. A director or officer of, or a person controlling,
controlled by, or under common control with, the issuer,
c. A person whose relationship or former relationship o
the issuer gives or gave him access to a fact of special
significance about the issuer or the security that is not generally
available, or
d. A person who learns such a fact from any of the
foregoing insiders with knowledge that the person from whom he
learns the fact is such an insider. (Sec. 3.8, SRC)
15.
What is a prospectus?
18.
19.
86
21.
24.
a)
Any security issued or guaranteed by the
Government of the Philippines, or by any political subdivision or
agency thereof, or by any person controlled or supervised by,
and acting as an instrumentality of said Government.
b) Any security issued or guaranteed by the government
or any country with which the Philippines maintains diplomatic
relations, or by any state, province or political subdivision thereof
on the basis of reciprocity: Provided, That the Commission may
require compliance with the form and content of disclosures the
Commission may prescribe.
c) Certificates issued by a receiver or by a trustee in
bankruptcy duly approved by the proper adjudicatory body.
d) Any security or its derivatives the sale or transfer of
which, by law, is under the supervision and regulation of the
Office of the Insurance Commission, Housing and Land Use
Regulatory Board, or the Bureau of Internal Revenue.
e) Any security issued by a bank except its own shares
of stock. (Sec. 9.1 SRC)
The Commission may, by rule or regulation after public
hearing, add to the foregoing any class of securities if it finds
that the enforcement of this Code with respect to such securities
is not necessary in the public interest and for the protection of
investors. (Sec. 9.2 SRC)
25.
87
88
30.
What is a derivative ?
SUGGESTED ANSWER:
With respect to equity
securities a financial instrument, including options and warrants,
whose value depends on the interest in or performance of an
underlying security, but does not require any investment of
principal in the underlying security. (SRC Rule 3.1.1.2)
31.
33.
89
34.
35.
37.
b.
Pilipinas
90
91
(ii)
Law on Secrecy of Bank
Deposits (R.A. 1405, as amended)
1.. What accounts are considered subject to
the protection provided under the Law on Secrecy of Bank
Deposits ?
SUGGESTED ANSWER:
a. All deposits of whatever nature with banks or banking
institutions in the Philippines,
b. 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
92
c.
All foreign currency deposits authorized under
Republic Act No. 6426, as amended by Sec. 8, Presidential
Decree Nos. 1246, and 1035, as well as foreign currency
deposits authorized under Presidential Decree No. 1034 are
considered absolutely confidential in nature and may not be
inquired into, except where the disclosure is allowed upon
written permission of the depositor. (Sec. 8, Republic Act No.
6426, as amended)
k.
To ensure compliance with the Anti-Money
Laundering Law, the Bangko Sentral ng Pilipinas (BSP) may
inquire into or examine any deposit or investment with any
banking institution or nonblank financial institution when the
examination is made in the course of a periodic or special
examination, in accordance with the rules of examination of the
BSP. . (1st par., Sec. 11, AMLA, as amended by R. A. No. 9194)
3. On March 21, 2005 a check for P 1 million was
drawn against an account with Allied Bank payable to Jose
Alvarez. The payee deposited the check with Union Bank
which credited the amount of P 1 million to the account of
Jose. When Union presented the check for clearing
through the Philippine Clearing House Corporation, a
clearing discrepancy was committed by Union Banks
clearing staff when the amount of P 1 million was
erroneously under-coded to P1,000 only.
Union discovered the under-coding only a year later
and it notified Allied by way of an automatic debiting of the
amount of P999,000.00 from Allieds account.
Allied
refused to accept the charge slip since the transaction was
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94
95
and in the erosion of the public trust in the banking system. The
interest of justice thus demands looking into the events that led
to the encashment of the check. (Bank of Philippine Islands v.
Court of Appeals, G.R. No. 112392, February 29, 2000)
96
negligence in this case may not have been attended with malice
and bad faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation. (Prudential Bank v. Court of
Appeals, et al., G.R. No. 125536, March 16, 2000 citing Philippine
National Bank v. Court of Appeals, G.R. No. 126152, September 28,
1999)
97
In the event of
foreclosure by a bank, whether judicially or extrajudicially, of any
mortgage on real estate which is security for any loan or other credit
98
5.
