2007 bar questions and suggested answers (LABOR LAW AND SOCIAL

LEGISLATION)

Labor and Social Legislation

-I-
(5 Points)

a. What is the principle of codetermination?

The principle of co-determination refers to the right of
workers to participate in policy and decision-making
processes directly affecting their rights and benefits, without
intruding into matters of management prerogatives. (PAL v.
NLRC, G.R. No. 85985, August 13, 1993).

b. What, if any, is the basis under the Constitution for

adopting it?
Article XII (On Social Justice and Human Rights), Sec. 3, par.
2 provides, among others, that workers “shall also
participate in policy and decision-making processes affecting
their rights and benefits as may be provided by law.”
- II -
(5 Points)
a. Discuss the statutory restrictions on the employment of
minors?
Under Article 139 of the Labor Code, as amended, it is
prohibited to employ minors in hazardous, or deleterious and
immoral undertakings. It also prescribes that no child below
15 shall be employed unless he works directly under his
parents or guardians and his work does not interfere with his
schooling; those between 15 and 18 shall comply with
appropriate DOLE regulations.

b. May a house help be assigned to non-household work?

Alternative Answer:
No. Under Article 145 of the Labor Code, no househelper
shall be assigned to work in a commercial, industrial or
agricultural enterprise at a wage salary rate lower than that
provided for agricultural or non-agricultural workers as
described herein.

Alternative Answer:
Yes, provided that he/she receives a salary not lower than
that provided for non-agricultural workers.
- III -
(5 Points)
a. Discuss the types of illegal recruitment under the Labor
Code.
Types of illegal recruitment under the Labor Code are:
1. Recruitment by a non-licensee.

2. Simple illegal recruitment is committed by a licensee

against one or two persons only. (People v. Sadiosa, G.R. No.
107084, May 15, 1988).

3. Large scale or qualified recruitment which is committed

against three or more persons, individually or as a group.

4. Illegal recruitment is qualified as economic sabotage when

done by a syndicate or where it is committed in large scale.

b. In initiating actions against alleged illegal recruiters,

may the Secretary of Labor and Employment issue search
and arrest warrants?
No, the Secretary of DOLE, not being a judge, cannot issue a
search or arrest warrants. Under Article III, Section 2 of the
1987 Constitution, it is only judges, and no other, who may
issue warrants of arrest and search. (Salazar v. Achacoso,
G.R. No. 81510, March 14, 1990).
 - IV -
(5 Points)
Explain
a. The Globe Doctrine.
The Globe Doctrine refers to the method of determining the
will or desire of the employee which is an important factor in
determining the appropriate bargaining unit. The best way to
determine such preference is through referendum or
plebiscite. (Globe Machine & Stamping Company, 3 NLRB 294
[1937]).

b. The Community of Interest Rule.

Alternative Answer:
The Community of Interest Rule states that the employees
within an appropriate bargaining unit must have commonality
of collective bargaining interests as well as substantial
mutual interests in terms of employment and working
conditions as evidenced by the type of work they perform.
(San Miguel Corporation v. Laguesma, G.R. No. 100485,
September 21, 1984).

Alternative Answer:
Under the Community of Interest Rule, groups having
substantial similarity of work and duties or similarity of
working conditions shall constitute the appropriate
bargaining unit. (Rothenberg, Labor Relations, pages 490-
491.)
-V-
(5 Points)
May non-lawyers appear before the NLRC or Labor Arbiter?
May they charge attorney's fee for such appearance
provided it is charged against union funds and in an
amount freely agreed upon by the parties? Discuss fully.
Yes, non-lawyers may appear before the Commission or any
Labor Arbiter only:

1. If they represent themselves; or

2. If they represent their own legitimate labor organization

or members thereof; or

3. If they are duly accredited by a Legal Aid Office which is

DOJ or IBP-recognized.

Non-lawyers may not charge attorney’s fees though charged

against the union funds and agreed upon. Attorney’s fees
presuppose the existence of an attorney-client relationship.
(PAFLU v. BISCOM, G.R. No. L-23959, November 29, 1971).
- VI -
(5 Points)
Procedurally, how do you stay a decision, award or order
of the Labor Arbiter? Discuss fully.
Alternative Answer:
By filing for injunction within ten (10) calendar days from the
receipt of the decision on the grounds of grave abuse,
intrinsic fraud, on pure questions of law and/or serious,
erroneous factual findings causing grave or irreparable
damage, and such other grounds under Article 223 of the
Labor Code, as amended.

Alternative Answer:
Except for the reinstatement aspect, it is stayed by filing an
appeal within ten (10) calendar days from the receipt,
subject to the posting of an appeal bond if there is a
monetary award.
- VII -
(5 Points)
a. May the NLRC or the courts take jurisdictional
cognizance over compromise agreements/settlements
involving labor matters?
Alternative Answer:
Article 227 provides that any compromise agreement
involving labor matters entered into by the parties with the
assistance of the DOLE shall be final and binding upon the
parties, except in cases of non-compliance or, if based on
fraud, when misrepresentation or coercion is present.

Alternative Answer:
Yes, provided the compromise settlement was executed with
the assistance of the BLR or the regional office of the DOLE
as required by Article 227 of the Labor Code. The execution
of a compromise settlement is only valid with the assistance
of the BLR or the regional office of the DOLE. (Mindoro
Lumber and Hardware v. Bacay, et.al. G.R. No. 158753, June
8, 2005).

b. How sacrosanct are statements/data made at

conciliation proceedings in the Department of Labor and
Employment? What is the philosophy behind your answer?
Under Article 223, statements made at conciliation
proceedings are privileged communications that can neither
be used as evidence nor can conciliators testify on any
matters taken up in the proceedings. The philosophy is to
ascertain the truth about the controversy which the parties
may be afraid to divulge if the revelations can be utilized
against them later on.
- VIII -
(5 Points)
Discuss in full the jurisdiction over the civil and criminal
aspects of a case involving an unfair labor practice for
which a charge is pending with the Department of Labor
and Employment.
Jurisdiction over unfair labor practices which are also
criminal offenses initially lies with the Labor Arbiters. No
criminal prosecutions can be instituted without final
judgment that an unfair labor practice has in fact been
committed. The administrative findings are neither binding in
the criminal case nor available as evidence of guilt, but
merely prove procedural compliance.

In a labor dispute involving national interest, the Secretary of

Labor under Article 263 (g) may take cognizance of the civil
or administrative aspect of the labor case, depriving the
Labor Arbiter from taking cognizance of the unfair labor
practice case. After the finality of judgment finding ULP, the
criminal aspect can be instituted before the prosecutor.
- IX -
(5 Points)
Discuss the legal requirements of a valid strike.
It must comply with the purpose and means test which means
that both the purpose and the means to carry out the strike
must be legal. The purpose must be based solely on
bargaining deadlock (economic) and/or unfair labor practice
(political). The means to carry out the strike should also be
legal where there should be no illegal acts committed in the
course of the strike.
-X-
(5 Points)
Discuss briefly the instances when non-compliance by the
employer with a reinstatement order of an illegally
dismissed employee is allowed.
When reinstatement is no longer feasible due to strained
employer-employee relationship, bona fide closure of
business, valid abolition of position, health and/or age
reasons, separation pay in lieu of reinstatement may be
allowed.
- XI -
(5 Points)
a. A rule, when is retirement due?
As a rule, optional retirement is due at the age of 60 and
compulsory retirement at the age of 65, with at least 5 years
of service (R.A. 7641) or as may be provided for in the CBA or
company retirement program.

b. When is retirement due for underground miners?

Optional retirement is due for underground miners upon
reaching the age of 50 years or more and compulsory
retirement at age of 60 provided he has serve at least 5 years
as such. (R.A. 8558).
- XII -
(5 Points)
a. How do you execute a labor judgment which, on appeal,
had become final and executory? Discuss fully.
By filing a motion for execution and serving a writ of
execution to be served by the sheriff or such law
enforcement agency as may be deputized by the DOLE or
NLRC. It may also be issued motu propio by the Labor
Arbiter. (Articles 223 and 224, Labor Code).

b. Cite two instances when an order of execution may be

appealed.
1. When execution becomes impossible or unjust, it may be
modified or altered on appeal to harmonize the same with
justice and the facts (Torres v. NLRC, G.R. No. 107014, April
12, 2000)

2. Supervening events may warrant modification in the

execution of the judgment as when reinstatement is no
longer possible because position was abolished as a cost-
cutting measure due to losses. (Abalos v. Philex Mining Corp.,
G.R. No. 140374, November 27, 2002)

3. Where the writ is found defective, exceeds or varies the

award and/or is irregularly issues. (DBP v. Union Bank, G.R.
No. 155838, January 13, 2004; Metrobank v. CA, G.R. No.
110147, April 17, 2001)

