In what instance may a mortgagee extrajtrdir,i:rlly
mortgage? 5o/o
foreclose a real estate
SUGGES"ED A]YSIVER:
A mortgagee may extrajudicially foreclose a rctl
estate mortgagle when the right to foreclose extrajudlcially
has been expressly stipulated in the deed of mortgage or
there is a special power in the real estate mortgagc
authorlzing it (Section 1, Act No. 3135).
xvr
Pursuant to awrit ofexecution issued bythe Regior rirl
Trial Court in "Express Bankv. Don Rubio," the sheriff levit.rl
and sold at public auction 8 photocopying machin€s of f)orr
Rubio. Is the sheriffs sale covered Lry the Bulk Sales kl,vi'
5o/o
SUGGES?ED ANSIIER;
No. The sheriffs sale is not covered by the Bulh
Sales Law. If the sale and transfer in bulk is made by u
publlc officer, acting under judicial process, as is true in
thls case, said sale or transfer is not covered by the Bulk
Sales Law (Sec. 8, BuIk Sales Law).
234
2OO5 BAR EXAMXNIITION
I
(1) What is negotiable instrument? Give the
chirracteristics of a negotiable instrument. (2o/ol
(f) A negotiable instrument is an lnstrument in
f,rrlting, signed by the maker or drawer, containing an
Unconditional promise or order to pay a sum certain in
money, on demand, or at a fixed or determinable future
tlme. It must be payable tci order or bearer. When in the
lorm of a bill of exchange, the drawee to whom the order
to pay is addressedmustbe named or otherwise indicated
therein with reasonable certainty. Otherwise stated, to
bc negotiable, the instrument must complywith Section
I of the Negotiable Instruments Law (NIL).
It must be capable of being transferred from one
Person to another, thereby transferring the title thereof
to the latter so as to make him a holder who is entitled
to payment thereof. Another characteristic is that the
lnstrument is capable of accumulating eontracts resulting
ftom indorsements at the back thereof.
(2.) Distinguish a negotiable document frorn a
negotable instrument . (2o/o)
8UGGESTED ANSWER:
{2) Anegotiable document is governed by the Civil
Code, while a negotiable instrument is governed by the
Negotiable Instruments Law. The subject matter of a
[egotiable docurnent is things or goods, while that of a
negotiable instrument is a sum certain in money.
Moreover, a negotiable instrument is c.apable of
accumulating secondary contracts resulting from
lndorsements at the back thereof, while a negotiable
document is not, especially conslderlng that indorsement
235
of the latter does not reeult tn llablltty of the ludorser
when the deposltary, llke the warehouseman, falle to
comply with his duty to dellver the thlngs or goodc
aepos{tee and covered by the warehouse recelpt by thc
depositary.
(3) State and explain whether the following ar('
negouable instruments under the Negotiable Instmmettts
[.aw:
(i) Postal MoneY Order;
(ii) depositwhlch states 'Thls ls I rt
A certiflcate of time
certi$r that bearer has deposlted in th'ts bank tlre
sum of FOUR THOUSAND PESOS (P4'000.00)
only, repayable to the depositor 200 days aftcr'
date."
{iii) Letters of credit;
(iv) Warehouse receiPts;
(v) Tleasury warrants payable from a specillc funtl
(5o/ol
SUGGESAEDA"IVSIIIER:
t3.) (i) A Postal Money Order is not a ne$otlablo
lnstnrment because of the condltlons appearing at tho
back thereof, thereby mqftln! the order condltional,
contrary to Sectlon I of the Negotiable Instruments Law'
(Phil. Education Co,, Inc' u. Soriano, 148-A Phil. 52r
11971D
(ii) Acertlficate of time deposlt ls anegotlablo
lnstrument, because lt is an acknowledgment in w'rtting
by the $ank of the arnount of deposit wlth a promise to
rip.y the same to the deposltor or bearer thereof at u
sp..iIic tlme. lCo.ltex u. C,A,212 SCRA 448 [1992tr)
(iii) A letter of credit ls not a negotlablo
lnstrument, because lt is not payable to order or bearer
lt doeg not comply
and ls generally conditlonal; therefore,
wtth Section I of the Negotiable Instrumcnts Law'
236
(lv) Itrarehouse rccelpts are not negodable
tnrtrumentg, because thelr subJect matter ls tirngs or
Ioods, and not a sum certaln in money as requlred by
Bcctlon I of the Negotiable Instnrments Law.