What is a patent ?
SUGGESTED ANSWER: A patent is an exclusive right
conferred by law to an inventor to make, use, offer, sell or import
the product covered by the patent and to restrain, prohibit and
prevent any unauthorized person or entity from performing the
protected right. The right includes also the assignment, or
transfer by succession of the patent, and to conclude licensing
contracts for the same.
6.
99
10.
12.
14.
100
101
August 15, 2003) Under present law the light boxes may properly
b.
Copyrights, patents and trademarks are
completely distinct and separate from one another and the
protection afforded by one cannot be used interchangeably to cover
items or works that exclusively pertain to the others. (Pearl & Dean
(Phil.), Inc. v. Shoemart, Inc., et al., G. R. No. 148222, August 15, 2003
citing Kho, etc., v. Hon. Court of Appeals, et al., G.R .No. 115758,
March 19, 2002)
18.
It appears that DGCI was issued on May 31,
1983, by the then Bureau of Patents, Trademarks and
Technology Transfer (BPTTT) a certificate of registration,
pursuant to Secs. 2 and 4 of Rep. Act No. 166, covering the
Shangri-La mark and S logo. Since then, DGCI started
using the said mark and logo in its restaurant business.
On the other hand, since 1975 and up to the present,
the Shangri-La mark and S logo have been used
consistently and continuously by all the Kuok Group in all
Shangri-La hotels and companies in their paraphernalia
world-wide. The mark and logo is registered in the patent
offices of different countries around the world.
However, the Shangri-La hotels did not operate any
establishment in the Philippines until 1987 or 1988, but they
have advertised abroad extensively since 1972 in
magazines widely circulated in the world including the
Philippines.
They too, maintained reservations and
booking agents in airline companies, hotel reservations
and booking agents in airline companies, hotel
organizations,
tour
operators,
tour
promotion
organizations, and in other allied fields in the Philippines.
The Kuok Group started operations in the Philippines
sometime in 1987 or 1988 under the name Shangri-La
International Hotel Management, Ltd. (SLIHM) using both
the mark and the logo.
DGCI sued SLIHM for infringement and damages,
claiming that a prior registrant it had the right to use the
mark and logo. On the other hand SLIHM defended by
claiming that it owns the mark and the logo, being entitled
to protection under the Paris Convention. The mark and
logo being internationally well-known.
Will the suit
prosper ?
SUGGESTED ANSWER: No. While the defense of
protection under the Paris Convention is unavailing because the
said right was recognized only upon the effectivity of the
Intellectual Property Code, still SLIHM cannot be held guilty of
infringement.
102
2006 citing Secs. 123 (3) and 131,3, Intellectual Property Code, R. A.
No. 9283]
103
b.
Elements of unfair competition under Article
189 (1) of the Revised Penal Code.
1) That the offender gives his goods the general
appearance of the goods of another manufacturer or dealer;
2) That the general appearance is shown in the (a)
goods themselves, or in the (b) wrapping of their packages, or
in the (c) device or words therein, or in (4) any other feature of
their appearance;
3) That the offender offers to sell or sells those goods or
gives other persons a chance or opportunity to do the same
with a like purpose; and
4) That there is actual intent to deceive the public or
defraud a competitor. (Sony Computer Entertainment, Inc. v.
Supergreen, Incorporated, G. R. No. 161823, March 22, 2007
citing NBI-Microsoft Corporation v. Hwang, G. R. No. 147043,
June 21, 2005, 460 SCRA 428, 444-445)
26-A.
Supergreen, Inc. is engaged in the
reproduction and distribution of counterfeit PlayStation
software, consoles and accessories in violation of Sony
Computers Intellectual property rights.
It does its
reproduction activities in Cavite City while it sells the
counterfeit items in Mandaluyong City and other places
within Metro Manila. The NBI applied for search warrants
with the RTC of Manila on the basis of which it raided
Supergreens premises in Cavite City and Paranaque City.
NBI was able to seize a replicating machine and several
units of counterfeit PlayStation consoles, joy pads,
housing labels and game software.
Supergreen now seeks a quashal of the warrants
and the return of the seized items on the grounds improper
venue and that the warrants were served outside the
territorial jurisdiction of the issuing court.
104
b.