4. Where there is wrongful computation of the award.

- XIII -
(5 Points)
May a decision of the Labor Arbiter which has become final
and executory be novated through a compromise
agreement of the parties?
Compromise agreement is encouraged and authorized by law.
Hence, they may be made even when the judgment is final
and executory. (Jesalva v. Bautista, 105 Phil 348, 24 March
1959) The validity of the agreement is determined by the
compliance with the requisites and principles of contract,
and not by the time it was entered into. As provided by the
law on contract, a valid compromise must have the following
elements: (1) the consent of the parties to the compromise;
(2) an object certain that is the subject matter of the
compromise, and (3) the cause of the obligation that is
established. (Magbanua v. Uy, G.R. No. 161003, May 05,
2005)
- XIV -
(5 Points)
AB, single and living-in with CD (a married man), is
pregnant with her fifth child. She applied for maternity
leave but her employer refused the application because
she is not married. Who is right? Decide.
While the maternity leave is rightfully denied, the
employer’s reason is misplaced. The SSS law does not require
marriage for entitlement. However, since AB is already
pregnant with her fifth child, she can no longer claim for
maternity leave benefits.
- XV -
(5 Points)
Some officers and rank-and-file members of the union
staged an illegal strike. Their employer wants all the
strikers dismissed. As the lawyer, what will you advise the
employer? Discuss fully.
There is no wholesale dismissal of strikers even if the strike
was declared illegal. Under Article 264 of the Labor Code,
mere participation of a worker in an illegal strike shall not
constitute sufficient ground for termination. Union officers,
however, who knowingly engaged in an illegal strike are
deemed to have lost their employment status. For a worker
or union member to suffer loss of employment, he must have
knowingly participated in the commission of illegal act during
the strike. (CCBPI Postmix Workers Union v. NLRC, G.R. No.
114521, November 27, 1998; International Container
Terminal Services, Inc., v. NLRC, G.R. NO. 115452, December
21, 1996).
- XVI -
(5 Points)
A carpenter is employed by a private university in Manila.
Is the carpenter a regular or a casual employee? Discuss
fully.
Alternative Answer
The carpenter is a casual employee. Under the reasonable
casual connection rule, the carpenter’s work is not usually
necessary and desirable in the usual trade or business of the
employer university.
Alternative Answer
If the employment of the carpenter is occasional or sporadic
and brief in nature, his employment us casual, because the
work he is performing is not in the usual course of the
school’s trade or business. However, if the carpenter has
rendered services for at least one year, whether continuous
or broken, he becomes a regular employee by operation of
law, with respect to the activity for which he is employed.
His employment shall continue while such activity exists.
(Article 280, Labor Code; See also Philippine Geothermal,
Inc., v. NLRC, G.R. Nos. 82643-67, August 30, 1990; Kimberly
Independent Labor Union, etc. v. Drilon, G.R. Nos. 77629 and
78791, May 9, 1990).
- XVII -
(5 Points)
P.D. 1508 requires the submission of disputes before the
Barangay Lupong Tagapamayapa prior to the filing of cases
with the courts or other government bodies. May this
decree be used to defeat a labor case filed directly with
the Labor Arbiter? Discuss fully.
Labor disputes are the exception to P.D. 1508 (Montoya v.
Escayo, G.R. 82211-12, March 21, 1989). Under Article 226,
motions to dismiss before the Labor Arbiter are only allowed
on grounds to dismiss before the Labor Arbiter are only
allowed on grounds of lack of jurisdiction, improper venue
and bar by prior judgment or prescription is not a valid
ground to defeat the labor case.
- XVIII -
(5 Points)
Inday was employed by mining company X to perform
laundry service at its staffhouse. While attending to her
assigned task, she slipped and hit her back on a stone.
Unable to continue with her work, she was permitted to go
on leave for medication, but thereafter she was not
allowed to return to work. She filed a complaint for illegal
dismissal but her employer X contended that Inday was not
a regular employee but a mere househelp. Decide.
Inday is a regular employee because she performs work that
is usually necessary and desirable in the business of the
mining company. Services rendered in a staff house of a
company within the premises of a company cannot be
considered as household work. (Apex Mining Company, Inc.,
v. NLRC., G.R. No. 94951, April 22, 1991).
- XIX -
(5 Points)
Cite five grounds for disciplinary action by the Philippine
Overseas Employment Administration (POEA) against
overseas workers.
Pre-Employment Stage:
1. Using false information or documents for job application;
2. Unjustified refusal to depart for overseas assignment.

Employment Stage:
1. Commission of a criminal offense punishable by Philippine
or host country laws;
2. Unjustifiable breach of POEA contract;
3. Embezzlement of company funds;
4. Embezzlement of money or property of fellow workers
entrusted for delivery to relatives in the Philippines;
5. Violation of the religions or sacred practices of host
country;
6. Drunkenness and disorder;
7. Desertion or abandonment of work;
8. Immoral activities, including prostitution;
9. Illegal gambling;
10. Drug addiction;
11. Creating trouble at the worksite or in the vessel;
12. Initiating or joining a strike or work stoppage where the
host country prohibits the same;
13. Mutiny
- XX -
(5 Points)
AB, a non-resident American, seeks entry to the country to
work as Vice-President of a local telecommunications
company. You are with the Department of Labor and
Employment (DOLE). What permit, if any, can the DOLE
issue so that AB can assume as Vice-President in the
telecommunications company? Discuss fully.
AB must secure an employment permit and employment
registration certificate from the DOLE, who shall issue it
after determining that there is no other person in the
Philippines who is competent, able or willing to do work for
which the alien is hired.

NOTHING FOLLOWS
 Taxation Law
I.
(5%)
What is the nature of the taxing power of the provinces,
municipalities and cities? How will the local government
units be able to exercise their taxing powers?

The taxing power of local governments is not an inherent

power but one delegated under the Philippine Constitution
(1987 Constitution, Article X; Manila Electric Co., v. Province
of Laguna, G.R. No. 131359, May 5, 1999; Mactan Cebu
International Airport Authority v. Marcos, G.R. No. 120082,
September 11, 1996; Basco v. PAGCOR, G.R. No. 150947, July
15, 2003).
II.
(10%)
The Local Government Code took effect on January 1,
1992.

PLDT's legislative franchise was granted sometime before

1992. Its franchise provides that PLDT will only pay 3%
franchise tax in lieu of all taxes.

The legislative franchises of Smart and Globe Telecoms

were granted in 1998. Their legislative franchises state
that they will pay only 5% franchise tax in lieu of all taxes.

The Province of Zamboanga del Norte passed an ordinance

in 1997 that imposes a local franchise tax on all
telecommunication companies operating within the
province. The tax is 50% of 1% of the gross annual receipts
of the preceding calendar year based on the incoming
receipts, or receipts realized, within territorial
jurisdiction.

Is the ordinance valid? Are PLDT, Smart and Globe liable to

pay franchise taxes? Reason briefly.

The ordinance is valid as it was passed pursuant to the

powers of provinces and cities to impose taxes on businesses
with franchises under the Local Government Code (LGC). The
LGC, which took effect on January 1, 1992, withdrew tax
exemptions or incentives previously enjoyed by all persons,
except certain entities. (Section 193, LGC)

PLDT is liable to pay the local franchise taxes because its

legislative franchise was granted by Congress prior to the
passage of the LGC. Thus, the provision of the LGC
withdrawing tax exemptions or incentives applies to PLDT.

Smart and Globe are exempt from the local franchise taxes
imposed by the province since their respective legislative
franchises were granted in 1998, or after the enactment of
the LGC. Therefore, with respect to Smart and Globe, the
withdrawal of tax exemptions or incentives under the :GC
was superseded by the legislative franchise requiring
payment of the 5% franchise tax “in lieu of all taxes.” (PLDT
v. City of Davao, G.R. No. 143867, August 22, 2001 and March
25, 2003).
III.
(5%)
What kind of taxes, fees and charges are considered as
National Internal Revenue Taxes under the National
Internal Revenue Code (NIRC)?

National Internal Revenue Taxes are national taxes which the

Bureau of Internal Revenue shall collect under the National
Internal Revenue Code (NIRC, Section 2). These are:
1. Income Tax;
2. Estate and Donor’s Taxes;
3. Value-Added Tax;
4. Other Percentage Taxes;
5. Excise Taxes;
6. Documentary Stamp Tax; and
7. Other taxes that may be imposed which the BIR shall
collect.
IV.
(10%)
XYZ Corporation, an export oriented company, was able to
secure a Bureau of Internal Revenue (BIR) ruling in June
2005 that exempts from tax the importation some of its
raw materials. The ruling is of first impression, which
means the interpretations made by the Commissioner of
Internal Revenue is one without established precedents.
Subsequently, however, the BIR issued another ruling
which in effect would subject to tax such kind of
importation. XYZ Corporation is concerned that said ruling
may have a retroactive effect, which means that all their
importations done before the issuance of the second ruling
could be subject to tax.

a. What is BIR ruling?

A BIR ruling is an administrative interpretation of the

Revenue Law as applied and implemented by the Bureau.
They can be relied upon by taxpayers and are valid until
otherwise determined by the courts or modified or revoked
by a subsequent ruling or opinion. They are accorded great
weight and respect, but not binding on the courts.
(Commission v. Ledesma, L-17509, January 30, 1970).

b. What is required to make a BIR ruling of first impression

a valid one?

A BIR ruling of first impression, to be a valid ruling, must be

issued within the scope of authority granted to the
Commissioner of Internal Revenue, and not contravene any
law or decision of the Supreme Court. (Michelle J. Lhuiller v.
CIR, G.R. No. 150947, July 15, 2003; Sec. 7, NIRC)

c. Does a BIR ruling have a retroactive effect, considering

the principle that tax exemptions should be interpreted
strictly against the taxpayer?

A BIR ruling cannot be given retroactive effect if it would be

prejudicial to the taxpayer. Section 246 of the NIRC provides
for retroactive effect in the following cases:

1. Where the taxpayer deliberately mis-states or omits

material facts from his return or any document required of
him by the Bureau of Internal Revenue;
2. Where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on
which the rulings is based; or
3. Where the taxpayer acted in bad faith (Section 246, NIRC).
V.
(10%)
ABC Corporation sold a real property in Malolos, Bulacan to
XYZ Corporation. The property has been classified as
residential and with a zonal valuation of P1, 000 per
square meter. The capital gains tax was paid based on the
zonal value. The Revenue District Officer (RDO), however,
refused to issue the Certificate Authorizing Registration
for the reason that based on his ocular inspection the
property should have a higher zonal valuation determined
by the Commissioner of Internal Revenue because the area
is already a commercial area. Accordingly, the RDO wanted
to make a recomputation of the taxes due by using the fair
market value appearing in a nearby bank's valuation list
which is practically double the existing zonal value. The
RDO also wanted to assess a donor's tax on the difference
between the selling price based on the zonal value and the
fair market value appearing in a nearby bank's valuation
list.

a. Does the RDO have the authority or discretion to

unilaterally use the fair market value as the basis for
determining the capital gains tax and not the zonal value
as determined by the Commissioner of Internal Revenue?
Reason briefly.

The RDO has no discretion. The only value that can be

applied is the zonal value as fixed and determined by the
Commissioner. (Section 6[E], NIRC).

b. Should the difference in the supposed taxable value be

legally subject to donor's tax? Reason briefly.

By applying the fixed zonal value, there should be no

difference in the taxable value and the declared value that
might be subject of a donor’s tax. However, assuming that
such a difference may exist, the variance in price may raise a
legal presumption of an intended donation.

A demand gift arises only if tax is avoided as a result of

selling property at a price lower than its fair market value. In
a sale subject to 6% capital gains tax, the tax is always based
on the gross selling price or fair market value whichever is
higher. This means, therefore, that the deemed gift provision
under the Tax Code will not apply because the 6% capital
gains tax can be applied to the higher value.
VI.
(5%)
Z is a Filipino immigrant living in the United States for
more than 10 years. He is retired and he came back to the
Philippines as a balikbayan. Every time he comes to the
Philippines, he stays here for about a month. He regularly
receives a pension from his former employer in the United
States, amounting to US$1, 000 a month. While in the
Philippines, with his pension pay from his former
employer, he purchased three condominium units in
Makati which he is renting out for P15, 000 a moth each.

a. Does the US$1, 000 pension become taxable because he

is now residing in the Philippines? Reason briefly.