(v) Ileasur5r warrants payable from a speclfic
fund are not negotlable instnrnents as they are payable
out of a partlcular fuad whlch may or may not exist,
thereby 6nklrrg the order condlfional, ln contravention
of Section I of the Negotlable Instnrnents Law.
u
(l) Dagul has a business arrzrngement with Facundo.
The latter would lend money to another, through Dagul,
whose name would appear in the promissory note as the
lender. Dagul would then lmmediately indorse the note to
Facundo.
Is Dagul an accommodation part5f Explain, (2%o)
SUGGE TED ANSI{ER;
(f)Dagul ls not an accolnrnodaflon party. An
lccommodation party Is one who slgns the lnstrument as
I mater, drawer, or lndorser, without recelving any
vduable coasideratlon and for the purlrose ollspding his
Drme or credit to another. (Sec.29, NIL)
l2.l a) Whatisacrossedcheck? Whatarettreeffects
Of crosstung a check? Explain.
b) Distnguish an irregular lndorser from a general
lndorser. (37o)
EUGGESTED AJIISWER;
(2) a) A crossed chect ls a check wtth two (2)
prrallel lines, written dlagonally on the upper rlght
oorner thereof. It ls a war-nlng to the drawee bank that
pryment must be made to the rtght party, otherwlse the
brnt has no authority to rtse the drawer's frrnds deposlted
237
with the bank. To be assured that lt wlll avoid any
mistake in paytng to the \prong party, banks adopted the
policy that crossed checks must be deposited in the
payee's account. When withdrawal is made, the banks
can be sure that they are paying to the right party. Later,
jurisprudence added to the development of crossed checks
ln that the crossing becomes a warnlng also to whoever
deals with the said instrumeat to lnquire as to thc
purlrose of its issuance. Otherrrise, if somethlng wrong
happens to the payment thereof, that person cannot
claim to be a holder in due course. Hence, he ls subject
to the personal defense on the part of the drawer that
there is breach of trust commltted by the payee ln not
complylng with the drawer's lnstructlon.
b) An irregular ind,orser, not otherwise a party
to the instrument, places his signature thereon in blank
before delivery to add credlt thereto. A general indorser
is a regular party to the instrumeut like a maker, drawer
or acceptorand he signs upon delivery of the instrument.
W'hile an irregular lndorser signs for accommodation, a
regular indorser slgns for valuable consideration. (Sec.
64(2), NrL)
(3) Brad was in desperate need of money to pay his
debt to Pete. a loan shark" Pete threatened to take Brad's lifc
if he failed to pay. Brad and Pete went to see Sefrorita Isobel,
Brad's rich cousin, and asked her if
she could sign a
promissory note in his favor in the amount of P1O,00O.00 to
pay Pete. Fearing that Pete would kill Brad, Seflorita Isobcl
acceded to the request. She affixed her signature on a piecc
of paper with the assurance of Brad that he will just fiIl it up
later. Brad then {illed up the blank paper, making a prom
issory note for the amount of P I 00,00O.0O. He then lndorsecl
and delivered the same to Pete, who accepted the note as
payment of the debt.
What defense or defenses can Seiorita Isobel set up
against Pete? Explain. (3W
238
6UGGES?ED A]VSWER:
(3) Seiorita Isobel can raise the personal defense of
breach of trust against Pete that Brad's authority to filI
up the amount of the promissory note was limited to
PIO,OOO.OO. Pete is not a holder in due course as he was
present when Brad asked Seiorita Isobel to sign the
promissory note for PIO,OOO.OO. Hence, Pete was aware
of the infirmity of the instrument. (Sec. 14, NIL)
III
(I.) Under what conditions may a stock corporation
&cquife its own shares? (2olo)
OUGGESTED ANSWER:
(f ) The conditions underwhich a stock corporation
oan acquire its own share are: (a) that it be for a legitimate
lnd proper corporate purpose; arrd (b) that there shall be
unrestricted retained earnings to purchase the sane and
Itr capital is not thereby impaired. (Sec. 41, Corporation
Gode)
(2) Janice rendered some consultancy work for XYZ
Corporation. Her compensation included shares of stock
therein.