Issuance of search warrants in special
criminal cases by the Regional Trial Courts of Manila and
Quezon City. The Executive Judges and, whenever they are on
official leave of absence or are not physically present in the station, the
Vice-Executive Judges of the RTCs of Manila and Quezon City shall
have authority to act on applications filed by the National Bureau of
Investigation (NBI), the Philippine National Police (PNP) and the AntiCrime Task Force (ACTAF), of search warrants involving heinous
crimes, illegal gambling, illegal possession of firearms and
ammunitions as well as violations of the Comprehensive Dangerous
Drugs Act of 2002, the Intellectual Property Code, the Anti-Money
Laundering Act of 2001, the Tariff and Customs Code, as amended,
and other relevant laws that may hereafter be enacted by Congress,
and included herein by the Supreme Court. x x x (Sec. 12, A.M. No.
03-8-02-SC)
7. Special Laws
(a) The Chattel Mortgage Law (Act 1508
in relation to Arts. 1484, 1485, 2140 and 2141 of
the New Civil Code)
BAR: 1. To secure a debt to Y, X, the owner of
Supreme Drugstore, executed a chattel mortgage covering
the goods contained in the drugstore. The deed of chattel
mortgage provides that all goods, stock-in-trade, furniture
2.
contract ?
SUGGESTED ANSWER: A contract of chattel mortgage
is in the nature of a conditional sale of personal property given
as a security for the payment of a debt, or the performance of
some other obligation specified therein, the condition being that
the sale shall be void upon the seller paying to the purchaser a
sum of money or doing some other act named. If the condition
is performed according to its terms, the mortgage and sale
immediately becomes void, and the mortgagee is thereby
diverted of title. (Magna Financial Services Group, Inc. v. Colarina,
G. R. No. 158635, December 9, 2005)
c.
When foreclosure is deemed to have taken
place. It has been deemed that there has been foreclosure of the
property when all the proceedings of the foreclosure including the sale
of the property at public auction, have been accomplished. In short,
actual foreclosure of the property is required. While the foregoing is
the general rule, it has been held that no actual foreclosure is not
necessary where the mortgaged property is already in the physical
possession of the mortgagee, who has persistently and consistently
avowed that it elects the remedy of foreclosure. (Magna Financial
Services Group, Inc. v. Colarina, G. R. No. 158635, December 9, 2005)
d.
No personal notice to mortgagor is required
in extrajudicial foreclosure sale.
(Philippine National Bank v.
Rabat, 344SCRA 706)
105
Is a dragnet
Philippines ?
clause
recognized
in
the
SUGGESTED ANSWER:
Yes, subject to certain
conditions.
While a real estate mortgage may exceptionally secure
future loans or advancements, these future debits must be
sufficiently described in the mortgage contract. An obligation is
not secured by a mortgage unless it comes fairly within the
terms of the mortgage contract. [Spouses Cuyco v. Spouses
Cuyco, G.R. No. 168736, April 19, 2006 citing Philippine Bank of
Communications v. Court of Appeals, 323 Phil. 197, 313; 253 SCRA
241, 254 (1996)]
106
107
national or local;
2) Obligations arising from embezzlement or fraud;
3) Obligation of any person liable with the insolvent
debtor for the same debt, either as solidary co-debtor, surety,
guarantor, partner, indorser or otherwise;
4) Alimony or claims for support; and
5) Debts not provable against the estate (such as
after incurred obligations) of, or not included in the schedule submitted
by, the insolvent debtor.
b.
Involuntary
voluntary insolvency.
insolvency
distinguished
from
against him;
7) Allowed judgment by default against him;
8) Allowed property to be taken by legal process to
give preference to certain creditors;
9) Make assignment, gift or sale;
10) In contemplation of insolvency, made payments or
gift to another;
11) Defaulted in payment of obligations for 30 days;
12) Failed after 30 days to surrender money deposited
in trust with him;
13) Found to have insufficient properties to satisfy a
judgment.
108
b.
Transactions
disclosures:
which
require
the
above
1) Credit sales;
2) Open consumer credit plan;
3) Consumer loans not open and consumer credit;
and
4) Sale of consumer products on installment basis.
GOOD LUCK !
ADVANCE
CONGRATULATIONS !
SEE YOU IN COURT !