Alternative Answer:
No, the US$1,000 pension is excluded from gross income
because it is received by a Filipino resident or non-resident
from a foreign private institution which under Section 32(B)
(6) of the NIRC is excluded from gross income.

Alternative Answer:
No, the US$1,000 pension is excluded from gross income
because it is derived from sources outside of the Philippines
by a non-resident citizen. He may only be taxed for income
from sources within the Philippines. (Section 42[A][3] in
relation to Section 23, NIRC)

b. Is his purchase of the three condominium units subject

to any tax? Reason briefly.

Alternative Answer:
Yes, the purchase of the 3 condominium units is subject to:
1. Documentary stamp tax (payable by either seller or
purchaser) (Section 196, NIRC);
2. Local transfer tax imposed under the Local Government
Code (Sec. 134, LGC)
3. Value added tax, if Z purchased the units from real estate
developers and/or real estate lessors; and
4. Income tax, either capital gains tax or regular income tax,
depending on whether the condominium is regarded as a
capital asset or an ordinary asset of the seller

Alternative Answer:
Strictly speaking, “purchase” is not a taxable event under the
Internal Revenue Code, except for the requirement of
documentary stamp tax in the case of real property. (Sec.
196, NIRC)

c. Will Z be liable to pay income tax on the P45,000

monthly income? Reason briefly.

Yes, Z shall be liable to pay income tax since he is now a

taxpayer engaged in the business of leasing real property
(Section 42[A][4], NIRC)
VII.
(5%)
Antonia Santos, 30 years old, gainfully employed, is the
sister of Edgardo Santos. She died in an airplane crash.
Edgardo is a lawyer and he negotiated with the airline
company and insurance company and they were able to a
agree total settlement of P10 Million. This is what Antonia
would have earned as somebody who was gainfully
employed. Edgardo was her only heir.

a. Is the P10 Million subject to estate tax? Reason briefly.

No, the P10.0 million does not form part of Antonia’s taxable
estate. It is either damages or compensation arising from the
death of Antonia. (Sec. 32[b][4], Chapter VI, NIRC as
amended by RA 8424)

b. Should Edgardo report the P10 Million as his income

being Antonia's only heir? Reason briefly.

No, the P10.0 million settlement need not be reported by

Edgardo since the amount qualified as compensation for
personal injuries which is excluded from gross income.
(Section 32[B][4] of the NIRC)
VIII.
(5%)
Nutrition Chippy Corporation gives all its employees (rank
and file, supervisors and managers) one sack of rice every
month valued at P800 per sack. During an audit
investigation made by the Bureau of Internal Revenue
(BIR), the BIR assessed the company for failure to withhold
the corresponding withholding tax on the amount
equivalent to the one sack of rice received by all the
employees, contending that the sack of rice is considered
as additional compensation for the rank and file employees
and additional fringe benefit for the supervisions and
managers. Therefore, the value of the one sack of rice
every month should be considered as part of the
compensation of the rank and file subject to tax. For the
supervisors and managers, the employer should be the one
assessed pursuant to Section 33 (a) of the NIRC. Is there a
legal basis for the assessment made by the BIR? Explain
your answer.

No, the monthly sack of rice not exceeding P1,000.00 for the
rank and file employees is a de minimis benefit not subject
to tax. The rice is a privilege the employer furnishes his
employees, of relatively small value, offered to promote the
health, goodwill, contentment or efficiency of his employees.
(Revenue Regulations No. 02-98, [April 17. 1998]; BIR Ruling
No. 023-02 [June 21, 2002] citing Section 2.78[A], Revenue
Regulations No. 2-98 & Section 33, 1997 TRA as implemented
by Revenue Regulations No. 3-98 as amended)
IX.
(10%)
Weber Realty Company which owns a three-hectare land in
Antipolo entered into a Joint Venture Agreement (JVA)
with Prime Development Company for the development of
said parcel of land. Weber Realty as owner of the land
contributed the land to the Joint Venture and Prime
Development agreed to develop the same into a residential
subdivision and construct residential houses thereon. They
agreed that they would divide the lots between them.

a. Does the JVA entered into by and between Weber and

Prime create a separate taxable entity? Explain briefly.

Alternative Answer:
No, since the arrangement between Weber Realty Co. and
Prime Development Co. is for the purpose of understanding a
construction project, there is no separate taxable entity
pursuant to Section 22[B[ of the NIRC.

Alternative Answer:
Yes, but only for purposes of the Value Added Tax, a joint
venture for the construction project resulted in the creation
of a separate taxable entity. It is not subject to income tax
pursuant to Section 22[B[ of the NIRC.

b. Are the allocation and distribution of the saleable lots

to Weber and prime subject to income tax and to
expanded withholding tax? Explain briefly.

No, the allocation of saleable lots to Weber and Prime is not

subject to income tax and the expanded withholding tax.
There is no income realized in the distribution of property,
but merely a return of capital.

c. Is the sale by Weber or Prime of their respective shares

in the saleable lots to third parties subject to income tax
and to expanded withholding tax? Explain briefly.
Yes, the sale by Weber and Prime of their respective shares
results in the realization of income subject to income tax and
expanded withholding tax.
X.
(10%)
Noel Santos is a very bright computer science graduate. He
was hired by Hewlett Packard. To entice him to accept the
offer for employment, he was offered the arrangement
that part of is compensation would be an insurance policy
with a face value of P20 Million. The parents of Noel are
made the beneficiaries of the insurance policy.

a. Will the proceeds of the insurance form part of the

income of the parents of Noel and be subject to income
tax? Reason briefly.

No, under the law, the proceeds of life insurance policies

paid to the heirs or beneficiaries upon the death of the
insured are excluded from gross income. (Sec. 32[B][1], NIRC)

b. Can the company deduct from its gross income the

amount of the premium? Briefly.

Yes, the premiums paid are deductible business expenses,

provided the employer is not the beneficiary. The premiums
constitute ordinary and necessary expenses of the company.
(Section 36[A][4] and Section 34[A], NIRC)
XI.
(5%)
The Congregation of the Mary Immaculate donated a land a
dormitory building located along España St. in favor of the
Sisters of the Holy Cross, a group of nuns operating a free
clinic and high school teaching basic spiritual values. Is the
donation subject to donor's tax? Reason Briefly.
The donation is not subject to donor’s tax. Gifts made in
favor of educational and/or charitable or religious
institutions shall be exempt from the donor’s tax provided
that not more than 30% of said gifts shall be used by such
donee for administration purposes. (Section 101[A][3];
Commissioner of Internal Revenue v. Court of Appeals, Court
of Tax Appeals and Ateneo de Manila University, G.R. No.
115349, April 18, 1997).
XII.
(5%)
Remedios, a resident citizen, died on November 10, 2006.
She died leaving three condominium units in Quezon City
valued at P5 Million each. Rodolfo was her only heir. He
reported her death on December 5, 2006 and filed the
estate tax, he asked the Commissioner of Internal Revenue
to give him one year to pay the estate tax due. The
Commissioner approved the request for extension of time
provided that the estate tax be computed on the basis of
the value of the property at the time of payment of the
tax.

a. Does the Commissioner of Internal Revenue have the

power to extend the payment of estate tax? If so, what are
the requirements to allow such extension?

Yes, the Commissioner may extend the payment of the tax

subject to the following conditions:
1. Timely payment would impose undue hardship upon the
estate or the heirs;
2. Posting of a bond exceeding double the amount of the tax
may be required by the Commissioner;
3. The extension shall not exceed 2 years in case of
extrajudicial settlement of the estate or 5 years in case of
judicial settlement. (Sec. 91, NIRC)
b. Does the condition that the basis of the estate tax will
be the value at the time of the payment have legal basis?
Reason briefly.

No. The value of the gross estate shall be determined at the

time of death of the decedent. (Sections 85 and 90[A][1],
NIRC)
XIII.
(5%)
ABC Corporation won a tax refund case for P50 Million.
Upon execution of the judgement and when trying to get
the tax Credit Certificates (TCC) representing the refund,
the Bureau of Internal Revenue (BIR) refused to issue the
TCC on the basis of the fact that the corporation is under
audit by the BIR and it has a potential tax liability. Is there
a valid justification for the BIR to withhold the issuance of
the TCC? Explain your answer briefly.

There is no valid justification to withhold the TCC. Offsetting

of the amount of TCC against a potential tax liability is not
allowed because both obligations are not yet fully liquidated.
TCC has been determined as to its amount while the
deficiency tax is yet to be determined through the
completion of the audit. (Philex Mining Corporation v.
Commissioner of Internal Revenue, Court of Appeals, and
Court of Tax Appeals, G.R. No. 125704, August 28, 1998)
NOTHING FOLLOWS.
 Remedial Law
-I-
10%
a. What are the rules on the recognition and enforcement
of foreign judgments in our courts? (6%)

The rules on the recognition and enforcement of foreign

judgments in our courts are as follows:
1. In the case of a judgment or final order upon a specific
thing, the judgment or final order is conclusive upon the title
to the thing. (Rule 39, Section 48[a], Rules of Court)

2. In case of a judgment or final order against a person, the

judgment or final order is presumptive evidence against of a
right as between the parties and their successors in interest
by a subsequent title. (Rule 39, Section 48[b], Rules of Court)

3. In either case, the judgment or final order may be

repelled by evidence of a want of jurisdiction, want of notice
to the party, collusion, or fraud, or clear mistake of law or
fact. (Rule 39, Section 48, last paragraph, Rules of Court)

b. Can a foreign arbitral award be enforced in the

Philippines under those rules? Explain briefly. (2%)

No. Foreign arbitral awards are not enforced like foreign

court judgments under Rule 39 of the Rules of Court, but
they can be enforced under Section 44 (RA 9285, Alternative
Dispute Resolution Act of 2004) A foreign arbitral award,
when confirmed by the RTC, shall be enforced in the same
manner as final and executory decisions of courts of the
Philippines. Said law provides that the case shall be filed
with the Regional Trial Court as a special proceeding, and if
the 1958 New York Convention on the Recognition and
Enforcement of Foreign Judgments is not applicable, the
court may, on grounds of comity and reciprocity, recognize a
non-convention award as a convention award.

c. How about a global injunction issued by a foreign court

to prevent dissipation of funds against a defendant therein
who has assets in the Philippines? Explain briefly. (2%)