Can XYZ Corporation issue shares of stock to pay for the
aervices of Janice as its consultant? Discuss your answer.
l2o/o)
EUGGESTED A.NSWER..
(2) The corporation can issue shares of stoak to pay
lor actually performed senrices to the corporation, but
[ot for future senrices or services yet to be performed.
(8cc. 62(3), Corporation Code)
239
 rv
Divine Corporation is engaged in the manufacture ol
garments for export. In the course of its business, it was atrlt'
to obtain loans from individuals and linancing institutions.
However, due to the drop in the demand for garments in tltt'
intemational market, Divine Corporation could not meet its
obligations. It decided to sell all its equipment such rrs
sewing machines, perrna-press machines, high speed sewers,
cuttlng tables, ironing tables, etc., as well as its supplies arrt I
materials toTop Grade Fashion Corporation, its competitor.
a) How would you classis the transaction?
b) Can Divine Corporation sell the aforesaid items ttr
its competitor, Top Grade Fashion Corporation? What arr'
the requirements to validly sell the items? Explain.
c) Howwould you protect the interests of the creditot'ri
of DMne CorPoration?
d) [n case Divine Corporation violated ttre law, wtrirl
remedies are available to Top Grade Fashion Corporatiorr
against Divine CorPoration? (5%)
SUG{iESTED ANSWDR:
a) The sale is a sale in bulk, because lt is a sale of
all or substantially all of the fixtures used in and atrout
the business of the vendor, a garments rranufacturer.
(Sec. 2, Act No. 3952)
b) Divine Corporation carr sell the aforesaid ltemr
to Top Grade Fashion Corporation. But it must secure tho
approval of at least two-thirds of its stockholders and t
maJorlty vote of the members of its board of directors ns
this ls a sale of all or substanttally all of lts assets.
(Section 4O, Corporation Code)
c) To protect the interest of its creditors, I wlll
require the seller to prepare an affidavit stating thc
narnes of all its creditors, their addresses, the a.mount oI
240
their credits and their respective maturities, and to
rubmit the affidavit to the buyer who, in turn, should
notlfy the creditors about the trnqsaction he is about to
conclude with the seller. (Secs. 3, 4, 5, 7, 9, Bulk Sales
Law)
If the transaetion was made to defraud the cred.itors.
the latter may have the contract rescinded. The creditors
may also file a petition for involuntar5r insolvency and
have the sale voided if it was made in fraud of creditors.
d) Top Grade Fashion Corporatlon may recover the
amount paid if the sale was made ln fraud of creditors and
lue for damages.
v
(l) a) Under what circumstances may a corporation
declare dividends? (20lo)
SUCCESTED ANSIVER:
(1) a) Acorporation may declare dividends if it has
rrn restricted retained earnlngs. (Sectlon 43, Corporation
Code)
b)Distinguish dividend from profit: cash dividend
from stock dividend. (2%)
$UGGESTED ANSI{ER;
b) Prolits belong to the corporation, while divldends
belong to the stockholders when dlvtdend is declared.
A cash dividend involves dlsbursement of earnings
to stockholders, while stock divldend does not involve
rny disbursement. A cash divtdend affects the fractional
lnterest in property which each share represents, while
I Btock dividend decreases the fractional interest in
oorporate property which each share represents. A cash
dlvldend does not increase the legal capltal, while a stock
dlvldend does, as there is no cash outlay involved. Cash
241
dividends are subject to lncome tnr, while stock dividends
are not. Declaratlon of stock dlvidend requires the
approvalofboth the majority ofthe members of the board
of directors and at least two thirds of the stockholders.
In the declaratlon of cash dividend, the approval by a
majority of the members of the board of directors wtll
sufflce.
c) From what funds are cash and stock dividencls
sourced? Explain why. {2oh)
SUGCESTED ANSWER;
cl
Both cash dividend snd stock dividend may be
declared out of unrestricted retalned earnings. Pald-tn
surplus can be declared stock dividend but not cash
dividend, because a stock divldend merely transfers the
paid-in surplus from surplus to capltal.