Yes, a global injunction also known as the Mareva injunction,

should be considered as an order of a foreign court.
Therefore, the rule on recognition and enforcement of
foreign judgments under Rule 39 must apply. (Asiavest
Merchant Bankers v. CA, G.R. No. 110263, July 20, 2001)
However, to prevent dissipation of funds, the action to
enforce must be accompanied with an application for
preliminary injuction.
- II -
10%
True or False. If the answer is false, explain your answer
briefly.

a. The surviving parties rule bars Maria from testifying for

the claimant as to what the deceased Jose had said to her,
in a claim filed by Pedro against the estate of Jose (3%)
FALSE. For the survivor disqualification rule of the Dead Man
Statute to apply, one of the requisites is that the witness
being offered is either a party plaintiff, or his assignor or a
person in whose behalf a case is prosecuted. (Rule 130,
Section 23, Rules of Court). Hence, Maria, being a mere
witness who does not fall within the prohibition, is not
barred from testifying. (Section 23, Rule 130, Rules of Court;
Razon v. Intermediate Appellate Court, G.R. Nos. 74306 and
74315, March 16, 1992).

b. A defendant who has been declared in default can avail

of a petition for relief from the judgment subsequently
rendered in the case. (3%)
FALSE. A petition for relief is an equitable remedy that can
be availed of only if the assailed judgment has been entered
for being final and executory. (Sections 1 and 3, Rule 38,
Rules of Court; Aboitiz International Forwarders, Inc., v.
Court of Appeals, G.R. No. 142272, May 2, 2006 and other
cases)

c. A motion is pleading. (2%)

FALSE. A motion is not a pleading. A motion is an application
for relief other than by a pleading (Section 1, Rule 15, 1997
Rules of Civil Procedure), except that in summary procedure
when a prohibited motion to dismiss is filed, the court may
treat the same as a pleading. Pleadings are the written
statements of the respective claims and defenses on the
parties submitted to the court for appropriate judgment.
(Section 1, Rule 6, 1997 Rules of Civil Procedure)

d. A counterclaim is pleading. (2%)

TRUE. A counterclaim is a pleading because it is claim
submitted to the court for appropriate judgment. (Section 1,
Rule 6, 1997 Rules of Civil Procedure). It is any claim which a
defending party may have against an opposing party. (Section
6, Rule 6, 1997 Rules of Civil Procedure).
- III -
10%
1. What is the hearsay rule? (5%)

The hearsay rule is that a witness can testify only to those

facts which he knows of his personal knowledge; that is,
those which are derived from his own perception, except as
otherwise provided in the rules. (Section 36, Rule 130, Rules
of Court). Moreover, hearsay evidence also includes all
assertions though derived from personal knowledge, where
the adverse party is not given an opportunity to cross-
examine. (Section 36, Rule 130, Rules of Court)
2. In relation to the hearsay rule, what do the following
rules of evidence have in common? (5%)

1. The rule on statements that are part of the res gestae;

2. The rule on dying declarations;
3. The rule on admissions against interest.

Statements that are part of the res gestae (Section 42, Rule
130, Rules of Court), dying declarations (Section 37, Rule
130, Rules of Court) and admissions against interest (Section
38, Rule 130, Rules of Court) are all exceptions to the
hearsay rule.
- IV -
10%
Husband H files a petition for declaration of nullity of
marriage before the RTC of Pasig City. Wife W files a
petition for habeas corpus before the RTC of Pasay City,
praying for custody over their minor child. H files a motion
to dismiss the wife's petition on the ground of the
pendency of the other case. Rule.

The husband’s motion to dismiss his wife’s petition for

habeas corpus, should be granted because the case for nullity
of marriage constitutes litis pendentia. The custody of the
minor child and the action for nullity of the marriage are not
separate causes of action. Judgment on the issue of custody
in the nullity of marriage case before the Pasig RTC,
regardless of which party would prevail, would constitute res
judicata on the habeas corpus case before the Pasay RTC
since the former has jurisdiction over the parties and the
subject matter. (Yu v. Yu, G.R. No. 164915, March 10, 2006;
Section 1[e], Rule 16, 1997 Rules of Civil Procedure; Section
2, Rule 102, Rules of Court). The evidence to support the
petition for nullity necessarily involves evidence of fitness to
take custody of the child as the court in the nullity
proceedings has a duty under the Family Code to protect the
bets interest of the child.
-V-
10%
a. Distinguish the effects of the filling of a demurrer to the
evidence in a criminal case and its filing in a civil case.
(5%)

The effects of filing of a demurrer to the evidence in a

criminal case. (Section 23, Rule 119, 2000 Rules of Criminal
Procedure) are different from the effects of the filing of a
demurrer in a civil case (Rule 33, 1997 Rules of Civil
Procedure), as follows:

1. In a civil case, after the plaintiff has completed the

presentation of his evidence, the defendant may move for
dismissal on the ground that based on the facts and the law,
the plaintiff has shown no right to relief. If the demurrer is
denied, the movant shall have the right to present evidence.
If the demurrer is granted but on appeal the order of
dismissal is reversed, the movant shall be deemed to have
waived the right to present evidence. (Section 1, Rule 33,
1997 Rules of Civil Procedure).

2. In criminal cases, after the prosecution has rested its case,

the court may dismiss the action on the ground of
insufficiency of evidence (1) on its own initiative after giving
the prosecution an opportunity to be heard or (2) upon
demurrer to evidence filed by the accused with or without
leave of court.

If the court denies the demurrer to evidence filed with leave

of court, the accused may adduce evidence in his defense.
When the demurrer to evidence is filed without leave of
court, the accused waives his right to present evidence and
submits the case for judgment on the basis of the evidence
for the prosecution.
The motion for leave of court to file demurrer to evidence
shall specifically state its grounds and shall be filed within a
non-extendible period of five (5) days from its receipt.

If the leave of court is granted, the accused shall file the

demurrer to evidence within a non-extendible period of ten
(10) days from notice. The prosecution may oppose the
demurrer to evidence within a similar period from its receipt.

The order denying the motion for leave of court to file

demurrer to evidence or the demurrer itself shall not be
reviewable by appeal or certiorari before the judgment.
(Section 23, Rule 119, 2000 Rules of Criminal Procedure)

b. What is reverse trial and when may it be resorted to?

Explain briefly. (5%)

A reverse trial is a trial where the accused presents his

evidence first before the prosecution submits its evidence. It
may be resorted to when the accused admits the act or
omission charged in the complaint or information but
interposes a lawful or affirmative defense. (Section 11[e],
Rule 119, 2000 Rules of Criminal Procedure; People v.
Palabarica, G.R. No. 129285, May 7, 2001; Section 7, Speedy
Trial Act)

In civil cases, the reverse trial may be resorted to by

agreement of the parties or when the defendant sets up an
affirmative defense.
- VI -
10%
(a) On his way home, a member of the Caloocan City police
force witnesses a bus robbery in Pasay City and effects the
arrest of the suspect. Can he bring the suspect to Caloocan
City for booking since that is where his station is? Explain
briefly. (5%)

No. Under the Rules on Criminal Procedure, it is the duty of

officer executing the warrant to arrest the accused and to
deliver him to the nearest police station or jail without
unnecessary delay. This rule equally applies to situations of
warrantless arrest. (Section 3, Rule 113, Rules of Court)

(b) In the course of serving a search warrant, the police

finds an unlicensed firearm. Can the police take the
firearm even if it is not covered by the search warrant? If
the warrant is subsequently quashed, is the police
required to return the firearm? Explain briefly. (5%)

Yes. The police can take the unlicensed firearm even if it was
not covered by the search warrant following the judicial
precedent that prohibited articles may be seized for as long
as the search warrant is valid. (People v. Cruz, G.R. No.
76728, August 30, 1988; People v. Mendi, G.R. Nos. 112978-
81, February 19, 2001). If the warrant is subsequently
quashed, the police are not required to return the firearm
because it is unlicensed. It can, in fact, be ordered forfeited
by the court. The search warrant does not refer to the
unlicensed firearm.
- VII -
10%
a. B files a petition for cancellation of the birth certificate
of her daughter R on the ground of falsified material
entries there in made by B's husband as the informant.
The RTC sets the case for hearing and directs the
publications of the order once a week for three
consecutive weeks in a newspaper of general circulation.
Summons was served on the Civil Registrar but there was
no appearance during the hearing. The RTC granted the
petition. R filed a petition for annulment of judgment
before the Court of Appeals, saying that she was not
notified of the petition and hence, the decision was issued
in violation of due process. B opposed saying that the
publication of the court order was sufficient compliance
with due process. Rule. (5%)

Alternative Answer:
Jurisdiction of the court over a petition for the cancellation
of a birth certificate requires reasonable notice to all
interested parties and also publication of the order once a
week for three consecutive weeks in a newspaper of general
circulation. (Section 4, Rule 108 Ceruila v. Delantar, G.R. No.
140305, December 9, 2005). In this case, publication of the
order is insufficient because R, a directly concerned party,
was not given reasonable notice, hence, denied due process.
The lower court, therefore, did not acquire jurisdiction.
Accordingly, the petition for annulment of judgment before
the Court of Appeals should be granted.

Alternative Answer:
In the cases of Republic v. Kho, G.R. No. 170340, 29 June
2007; Alba v. Court of Appeals, G.R. No. 164041, July 29,
2005; and Barco v. Court of Appeals, G.R. No. 120587,
January 20, 2004, the court held that publication of the
order of hearing under Section4 of Rule 108 cured the failure
to implead an indispensable party. The court said that a
petition for correction is an action in rem, an action against a
thing and not against a person. The decision on the petition
binds not only the parties thereto but the whole world. An in
rem proceeding is validated essentially through publication.
Publication is notice to the whole world that the proceeding
has for its object to bar indefinitely all who might be minded
to make an objection of any sort against the right sought to
be established. It is the publication of such notice that brings
in the whole world as a party in the case and vests the court
with jurisdiction to hear and decide it.

b. G files a complaint for recovery of possession and

damage against F. in the course of the trial, G marked his
evidence but his counsel failed to file a formal offer of
evidence. F then presented in evidence tax declarations in
the name of his father to establish that his father is a co-
owner of the property. The court ruled in favor of F,
saying that G failed to prove sole ownership of the
property in the face of F's evidence. Was the court
correct? Explain briefly. (5%)

The court shall consider no evidence which has not been

formally offered. The trial court rendered judgment
considering only the evidence offered by F. The offer is
necessary because it is the duty of the judge to rest his
findings of fact and his judgment only and strictly upon the
evidence offered by the parties at the trial (People v.
Pecardal, G.R. No. 71381, November 24, 1986) and because
the purpose for which the evidence is offered must be
specified. (Section 34, Rule 1, Rules of Court.) However,
there have been exceptional instances when the Court
allowed exhibited documents which were not offered by duly
identified by testimony and incorporated in the records of
the case. (People v. Mate, L-34754, March 21, 1981).
- VIII -
10%
a. X files an unlawful detainer case against Y before the
appropriate Metropolitan Trial Court. In his answer, Y
avers as a special and affirmative defense that he is a
tenant of X's deceased father in whose name the property
remains registered. What should the court do? Explain
briefly. (5%)

The court should proceed to hear the case under the Rules of
Summary Procedure. Unlawful detainer refers to actual
physical possession, not ownership. Defendant Y, who is in
actual possession, is the real party in interest. (Lao v. Lao,
G.R. No. 149599, May 11, 2005) It does not matter if her is a
tenant of the deceased father of the plaintiff, X, or that X’s
father is the registered owner of the property. His term
expired. He merely continues to occupy the property by mere
tolerance and he can be evicted upon mere demand. (People
v. Court of Appeals, G.R. No. 14364, June 3, 2004).

b. The heirs of H agree among themselves that they will

honor the division of H's estate as indicated in her Last
Will and Testament. To avoid the expense of going to court
in a Petition for Probate of the Will, can they instead
execute an Extrajudicial Settlement Agreement among
themselves? Explain briefly. (5%)

No. The law states that no will shall pass either real or
personal property unless it is proved and allowed in
accordance with the Rules of Court. (Article 838, Civil Code;
Lopez v. Gonzaga, G.R. No. L-18788, January 30, 1964). This
probate of the will is mandatory. (Guevarra v. Guevarra, G.R.
No.L-48840, December 29, 1943.)
- IX -
10%
L was charged with illegal possession of shabu before the
RTC. Although bail was allowable under his indictment, he
could not afford to post bail, and so he remained in
detention at the City Jail. For various reasons ranging from
the promotion of the Presiding Judge, to the absence of
the trial prosecutor, and to the lack of the notice to the
City Jail Warden, the arraignment of L was postponed
nineteen times over a period of two years. Twice during
that period, L's counsel filed motions to dismiss, invoking
the right of the accused to a speedy trial. Both motions
were denied by the RTC. Can L file a petition for
mandamus? Reason briefly.

Yes, L can file a petition for mandamus, invoking the right to

a speedy trial. (Section 3, Rule 65, 1997 Rules of Civil
Procedure) The numerous and unreasonable postponements
displayed an abusive exercise of discretion. (Lumanlaw v.
Peralta, G.R. No. 164953, February 13, 2006)
-X-
10%
a. RC filed a complaint for annulment of the foreclosure
sale against Bank V. in its answer, Bank V set up a counter
claim for actual damages and litigation expenses. RC filed
a motion to dismiss the counterclaim on the ground the
Bank V's Answer with Counterclaim was not accompanied
by a certification against forum shopping. Rule. (5%)

The motion to dismiss the counterclaim should be denied. A

certification against forum shopping should not be required in
a compulsory counterclaim because it is not an initiatory
pleading. (Section 5, Rule 7, 1991 Rules of Civil Procedure;
Carpio v. Rural Bank of Sto. Tomas [Batangas], Inc., G.R. No.
153171, May 4, 2006)

b. A files a case against B. While awaiting decision on the

case, A goes to the United States to work. Upon her return
to the Philippines, seven years later, A discovers that a
decision was rendered by the court in her favor a few
months after she had left. Can a file a motion for
execution of the judgment? Explain briefly. (5%)

No. A cannot file a motion for execution of the judgment

seven years after the entry of the judgment. She can only do
that within five (5) years from entry of judgment. However,
she can file a case for revival of the judgment, which can be
done before it is barred by the statute of limitations.
(Section 6, Rule 39, 1997 Rules of Civil Procedure) which is
within ten (10) years from the date of finality of the
judgment. (Macias v. Lim, G.R. No. 139284, June 4, 2004)
NOTHING FOLLOWS.
 Political and Public International Law
-I-
(10 points)
True or False. Briefly explain your answer.
(a) For purposes of communication and instruction, the
official languages of the Philippines are English and
Filipino, until otherwise
Alternative Answer:
The statement is false. Article XIV, Section 7 of the 1987
Constitution provides that for “purposes of communication
and instruction, the official languages of the Philippines are
Filipino and, until otherwise provided by law, English.” Thus,
while Filipino will always be an official language, Congress
may, by law, remove English as the other official language.
Hence, the statement is false as the continuation of English
as an official language is subject to the control and discretion
of Congress.

Alternative Answer:
The statement is true. To be more precise, however, what is
only to remain as official until otherwise provided by law is
English. Filipino will always be an official language under the
Charter.

(b) The 1987 Constitution has increased the scope of

academic freedom recognized under the previous
Constitution.
Alternative Answer:
The statement is true. The 1987 Constitution provides that
academic freedom shall be enjoyed in all institutions of
higher learning. This is more expansive in scope than the
1973 Constitution which stated that: All institutions of higher
learning shall enjoy academic freedom. While the 1973
Charter suggests that academic freedom was institutional in
the sense that it belonged to the colleges and universities,
the present Charter gives the guaranty to all other
components of the institution, including faculty and possibly
students.

Alternative Answer:
The statement is false. The scope of academic freedom
remains the same. Article XIV, Section 5 (2) of the
Constitution provides that academic freedom shall be
enjoyed in all institutions of higher learning. As held in U.P.
Board of Regents v. Court of Appeals, G.R. No. 134629,
August 31, 1999, “This (provision) is nothing new. The 1935
and the 1973 Constitution likewise provided for academic
freedom or, more precisely, for the institutional autonomy of
universities and institutions of higher learning.”
-II-
(10 points)
The City Mayor issues an Executive Order declaring that
the city promotes responsible parenthood and upholds
natural family planning. He prohibits all hospitals operated
by the city from prescribing the use of artificial methods
of contraception, including condoms, pills, intrauterine
devices and surgical sterilization. As a result, poor women
in his city lost their access to affordable family planning
programs. Private clinics, however, continue to render
family planning counsel and devices to paying clients.

(a) Is the Executive Order in any way constitutionally

infirm? Explain.
Alternative Answer:
The Executive Order is constitutionally infirm. Under the
1987 Constitution, the State shall defend the right of spouses
to establish a family in accordance with their religious
convictions and the demands of responsible parenthood. (Art.
XV, Sec. 3[1]). By upholding natural family planning and
prohibiting city hospitals from prescribing artificial methods
of contraception, the Mayor is imposing his religious beliefs
on spouses who rely on the services of city hospitals. This
clearly violates the above section of the Constitution.

Moreover, the 1987 Constitution states that no person shall

be denied the equal protection of the laws. (Art. III, Sec. 1).
The Constitution also provides that the state shall promote a
just and dynamic social order that will ensure the prosperity
and independence of the nation and free the people from
poverty through policies that provide adequate social
services, promote full employment, a rising standard of living
and an improved quality of life for all. (Art. II, Section 9).
The loss of access of poor city women to family planning
programs is discriminatory and creates suspect classification.
It also goes against the demands of social justice as enshrined
in the immediately preceding provision.

Alternative Answer:
Yes. It constitutes an invalid exercise of police power and
violates substantive due process by depriving people of the
means to control their reproductive processes. Moreover,
since the national government has not outlawed the use of
artificial methods of contraception, then it would be against
national policies. In addition, the Mayor cannot issue such
Executive Order without an underlying ordinance. (Moday v,
Court of Appeals, G.R. No. 107916, February 20, 1997)
Besides, the action of the Mayor may be in violation of a
person’s right to privacy.

(b) Is the Philippines in breach of any obligation under

international law? Explain.
Alternative Answer:
The Philippines might be in breach of its obligations under
the Convention on the Elimination of All Forms of
Discrimination Against Women (CEDAW) of which the country
is a signatory. Under the CEDAW, “ State Parties shall take all
appropriate measures to eliminate discrimination against
women in the field of health care in order to ensure, on basis
of equality of men and women, access to health care
services, including those related to family planning” (Article
12, Section 1) Women shall likewise have “access to
adequate health care facilities, including information,
counseling and services in family planning.” (Article 14,
Section 2[b]).

(c) May the Commission on Human Rights order the Mayor

to stop the implementation of the Executive Order?
Explain.
Alternative Answer:
No, the power of the Commission on Human Rights (CHR) is
limited to fact-finding investigations. Thus, it cannot issue an
“order to desist” against the mayor, inasmuch as the order
prescinds from an adjudicatory power that CHR does not
possess. (Simon v. Commission on Human Rights, G.R. No.
100150, January 5, 1994; Cariño v. Commission on Human
Rights, G.R. No. 96681, December 2, 1991.)
- III -
(10 Points)
Lawrence is a Filipino computer expert based in Manila
who invented a virus that destroys all the files stored in a
computer. Assume that in May 2005, this virus spread all
over the world and caused $50 million in damage to
property in the United States, and that in June 2005, he
was criminally charged before United States courts under
their anti-hacker law. Assume that in July 2005, the
Philippines adopted its own anti-hacker law, to strengthen
existing sanctions already provided against damage to
property. The United States has requested the Philippines
to extradite him to US courts under the RP-US Extradition
Treaty.

a. Is the Philippines under an obligation to extradite

Lawrence? State the applicable rule and its rationale.
Alternative Answer:
The Philippine is under no obligation to extradite Lawrence.
Under the principle of dual or double criminality, the crime
must be punishable in both the requesting and requested
states to make it extraditable. In this case, only the United
States had anti-hacker law at the time of the commission of
the crime in May 2005. The rational for the principle of dual
criminality rests “in part on the basic principle of
reciprocity” and “in part of the maxim nulla poena sine
lege.” (LA Shearer, 1971 Extradition in International Law,
Manchester University Press, Manchester, p. 137.)

b. Assume that the extradition request was made after the

Philippines adopted its anti-hacker legislation. Will that
change your answer?
Alternative Answer:
It will not change my answer as the rule is that the crime
must be punishable in both countries at the time of the
commission of the offense. Since there was yet no such crime
in the Philippines at the time when the acts complained of
were done, in so far as the Philippines is concerned,
Lawrence did not commit any crime.