(2)
A Korean national joined a corporation which is
engaged in the furniture manufacturing business. He was
elected to the Board of Directors. To complement its furniturt'
manufacturingbusiness, the corporation also engaged in tht'
logging business.
With the additional logging activity, can the Korearr
national stiil be a member of the Board of Directors? Explafi r.
(3olo)
SUGCBS"ED ANSI,ITER:
(2)
Yes. The Korean natlonal can still be member of
the board of directors, if he has sufliclent equity to
entltle hlm to a seat. Slnce the corporatlon is only
reguired to be at least 600/o owned by Filipino citizens,
foreigners cau be members of the board of dlrectors in
proportion to their equity which cannot exceed 4oolr,.
(Sec. 1, P.D. No. 715, amendiug C. A* No. Sec. 2-Aof C.A.
No. lO8, The Anti-Dummy l"aw)
fNCIllE: The Foreign Inuestment Act is exclud.ed. in
the couerage of the 2OO5 Bor Exominationl
242
\TI
Jojo deposited several cartons of goods with SN
Warehouse Corporation. The corresponding warehouse
receipt was issued to the order of Jojo. He endorsed the
warehouse receipt to F^I who paid the value of the goods
clcposited. Before E-l could withdraw the goods, Melchor
lnformed SN Warehouse Corporation that the goods belonged
to him and were taken by Jojo without his consent. Melchor
wants to get the goods, but EJ also wants to withdraw the
garne.
a) Who has a better right to the goods? Why?
b) If SN Waiehouse Corporation is uncerLain as to
who is entitled to the property, what is the proper recourse
ol the corporation? Explain. (50lo)
SUGGES"ED ANSI{TER:
a) EI has better right to the goods. The goods are
Govered by a negotiable warehouse receipt which was
lndorsed to &I for value. The negotiation to &I was not
lmpaired by the faet that Jojo took the goods without the
Oonsent of Melchor, as &I had no notice of such fact.
Moreover, &I is in possesslon of the warehouse receipt
lnd only he can surrender lt to the warehouseman.
(Section 8, Warehouse Receipts Law)
b) Since there is a conflicting claim.of ownership
Or title, SN Warehouse Corporation should file a complaint
ln lnterpleader requiring EI and Melchor to interplead.
The matter involves a judicial question as to whose claim
lr valid.
VTI
(l) Briefly discuss the doctrine of corporate
opportunity. (2o/o)
OUCGES"ED ANSI,IIER;
(1) The doctrlne of corporate opportunity means
243
that if the director acguired for himself a buslness
opportunity that should belong to the corporatlon, he
must account to the corporation for all profits he obtained,
unless his act was ratlfied by at least two-thirds of the
stockholders. (Sectlon 34, Corporation Code)
12) Malyn, Schiera and Jaz are the directors r:f Paticr
Investments, a close corporation formed to run the Patio
Caf€, an alJresco coffee shop in Makati City. In 2O00, Pati<r
Cafe began experiencing linancial reverses, consequently,
some of the checks it issued to its beverage distributors anrl
ernployees bounced.
in October 2003, Schiera informed Malyn that strc
found a location for a second cafe in Taguig City. Maiyr-r
objected because of the dire financial condition of thc
corporation.
Sometime in April 2OO4, Malyn learned about Fort Patio
Caf€ located in Taguig City and that its development was
undertaken by a new corporation known as Fort Patio, Inc.,
where both Schiera and Jaz are directors. Malyn also fourrd
that Schiera and Jaz, on behaU of Patio Investments, had
obtained a loan of P500,O00.00, from PBCom Bank, for tht:
purpose of opening Fort Patio Caf6. This loan was securecl
by the assets of Patio lnvestments and personally guaranteerl
by Schiera and Jaz.
Malyn then filed a corporate derivative action before thc
Regional Tlial Court of MakaU City against Schiera and Jaz,
alleging that the two directors had breach their fiduciary
duties by rnisappropriattng money and assets of Patio
Investments in the operation of Fort Patio Caf€.
a) Did SchieraandJazviolate theprinciple of cr:rporate
opportunity. Explain.
b) Was it proper for Malyn to file a derivative suit with
a prayer for injunctive relief? Bxplain.