Alternative Answer:
Yes, it will change my answer if a crime like malicious
mischief could be considered the equivalent of the anti-
hacker law and is punishable in both countries at the time of
the request for extradition.
 - IV -
(10 points)
In 1993, historians confirmed that during World War II,
"comfort women" were forced into serving the Japanese
military. These women were either abducted or lured by
false promises of jobs as cooks or waitresses, and
eventually forced against their will to have sex with
Japanese soldiers on a daily basis during the course of the
war, and often suffered from severe beatings and venereal
diseases. The Japanese government contends that the
"comfort stations" were run as "onsite military brothels" (or
prostitution houses) by private operators, and not by the
Japanese military. There were many Filipina "comfort
women."

a. Name at least one basic principle or norm of

international humanitarian law that was violated by the
Japanese military in the treatment of the "comfort
women."
Alternative Answer:
The Japanese military violated jus cogens norms of
international law concerning war crimes, crimes against
humanity like white slavery, sexual slavery and trafficking in
women.

Alternative Answer:
The principle of military necessity was violated. It prohibits
the use of any measure that is not absolutely necessary for
the purposes of the war. Military necessity is governed by
several constraints: An attack or action must be intended to
help in the military defeat of the enemy, it must be an
attack on a military objective and the harm caused to
civilians or civilian property must be proportional and not
excessive in relation to the concrete and direct military
advantage anticipated. Having to force women of the enemy
state to serve the sexual needs of the soldiers is not
absolutely necessary for the conduct of the war.

b. The surviving Filipina "comfort women" demand that the

Japanese government apologize and pay them
compensation. However, under the 1951 San Francisco
Peace Agreement -the legal instrument that ended the
state of war between Japan and the Allied Forces -all the
injured states, including the Philippines, received war
reparations and, in return, waived all claims against Japan
arising from the war. Is that a valid defense?
Alternative Answer:
No, that is not a valid defense. Even if it could be argued
that the Philippines, by signing said Peace Agreement had the
right as a state to bring further claims, it had no authority to
waive the individual right to reparations vested directly in its
nationals who were victims of sexual slavery. The Philippines
can only validly waive its right to recovery of reparations for
injuries to the state. Moreover, there is no defense for the
violation of jus cogens norms.

Alternative Answer:
No. The claim is being made by the individuals, not by the
State and it is recognized that individuals may also be
subjects of international law apart from the state. Further,
the San Francisco Peace Agreement could not be interposed
as a valid defense as this could not have been contemplated
therein. The use of “comfort women” was only confirmed
long after that Agreement. Moreover, Article 17 (3) of the
New Civil Code provides that “prohibitive laws concerning
persons, their acts or property, and those which have for
their object public order, policy and good customs, shall not
be rendered ineffective by laws or judgments promulgated,
or by determinations or conventions agreed upon in a foreign
country.
c. The surviving Filipina "comfort women" sue the
Japanese government for damages before Philippine
courts. Will that case prosper?
Alternative Answer:
The case will not prosper in view of the doctrine of sovereign
immunity from suit. However, a person who feels aggrieved
by the acts of a foreign sovereign can ask his own
government to espouse his cause through diplomatic
channels. The “comfort women” can request the Philippine
government, through the Department of Foreign Affairs, to
espouse its claims against the Japanese government. (Holy
See v. Rosario, G.R. No. 101949, December 1, 1994). The
sovereign authority of a State to settle the claims of its
national against foreign countries has repeatedly been
recognized. This may be made without the consent of the
nationals or even without consultation without them. (Dames
and Moore v. Regan, 433 U.S. 654, [1981])

Alternative Answer:
No. since the Philippines is a signatory to that Agreement,
courts may not entertain a suit since that has been waived by
the State. Moreover, it can be argued that there was no state
action since the prostitution houses were being run by
private operators, without the control or supervision of the
Japanese government. (Southeast Case, United States v.
Wilhelm List, Nuremberg Case No. 7, 1949).
-V-
(10 points)
The Destilleria Felipe Segundo is famous for its 15-year old
rum, which it has produced and marketed successfully for
the past 70 years. Its latest commercial advertisement
uses the line: "Nakalikim ka na ba ng kinse anyos?" Very
soon, activist groups promoting women's and children's
rights were up in arms against the advertisement.
a. All advertising companies in the Philippines have formed
an association, the Philippine Advertising Council, and
have agreed to abide by all the ethicalguidelines and
decisions by the Council. In response to the protests, the
Council orders the pull-out of the "kinse anyos" advertising
campaign. Can Destilleria Felipe Segundo claim that its
constitutional rights are thus infringed?
Alternative Answer:
No, Destillera Felipe Segundo may not claim that its
constitutional rights, particularly freedom of expression,
have been infringed. The constitutional guarantee of freedom
of speech is a guarantee only against abridgment by the
government and does not apply to private parties. (People v.
Marti, G.R. No. 81561, January 18, 1991). Moreover,
Destillera freely joined the Philippine Advertising Council and
is therefore bound by the ethical guidelines and decisions of
that council.

Alternative Answer:
No. Constitutional rights can be validly restricted to promote
good morals. Moreover, what is being exercised is
commercial expression which does not enjoy the same extent
of freedom as political or artistic speech. (Central Hudson
Gas & Electric v. PSC, 447 U.S. 557 [1980]). The order for the
withdrawal comes not from the State but from a private
group of advertisers which is not within the coverage of the
Bill of Rights.

b. One of the militant groups, the Amazing Amazonas, call

on all government-owned and controlled corporations
(GOCC) to boycott any newspaper, radio or TV station that
carries the "kinse anyos" advertisements. They call on all
government nominees in sequestered corporations to
block any advertising funds allocated for any such
newspaper, radio or TV station. Can the GOCCs and
sequestered corporations validly comply?
Alternative Answer:
They may comply with such call as these entities may
institute certain measures to promote a socially desirable
end, namely, the prevention of the exploitation and abuse of
women, especially those who are not yet of age.

Alternative Answer:
The GOCCs and sequestered corporations may not be
compelled to boycott or block advertising funds for media
companies carrying the said advertisements. These
companies may have existing contracts with the media
companies concerned and non-compliance may result in
breach that will open them to possible suits.
- VI -
(10 points)
True or False. Briefly explain your answer.
a. An amendment to the Constitution shall be valid upon a
vote of three-fourths of all the Members of the Congress.

The statement is false. The Congress, acting as a

constitutional assembly, may by ¾ vote of its membership
only propose amendments to the Constitution. It is
ratification by the people that validates the amendment.

b. All public officers and employees shall take an oath to

uphold and defend the Constitution.
The statement is true as under Section 40 of the
Administrative Code of 1987 (Executive Order No. 292), it is
provided that “all public officers and employees of the
government, including every member of the armed forces
shall, before entering upon discharge of his duties, take an
oath or affirmation to uphold and defend the Constitution.
- VII - (10 Points)
Batas Pambansa 880, the Public Assembly Law of 1985,
regulates the conduct of all protest rallies in the
Philippines.

a. Salakay, Bayan! held a protest rally and planned to

march from Quezon City to Luneta in Manila. They
received a permit from the Mayor of Quezon City, but not
from the Mayor of Manila. They were able to march in
Quezon City and up to the boundary separating it from the
City of Manila. Three meters after crossing the boundary,
the Manila Police stopped them for posing a danger to
pubHc safety. Was this a valid exercise of police power?
Alternative Answer:
Yes, the authorities are given the power to stop marchers
who do not possess a permit. However, mere exercise of the
right to peaceably assemble is not considered as a danger to
public safety. They could have been asked to disperse
peacefully, but it should not altogether be characterized as
posing a danger to public safety. (Bayan v. Ermita, G.R. No.
169848, April 25, 2006; David v. Arroyo, G.R. No. 171390,
May 3, 2006).

Alternative Answer:
No, this is not a valid exercise of police power. Police power
has been defined as the power of promoting public welfare
by restraining and regulating the use of liberty and property.
(City of Manila v. Laguio, G.R. No. 118127, April 12, 2005). It
is principally the Legislature that exercises the power but it
may be delegated to the President and administrative
agencies. Local government units exercise the power under
the general welfare clause.

In this case, if Salakay applied for a permit from the city

government, the application must be approved or denied
within two (2) working days from the date it was filed, failing
which, the permit shall be deemed granted. (Section 16, B.P.
Blg. 880). Even without a permit, the law does not provide
for outright stopping of the march if the demonstrators, for
example, were marching peacefully without impeding traffic.

b. The security police of the Southern Luzon Expressway

spotted a caravan of 20 vehicles, with paper banners
taped on their sides and protesting graft and corruption in
government. They were driving at 50 kilometers per hour
in a 40-90 kilometers per hour zone. Some banners had
been blown off by the wind, and posed a hazard to other
motorists. They were stopped by the security police. The
protesters then proceeded to march instead, sandwiched
between the caravan vehicles. They were also stopped by
the security force. May the security police validly stop the
vehicles and the marchers?
Alternative Answer:
Yes, the security police may stop the vehicles and the
marchers but only to advise the leaders to secure their
banners so that it will not pose a hazard to others. They may
not be prevented from heading to their destination. The
marchers may also be ordered to ride the vehicles so as not
to inconvenience other uses of the Expressway.

Alternative Answer:
Yes. While the protesters possess the right to freely express
themselves, their actuations may pose a safety risk to other
motorists and therefore be the subject of regulation. The
security police may undertake measures to prevent any
hazard to other motorists but not altogether prevent the
exercise of the right. So, to that extent, while the protesters
maybe asked to remove the banners which pose hazard to
other motorists and prevent them from using the expressway
as a venue for their march, the security force may not
prevent them from proceeding to where they might want to
go.
- VIII - (10 Points)
The Provincial Governor of Bataan requested the
Department of Budget and Management (DBM) to release
its Internal Revenue Allocation (IRA) of P100 million for
the current budget year. However, the General
Appropriations Act provided that the IRA may be released
only if the province meets certain conditions as
determined by an Oversight Council created by the
President.

a. Is this requirement valid?

No, this requirement is not valid. Under the 1987
Constitution, it is provided that “local government units shall
have a just share, as determined by law, in the national
taxes which shall be automatically released to them.” As
held in the case of Alternative Center for Organizational
Reforms and Development, et.al. v. Zamora, G.R. No. 144256
(June 08, 2005), a basic feature of local fiscal autonomy is
the automatic release of the shares of LGUs in the national
internal revenue. The Local Government Code specifies
further that the release shall be made directly to the LGU
concerned within five (5) days after every quarter of the year
and “shall not be subject to any lien or holdback that may be
imposed by the national government for whatever purpose.”

b. The Provincial Governor is a party-mate of the

President. May the Bataan Representative instead file a
petition to compel the DBM to release the funds?
Alternative Answer:
Yes, the Bataan representative may file a petition to compel
the release of funds as a suit may lie against a public officer
to compel the performance of a ministerial function or a duty
required by law.