244
c) Assumingthataderivativesuitisproper, maytJ:e
actlon continue if the corporation is dissolved during the
pendency of the suit? Explain. (5olo)
BUGG.ESTED ANSWER;
(2) a) Sciera and Jaz violated the principle of
oorporate opportunity, because ttrey used Patio
Inveetments to obtain a loan, rnortgaged its assets and
ured the proceeds of the loan to acguire a coffee shop
through a corporation they formed. (section 34,
Corporation Code)
b) It was proper for Malyn to file a derivative
lult with a prayer for injunction, because Shiera and Jaz
dlverted the assets of the corporation for their own
porsonal benefit. (Ballentine on Corporations, Rev. Ed.,
P. s34)
c) The case should be allowed to continue so
that the assets and claims shouldbe administered for the
benefit of all concerned, as they should have been
ldministered before the dissolution of the corporation.
lBallentine on Corporations, Rev. Ed,, p. 338)
vIu
Aaron, awell-known architect, is sulfering from financial
Itverses. He has four creditors with a total claim of P26
MtUion. Despite his intention to pay tlese obligaUons, his
Current assets are insufficient to cover all of them. His
0leditors are about to sue him. Conseqtlently, he was
Goustrained to file a petition for insolvency.
a) Since Aaron was merely forced by circumstances
to petition the court to declare hirn insolvent, can the judge
properly treat the petition as one for involuntary insolvency?
Explain.
b) Aaron is declared an insolvent by the court, what
If
Would be the effect. if any, of such declaration on his
Gfeditors? Explain.
245
 c) Assurning that At15i.y11 has guara. Lclr.s
are the g-uarantors releassd from their obligati<,lrrs
Aaron is discharged from his debts? Explain.
d) What remedies are available to the gluara,tors
case they are made to pay the creditors? Explain.
SUGGESTED ANSWER;
a) The petition cqnnot be treated as one ol
involuntary insolvency, because it was filed by Aargrr
himself, the debtor, and nql by his cred.itors (section 2O,
Insolvency Law). To treql it a" one of involuntary
insolvency would unduly benefit Aaron as a debtor,
because he would not be srrbject to the limitation of timc
within which he is subject in the case of voluntary
insolvency for purposes sf discharge. (sectton 65,
Insolvency Law)
b) Actions for unsessled claims cannot be filed,
because the claims should be liled in the insolvency
proceeding (Section 6o, Insolvency Law). Actions for.
secured claims may be commencea *itt, leave of tht:
insolvency court. (Cu Unjisn g u. Mitchell, Eg phil. 476
l1e33t)
c) The guarantors ars not discharged, because thc
discharge is limited to Aarorr qnly. (Section Og, Insolvency
Law)
d) Their remedy- to prove in the insolvency
proceeding that theypaid-tl_
the aeLt ana tnat they substitutc
for the creditors, if the creditors have not proven thelr
claims. (Section 56, Insolveney Law)
IX
(i) What are the effec6 of an irrevocable designati,rr
of a beneficiary under the Insspsnce Code? Explaii. (2u,i,;
246
lor tris cltlttr;. SUGGES'ru,.D ANSWER;
.rrr.r.
( I) The irrevocable beneficiary has a vcsted interest
ln the pollcy, lncluding its incidents such as the policy
irr loan and cash surrender value. (Gercio o. Sun LiJe
(So/a) tLt.surance Compang of Conado, 48 phil. 5g If92EI)
(2.) Jacob obtained a Iife insurance policy for P I Miliion
deslgnating irrevocably Diwata, a friend, as his beneficiary.
r,Jttt:ob, however, changed his mind and wants Yob and Jojo,
ttls other friends, to be included as beneficiaries considering
that the proceeds of the poUcy are sufficient for the three
frlcnds.
Can Jacob still add Yob and Jojo as his bene{iciaries?
Explain. (2olo)
AUGGES"ED A]\ISI{ER:
(2) The insured cannot add other beneficiaries as
thlg would diminish the interest of Diwata who is the
lrrevoeably designated beneficiar5r. The insured can only
do so with the consent of Diwata.
x
(l) M/V Pearly Shells, a passenger and cargo vessel,
Was insured for P4O,OO0,OOO.OO against "constructive total
loss." Due to a typhoon. it sank near Palawan. Luckily, there
Wcre no casualties, only injured passengers. The shipowner
rcnt a notice abandonment of his interest over the vessel to
the insurance company which then hired professionals to
dloat the vessel for P900,000.OO. When re-floated, the vessel
Deeded repairs estimated at P2,000,000.00. The insurance
company refused to pay the claim of the shipowner, stating
that there was "no constructive total loss."
a) Was there "constructive total loss" to entitle the
lhlpowner to recover from the insurance company? Fxplain.
b) Was it proper for the shipowner to send a notice of
lbandonment to the insurance company? Explain. (Syo)
247
SUGGESTED ANSIVER:
(U &) ?here was constructlve total loss. When the
vessel sank, lt was likely that lt would be totally lost
because of the improbabillty of recovery. (Arnold's Law o f
Marlne Insurance andAverage, 16th ed., Yol.II, pp. 954,
e55)
XI
Ricardo mortgaged his lishpond to AC Bank to secure a
Pl Million loan. In a separate transaction, he opened a letter
of credit with the same bank for $500,000.O0 in favor of HS
Bunk, a foreign banh, to purchase outboard motors. Likewise,
[lk:ardo executed a Surety Agreement in favor of AC Banh.

SUGGES1[E]' AL1]ER.ffATTIZE AJVS}VER: The outboard motors arrived and were delivered to
Rlcardo, but he was not able to pay the purchase price
a) There was no constructive total loss. The loss is tltereof.
not more than 3/4 the value of the vessel which was
insured for P4O,OO0,OOO.OO. The cost of refloating ts a) Can AC Bank take possession of the outboard
P9OO.OOO.OO and the needed repalrs amount to ilotors? Why?
P2,OOO,OO0.OO, or a total of only P2,9OO,OOO.OO whlch
does not constltute more than 3/a the value of the b) Can AC Rank also foreclose the mortgage over the
vessel. flshpond? Explain. (50/o)

SUGCESTED A]YSIVER: SUCGESTED AJYSWEIT:

b) It was proper for the shipowner to send a aotlce a) If what Ricardo executed is a trust receipt, AC
of abandonment to the lnsurance company, because Bank can take possession of the outboard motors so that
there was reliable information of the loss of the vessel, It can exercise its lien and sell them (Section 7, Trust
(Section 141, Insuraace Code) Roceipts Law). If what Ricardo executed is a Surety
Agreement, AC Bank cannot take possession of the
2) a) When does double insurance exist? (2olo) Outboard motors, because it has no lien on them.

SUCGESTED AIVSWEE: g UGGDSTED ALTERN ATTVE ANSWER:

(2) a) Doubtre lnsurance erists where the same a) No. The opening ofa Letter ofCredit did not vest
person is insured by two or more lnsurers separately rrith Ownership of the outboard motors in the bank in the
respect to the snrne subJect matter and lnterest. (Sectlon lbsence of a trust receipt agreement. A letter of credit
93. Insurance Code) tl a mere financial device developed by merchants as a
Gouvenient and relatively safe mode of dealing with the
b) What is the nature of the liability of the sever;rl ldes of goods to satisfy the seemingly irreconcilable
insurers in double insurance? Explain. (2olo) lnterests of a seller, who refuses to part with his goods
tcfore he is paid, and a buyer, who wants to have control
'SUGGESTED ANSI{IER.. Of the goods before paying. (?Yans;fiel d Philippines, Inc.
U, Luzon Hgdro Corporation, 433 SCRA 3OZ [2OO4])
b) In double iusurance, tbe insurers are considered
as co-lnsurers. Each one isbound to coutribute ratably to
the loss in proportion to the anount for which he is liable
under his contract. (Section 94(e), lnsurance Code)

248 249
 SUGGESTED ANSWER:
b) AC Bank can also foreclose the mortgage over
the fishpond if Ricardo fails to pay the loan of Pl million.
xII
Hi Yielding Corporation filed a complaint against Iive ol
its officers for violation of Section 3I of the Corporation Corlt'
The corporation claimed that the said officers were guilty ol
advancing their personal interests to the prejudice of tlrr'
corporatitin, and that they were grossly negligent in handlinpi
I
its affairs. Aside from documents and contracts, tl
corporation also submitted in evidence records of the officer:;'
U.S. Dollar deposits in several banks overseas - Bostorr
Bank, Bank of Switzerland, and Bank of New York.