Alternative Answer:
Yes. A congressman from a particular LGU may validly have
standing to demand that IRA for his province be released in
accordance with the Constitution and the Local Government
Code. As a representative of his province, he has a
responsibility towards his constituencies who can expect no
less than faithful compliance with the Constitution.
Moreover, the issue presented could be characterized as
involving transcendental importance to the people and the
local government units which had been guaranteed greater
local autonomy.
- IX - (10 Points)
The Department of Education (DepEd) requires that any
school applying for a tuition fee increase must, as a
condition for the increase, offer full tuition scholarships to
students from low-income families. The Sagrada Familia
Elementary School is a Catholic school and has applied for
a tuition fee increase. Under this regulation by the DepEd,
it will end up giving tuition scholarships to a total of 21
students next year. At a cost of P50,OOO per student, the
school will lose a total of P1.05 million for next year.

a. Is this DepEd requirement valid?

No. It constitutes deprivation of property without due
process of law. The law is confiscatory as it unduly shifts the
burden of providing for the welfare of the poor to the private
sector. The objective may be laudable but the means would
be arbitrary and unreasonable. (Quezon City v. Judge Ericta,
G.R. No. 34195, June 24, 1983).

b. If instead the DepEd requires a full tuition scholarship

for the highest ranking students in each grade, determined
solely on the basis of academic grades and rank, will the
DepEd requirement be valid?
Alternative Answer:
No. It would make a difference in my answer as this would
still constitute a deprivation of property without due process
of law. (Balacuit v. CFI, G.R. no. 38429, June 30, 1988).
Alternative Answer:
Yes. Here, the matter may be considered as a reasonable
regulation exacted from those who seek some form of
accommodation from the government. (Telebap v. COMELEC,
G.R. No. 132922, April 21, 1998). In exchange for what they
get as a concession from the State, these institutions may be
required to shoulder part of the cost of promoting quality
education for deserving citizens.
- X -(10 Points)
The Supreme Court has provided a formula for allocating
seats for party-list representatives.

a. The twenty percent allocation - the combined number of

all party-Iist congressmen shall not exceed twenty percent of
the total membership of the House of Representatives,
including those elected under the party list;

Section 5(2), Article VI of the Constitution, as implemented

by R.A. No. 7941. The purpose is to assure that there will be
at least a guaranteed portion of the House of Representatives
reserved for the party-list members. The legislative policy is
to promote the election of party-list representatives in order
to enable Filipinos belonging to the marginalized and
underrepresented sectors to contribute legislation that would
benefit them.

b. The two percent threshold - only those parties garnering a

minimum of two percent of the total valid votes cast for the
party-list system are "qualified" to have a seat in the House
of Representatives;

R.A. No. 7941. This is to ensure that the party-list

organizations at least represents a significant portion of
those voting for the party-list system – that they at least have
a substantial constituency which must, at the minimum, not
be less than two percent (2%) of the total number of those
casting their votes for party-list organizations.

c. The three-seat limit - each qualified party, regardless of

the number of votes it actually obtained, is entitled to a
maximum of three seats; that is, one "qualifying" and two
additional seats; and

R.A. No. 7941. This is to prevent any dominant party-list

organization from having a monopoly of the seats for the
party-list system. Since the objective of the party-list system
is to enable other groups who might otherwise have difficulty
getting to Congress through the traditional system of
elections, then the system developed to accommodate them
must be fair and equitable enough to afford better odds to as
many groups as possible.

d. The first-party rule - additional seats which a qualified

party is entitled to shall be determined in relation to the
total number of votes garnered by the party with the highest
number of votes.

R.A. No. 7941. The party-list system is predicated, among

others, on proportional representation. Thus, there is need
to reflect the same in relation to the total number of votes
obtained. Accordingly, the first party must not be placed on
the same footing as the others who obtained less votes. The
votes obtained by first placer would be the reckoning point
for the computation of additional seats or members for the
remaining organizations who got at least two percent (2%) of
the votes cast for the party-list system. (Veterans Federation
Party v. COMELEC, G.R. No. 136781, October 6, 2000).

For each of these rules, state the constitutional or legal

basis, if any, and the purpose. NOTHING FOLLOWS.
 Mercantile Law
I.
(10%)
R issued a check for P1M which he used to pay S for killing
his political enemy.
Reason briefly in (a), (b) and (c).

a. Can the check be considered a negotiable instrument?

Yes, the check can be considered a negotiable instrument. In
ascertaining the character of the instrument, the primordial
and only consideration is its compliance with Section 1 of the
Negotiable Instruments Law. Since the problem states that a
check has been issues, we presume that it has all the other
terms mandated under Section 1, and if it was issued payable
to order or bearer, then it is a negotiable instrument.

b. Does S have a cause of action against R in case of

dishonor by the drawee bank?
No, S does not have a cause of action against R in case of
dishonor by the drawee bank. There is still an underlying
contractual relationship between S and R, evidenced by the
check, and needs a valid consideration to support it. Under
Section 28 of the Negotiable Instruments Law, such illegality
of consideration is a defense against immediate parties but
not against a holder in due course (i.e., personal defense).
The consideration for the issuance of the check, as between
S and R, is void involving as it does the killing of the political
enemy of R.

c. If S negotiated the check to T, who accepted it in good

faith and for value, may R be held secondarily liable by T?
R may be held secondarily liable by T. T enjoys the
presumption being a holder in due course because every
holder is deemed prima facie to be a holder in due course.
(Section 59, Negotiable Instruments Law), especially since he
took the check in good faith and for value. Section 57 of the
Negotiable Instruments Law states , “A holder in due course
holds the instrument free from any defect of title of prior
parties and free from defenses available to prior parties
among themselves, and may enforce payment of the
instrument for the full amount thereof against all parties
liable thereon.”
II.
(10%)
Alex deposited goods for which Billy, warehouseman,
issued a negotiable warehouse receipt wherein the goods
were deliverable to Alex or order. Alex negotiated the
receipt to Caloy. Thereafter, Dario, a creditor secured
judgment against Alex and served notice of levy over the
goods on the warehouseman.

a. To whom should the warehouseman deliver the goods

upon demand?
The warehouseman should deliver the goods to Caloy. The
goods cannot be attached by garnishment or otherwise, or
levied upon, unless the receipt be first surrendered to the
warehouseman, or its negotiation is enjoined. (Section 25,
Warehouse Receipts Law)

b. Would you answer be the same if the warehouseman

issued a non-negotiable warehouse receipt? Reason
briefly.
No. The non-negotiable warehouse receipt does not confer
upon the transferee the direct obligation of the
warehouseman to hold possession of the goods for him.
(Section 42, Warehouse Receipts Law). In such case, the law
provides that when a non-negotiable warehouse receipt is
transferred to Caloy, he only gets such title to the goods as
Alex had and also a right to notify the warehouseman to hold
the goods for Caloy’s account. Prior to such notice, Caloy’s
claim can be defeated by a levy of execution upon the goods
by a creditor of Alex.
III.
(5%)
Diana and Piolo are famous personalities in showbusiness
who kept their love affair secret. They use a special
instant messaging service which allows them to see one
another's typing on their own screen as each letter key is
pressed. When Greg, the controller of the service facility,
found out their identities, he kept a copy of all the
messages Diana and Piolo sent each other and published
them. Is Greg liable for copyright infringement? Reason
briefly.

Yes, Greg is guilty of copyright infringement. The instant

messages of Diana and Piolo are deemed to constitute
“letters” (Section 172.1[d], Intellectual Property Code) which
are “protected by the sole fact of their creation irrespective
of their mode or form of expression, as well as their content,
quality, and purpose.” (Section 172.2[d], Intellectual
Property Code). For copyright to exist, it must be found in a
tangible medium, usually in written form, which is fulfilled
by the instant messages. Under the Electronic Commerce
Act, whenever the law requires certain contracts or acts to
be in writing to be valid and enforceable, then such
requirement is deemed fulfilled when they are in the form of
an electronic document. The instant messages are deemed to
be in writing under the Electronic Commerce Act for they are
in digital form or constitute electronic documents.
IV.
(10%)
Alfredo took out a policy to insure his commercial building
against fire. The broker for the insurance company agreed
to give a 15-day credit within which to pay the insurance
premium. Upon delivery of the policy on May 15, 2006,
Alfredo issued a postdated check payable on May 30, 2006.
On May 28, 2006, a fire broke out and destroyed the
building owned by Alfredo.Reason briefly in (a), (b) and
(c).

a. May Alfredo recover on the insurance policy?

Yes, Alfredo can recover on the insurance policy. Although
Section 77 of the Insurance Code provides that in fire
insurance, payment of premium is necessary for validity of
the policy (also known as “cash and carry” provision),
nonetheless, the rule has been modified by the decisions of
the Supreme Court after the promulgation of the Insurance
Code. Thus, in UCPB General Insurance v. Masagana
Telemart, G.R. No. 137172, April 4, 2001, it was held that
the insured should be allowed to recover on losses sustained
even when premium was paid after the fact of loss, provided
payment was received by the insurer during the credit period
given to the insured. (See also South Sea Surety v. Court of
Appeals, G.R. No. 102253, June 2, 1995; American Home
Assurance v. Chua, G.R. No. 130421, June 28, 1999) where
the Supreme Court ruled that is the check payment for
premium was received by the insurer prior to the loss or
within the credit period, the insured was allowed to recover.

b. Would your answer in (a) be the same if it was found

that the proximate cause of the fire was an explosion and
that fire was but the immediate cause of loss and there is
no excepted peril under the policy?
Yes, recovering under an insurance contract is allowed if the
cause of the loss was either the proximate or the immediate
cause as long as an expected peril was not the proximate
cause of the loss. (Section 86, Insurance Code of the
Philippines.) The fire being the immediate cause for the loss
of the commercial building, would warrant recovery under
the policy.

c. If the fire was found to have been caused by Alfredo's

own negligence, can he still recover on the policy?
Yes, he can still recover. The doctrine of contributory
negligence does not in any way apply to rights under a
contract of insurance, unless it is a case of willful act.
(Section 87, Insurance Code of the Philippines)
V.
(5%)
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 him with violation of the Trust
Receipts Law.

a. What is a Trust Receipt?

A trust receipt is a security transaction intended to aid
financing importers or dealers in merchandise by allowing
them to obtain delivery of the goods under certain
covenants. (Section 4, Trust Receipts Law). It is a document
executed between the entrustor and the entrustee, under
which the goods are released to the latter who binds himself
to hold the goods in trust, or to sell or dispose of the goods
with the obligations to turn over the proceeds to the
entrustor to the extent of the entrustee’s obligation to him,
or if unsold, to return the goods.

b. Will the case against C prosper? Reason briefly.