]L
, For tlreir part, the officers filed a crirninal complainl
against the directors of Hi Yielding Corporation for violatior
of Republic Act No. 6426, otherwise known as the Foreigrr
Currency DepositAct of the Philippines. The officers ailegcrl
that their bank deposits were illegally disclosed for want ol
a court order, and that such deposits were not even tht,
subject of the case against them.
a) Will the complaint fili:d against the directors of ttt
Yielding Corporation prosper? Explain.
b) Was there a violatjon of the Secrecy of Banl<
Deposits Law (Republic Act No. l4O5)? Explain. (5olo)
SUGGESjI.ED ANSWER;
a) No. Section 2 of Rep. Act No. 6426,as amended,
speaks of deposit with such Philippine banks in good
standing, as may be designated by the Central Bank for
the purpose, and is inapplicable to the foreign currency
account in question. (Roberto S, Benedicto qnd. Hector
Riuiera u. Court oJAppeals, 364 SCRA 334 t22OU)
250
S UGGES"ED ALTDRN ATIVD ANSWER..
a) The eomplaintagainstthedirectorsofHiYielding
Corporation will prosper. Under Republic Act No. 6,426.,
the bank deposits of the depositors can onlybe disclosed
lf ttrey give their vrritten permission. (Intengan u. Court
qf Appeals, 377 SCRA 63 [2OO2l)
SUGGESTED A.I\ISWER:
b) No. Section 2 ofRep, Act No. 14O5 or the Bank
Becrecy Law covers only "deposits of whatever nature
rr' wlth banks orbanking institutions in the Philippines x x
I", hence, cn'rnot be made to apply to foreign banks.
,S UCGESTED AL?ERNAAII{E ANSWER:
b) There is no violation of Republic Act No. 1405.
r Under this law, abank deposit maybe disclosed if it is the
lubJect matter of a litigation. (Sectiot 2, Republic Act
No.r4o5)
xIIr
(1) Discuss the "kobrtsystem" in land transportation
lnd its legal consequences. (2olo)
BUGCES"ED ANSIVER;
(1) The "kabit system" is an arrangement whereby
I person who has been granted a certificate of public
convenience allows anotherwho o\trns a motorvehicle to
operate under his eertificate for a fee or a percentage of
the earnings (Lim v. Court oJ Appeols, 373 SCRA 394
I2OO21). The owner of the certificate of public convenience
tnd the actual owner of the motor vehicle should be held
Jotntly and severally liable for damages to third persons
It a consequence of the negligent operation of the motor
Ychicle. (Vorgas u. Langcag, 6 SCRA l74llS62l)
(2)
Procopio purchased an Isuzu passenger jeepney
from Enteng, a holder of a certificate of public convenience for
25t
 t-heoperalioir ol' publ-ic utility vehicle plying the calurn l )i r - 1..:,
Barios route. while Procopio continued offeri,g tire jeeprr.y
for public transport services he did not have the r.egiitriit i,,,,
of the vehicle transferred in his n€une. Neither did te secr r r (.
for himself a cerLificate of public convenience for its operilti, r
Thus, pert].e records of the l-anclrransportation Franchisir ryi
and Regulatory Board, Enteng remained its registered owrrt'r
and operator. One day, while tire jeepney was travelirrli
southbound, it collitled with a ten-wheeler tmck ownecJ lry
Emmanuel. Ttre driver of the truck admitted responsibiliry
for the accident, explaining that the truck lost iti brak*;.
Procopio sued Emmanuel for damages, but the lattr.r
moved to dismiss the case on the ground that tsrocopio is rr,r
the real party in interest since he is not the register"d o*,,,.,
of the jeepney.