No. It is not covered by the Trust Receipts Law. In
Consolidated Bank v. Court of Appeals, G.R. No. 114286, April
19, 2001, where debtor received goods subject of trust
receipt before trust receipt itself was entered into, it was
held that the transaction in question was a simple loan.
Colinares v. Court of Appeals, G.R. No. 90828, September 5,
2000 held that the Trust Receipts Law does not seek to
enforce payment of loan, rather it punishes dishonesty and
abuse of confidence in handling of money or goods to the
prejudice of another regardless of whether the latter is the
owner.
VI.
(5%)
Discuss the trust fund doctrine
The Trust Fund Doctrine refers to the principle that the
capital stock, property and other assets of the corporation
are regarded as equity in trust for payment of corporate
creditors. “This doctrine is the underlying principle in the
procedure for the distribution of capital assets, embodied in
Corporation Code, which allows the distribution of corporate
capital only in three instances: (1) amendment of the Articles
of Incorporation to reduce the authorized capital stock, (2)
purchase of redeemable shares by the corporation, regardless
of the existence of unrestricted retained earnings, and (3)
dissolution and eventual liquidation of the corporation.
Furthermore, the doctrine is articulated in Section 41 on the
power of a corporation to acquire its own shares and in
Section 122 on the prohibition against the distribution of
corporate assets and property unless the stringent
requirements therefore are complied with.” (Ong Yong v.
Tiu, G.R. No. 144476, April 8, 2003)
VII.
(10%)
In a stockholder's meeting, S dissented from the corporate
act converting preferred voting shares to non-voting
shares. Thereafter, S submitted his certificates of stock for
notation that his shares are dissenting. The next day, S
transferred his shares to T to whom new certificates were
issued. Now, T demands from the corporation the payment
of the value of his shares.

a. What is the meaning of a stockholder's appraisal right?

It is the right of a stockholder to withdraw from the
corporation and demand in writing, payment of the fair value
of his shares after registering his dissent from certain
specified corporate acts involving fundamental changes in
corporate structures provided that the corporation has
sufficient unrestricted retained earnings. (Section 81,
Commercial Code of the Philippines)

b. Can T exercise the right of appraisal? Reason briefly.

No. If shares represented by the certificates bearing such
notation are transferred, and the certificates consequently
cancelled, the rights of the transferor as a dissenting
stockholder shall cease and the transferee shall have all the
rights of a regular stockholder. (Section 86, Corporation
Code). T cannot exercise the right of appraisal because the
certificates containing the notation of S’s dissent have been
canceled. Upon such cancellation, S’s rights as a dissenting
stockholder have ceased. In such a case, a new certificate
without notation will be issued to T, who will be treated as a
regular stockholder.
VIII.
(10%)
Due to growing financial difficulties, Z Bank was unable to
finish construction of its 21-storey building on a prime lot
located in Makati City. Inevitably, the Bangko Sentral
ordered the closure of Z Bank and consequently placed it
under receivership. In a bid to save the bank's property
investment, the President of Z Bank entered into a
financing agreement with a group of investors for the
completion of the construction of the 21-storey building in
exchange for a ten year lease and the exclusive option to
purchase the building.

a. Is the act of the President valid? Why or why not?

Alternative Answer:
No, the act of the President is not valid. Receivership is
equivalent to an injunction to restrain the bank officers from
intermeddling with the property of the bank in any way.
(Villanueva v. CA, G.R. No. 114870, May 26, 1995). More
importantly, under the New Central Bank Act, when a bank
had been placed under receivership by the Bangko Sentral ng
Pilipinas, and especially in this case where it has been
ordered to be closed, the conservator, or in this case the
receiver, effectively replaces the Board of Directors in
exercising corporate powers.

Alternative Answer:
Under the Corporation Law, the acts of the President do not
fall within his apparent authority, and do not bind the
corporation without prior authority of the Board of Directors,
which under Section 23 of the Corporation Code is the sole
repository of corporate powers.

b. Will a suit to enforce the exclusive right of the investors

to purchase the property prosper? Reason briefly.
The suit will not prosper. The appointment of a receiver
operates to suspend the authority of the bank and its
directors and officers over its property and effects, such
authority being reposed in the receiver. The receivership is
equivalent to an injunction to restrain the bank officers from
intermeddling with the property of the bank in any way.
(Abacus Real Estate Development Center, Inc. v. The Manila
Banking Corporation, G.R. No. 162279, April 6, 2005, citing
Villanueva v. Court of Appeals, G.R. No. 114870, May 26,
1995).
IX.
(5%)
On December 4, 2003, RED Corporation executed a real
estate mortgage in favor of BLUE Bank. RED Corporation
defaulted in the payment of its loan. Consequently, on
June 4, 2004, BLUE Bank extrajudicially foreclosed the
property. Being the highest bidder in the auction sale
conducted, the Bank was issued a Certificate of Sale which
was registered on August 4, 2004. Does RED Corporation
still have the right to redeem the property as of
September 14, 2007? Reason briefly.

No. RED corporation has only one (1) year from the auction
sale to redeem the property. (Section 6, Act No. 3135;
Section 47, General Banking Law of 2000). Instead, RED
Corporation allowed three (3) years to lapse. RED
Corporation should be deemed to have waived its right to
redeem the property.
X.
(5%)
Name at least five (5) predicate crimes to money
laundering.
The predicate crimes to money laundering are:
1. Kidnapping for ransom;
2. Violations of the Dangerous Drug Act;
3. Violations of the Anti-Graft and Corrupt Practices Act;
4. Plunder
5. Robbery and Extortion;
6. Jueteng and Masiao;
7. Piracy on the high seas;
8. Qualified Theft;
9. Swindling;
10. Smuggling;
11. Violations of the Electronic Commerce Act of 2000;
12. Hijacking, destructive arson, murder, and the other acts
of terrorists against non-combatant persons and similar
targets;
13. Fraudulent practices punished by the Securities
Regulation Code of 2000; and
14. Felonies or offenses of a similar nature that are
punishable under the penal laws of other countries.
XI.
(10%)
Two vessels figured in a collision along the Straits of
Guimaras resulting in considerable loss of cargo. The
damaged vessels were safely conducted to the Port of
Iloilo. Passenger A failed to file a maritime protest. B. a
non-passenger but a shipper who suffered damage to his
cargo, likewise did not file a maritime protest at all.

a. What is a maritime protest?

A “maritime protest” is a written confirmation that must be
formally lodged before a competent authority, by the captain
or master of the innocent vessel, which has figured in a
collision or shipwreck, within 25 hours upon arrival at the
nearest port, failure of which bars recovery for loss or
damage, no matter how meritorious the claim may be.
(Article 835, Code of Commerce)

b. Can A and B successfully maintain an action to recover

losses and damages arising from the collision? Reason
briefly.
A, being a passenger, cannot maintain the action to recover
losses without a prior protest. B can recover because the lack
of protest will not prejudice such actions to recover damage
caused to persons or cargo whose owners were not on board
the vessel at the time of collision. (Article 836, Code of
Commerce).
XII.
(5%)
Seeking to streamline its operations and to bail out its
losing ventures, the stockholders of X Corporation
unanimously adopted a proposal to sell substantially all of
the machineries and equipment used in and out its
manufacturing business and to sink the proceeds of the
sale for the expansion of its cargo transport services.

a. Would the transaction be covered by the provisions of

the Bulk Sales Law?
Alternative Answer:
Under a decision of the Court of Appeals (People v. Wong,
G.R. No. 9776-R, March 26, 1954), it was held that the
transaction can not be covered by the Bulk Sales Law, which
only covers merchants who are engaged in the sale of goods
and merchandise. A manufacturing concern is not considered
to be a merchant business, more so when it is pursued as part
of another service business, in this case the cargo transport
services.

Alternative Answer:
When it comes to the sale of all or substantially all of the
machineries and equipment, which under the Bulk Sales Law
is separate type of “bulk sale” apart from the sale of goods
or merchandise in the ordinary course of business, such
transactions are still covered by the Bulk Sales Law.

b. How would X Corporation effect a valid sale?

Alternative Answer:
X Corporation must comply with Sections 3, 4 and 5 of the
Bulk Sales Law, namely: (1) deliver sworn statement of the
names and addresses of all the creditors to whom the vendor
or mortgagor may be indebted together with the amount of
indebtedness due or owing to each of the said creditors; (2)
apply the purchase or mortgage money to the pro-rata
payment of bona fide claims of the creditors and (3) make
full detailed history of the stock of goods, wares ,
merchandise, provisions or materials, in bulk, and notify
every creditor at least ten (10) days before transferring
possession.

Alternative Answer:
Important corporate acts or contracts must be pursued under
the direction of the Board of Directors is embodied in Section
23 of the Corporation Code. Even the sale of all or
substantially all of its assets requires the prior approval of
the board of directors and the ratification of stockholders
owning or representing at least two-thirds (2/3) of its
outstanding capital stock (Section 40, Corporation Code of
the Philippines)

Under the Bulk Sales Law, X Corporations should either: (a)

get the waiver of all its creditors as required under the Bulk
Sales Law; or (b) if such waiver cannot be obtained, comply
with the requirements under the Bulk Sales Law to prepare
and give copy of the sworn certification not only of the assets
being disposed of, but also the proper listing of the existing
creditors of X Corporation, and thereafter to apply the
proceeds of the sale proportionately to all the listed
creditors. Otherwise, the sale may be vulnerable to being
challenged to be fraudulent and void under the Bulk Sales
Law. (Islamic Directorate of the Philippines v. Court of
Appeals, G.R. No. 117897, May 14, 1997).
XIII.
(10%)
a. What are the preferred claims that shall be satisfied
first from the assets of an insolvent corporation?

After debtor’s assets have been liquidated, unless a

composition has been agreed upon by the debtor’s creditors,
debtor’s obligation shall be paid in the following order:
1. Article 2241 New Civil Code – Specific movable property.
2. Article 2242 – Specific immovable property
3. Preferred claims under Article 2244 – In the order named.
4. Article 2245 – New Civil Code – Common credits – shall be
paid pro-rata.
N.B. A comprehensive answer for XIII (A) would impose an
unreasonable memorization of the codal provisions.

b. How shall the remaining non-preferred creditors share

in the estate of the insolvent corporation above?
The remaining credits do not enjoin any preference. Hence,
these creditors shall be paid pro-rata. (Articles 2244 and
2251[2], Civil Code)
NOTHING FOLLOWS