Resolve the motion with reasons. (30/o)
SUGGES"ED A]VST4IER:
12) The motion to dlsmiss should be denied" Tht:
rure eajoining the registered owner of the motor vehicle
under ttre "kabit system,' from proving another person is
the owner is lntended to protect third parties. slnce this
case does not involve liability of the registered owner to
third parties, and it is the owner of the motor vehicle who
is seekilrg compensation for damages, the rule is not
applieable" (Lim u, Court of Appeats, gZ3 SCRA $94
t20o2l)
S IJGGDS?ED ALTENNATIVE AJYSIVER;
(2|
The motion to d.ismiss is misplaced. procopio Is
a real party in interest who stands to be benefited or
injured by the result of the action. Eveu if not the
registered ow'ner of, the jeepney, lt was he who was
wronged qnd was seeklng compe[sation for the damagc
to hisvehlcle. Moreover, the case arose from the admittJa
negligence of Emmanuel's driver where representation
with respect to the ownership and operatlon of the
passengerjeepney wns uot neoessary. Besides the ridilL
252
public was not inconvenienced by the lllegal arrargement
between Procopio and Enteag. lAbelardo Lim and
Esmad,ito Gunnabanu. Court oJAppeals, 373 $CRA 394
[2oo2])
r
(3) Baldo is a driver of Yellow Cab Company under the
bo u nd ary system. While cru isin g alon g the South Expressway,
Ilaldo's, cab figured in a collision, killing his passenger,
[)letro. The heirs of Pietro sued Yellow Cab Company for
damages, but the latter refused to pay the heirs, insisting
ttrat it is not liable because Baldo is not its employee,
Resolve with reasons. {2o/o)
8UGGESTED AI\TSIVER:
(3) Yellow Cab Company is liable because there
orlsts an employer-employee relationship between a
Jcepney owner and a driver rrnder the boundary system
lnrangement iu accordn"ee with Article 1O3 of the
Revised Penal Code (Magboo u. Bento,rd.a, T SCRA 952
lfg6ill). Indeed to erempt from llabillty the owner of a
public vehlcle who operates lt under the "boundar5r
tyetem" on the ground that he ls a mere lessor would be
not only tn abet llagrant vlolatlons of the Fublic Service
Law but also to place the ridtug publlc at the merey of
teckless and irresponsible drivers reckless because the
Beasure of their earnings depends largely on the number
of trtps they mahe nnfl" hence, the speed at whlch they
drlve; and lrresponsible beeause most. if not ett of them,
lre in no position to pay thc dArnages they might c&use.
xrv
(U On a clear weather, M/V Sundo, carrying insured
cargo, left the port of Manila bound for Cebu. While at sea,
the vessel encountered a strong typhoon forcing the captain
to steer the vessel to the nearest island where it stayed for
Beven days. The vessel ran out of provisions for its passengers.
Consequently, the vessel proceeded to Leyte to replenish its
oupplies.
253
 a) Assuming that the cargo was damaged because ol
such deviation, who between the lnsurance company and tlrt'
o-rvrrer of ttre cargo bears the loss? E:rplain.
b) Under what clrcumstances can a vessel properly
proceed to a port other than lts port of desttnaUon? Explaln.
(4o/ol
SUGGESTDD,'IffSIflERI
(U al The lnsurancecorilpanychouldbearthc loes.
Since the devlatlon \ras caused by a strong tylthoon, lt
\ras causied by clreumstarrcee beyond the control of the
captain, and also to avold a perll whether or not lnsured
agatnst. Deviatlon ls therefore proper. (Sectlon 145(a),
Insurance Code)
b) A vessel can properly proceed to a port other
than its port of destlnation ln the following cases:
1. Ifihea causedby clrcumstances overwhlch
nelther the magter or the onmer of the shlp has any
control;
2. When neceeaaryr to complywtth ewsrrurty,
or to avold a perll, whethcr or not thc perll ls lngured
agalnet;
3. When made ln good falth, aad upon
reasonable groundc of bellef ln the neceselty to
avold pcrll;
4. When made ln good faith for the purpose of
savlng hurnan Ufe or rellevl.ng another vessel ln
dlstress. (Sectlon 124, Insurance Code)
(21 Star Shipping Lines accepted IOO cartons ol
sardines from Master to be delivered to 555 Company ol
Manila. Only 88 cartons were delivered, however, these werc
in bad condition.
254
555 Cornpany cl:rirned frorn SLar Shipping Lines the
valtre of the rnissing goods, as well as the damaged goods.
Star Shipping Lines refused because the former faiied to
present a bill of lading.
Resolve r,r.ith reasons the claim of 555 Company. (4olo)
SUGGESTED ANSWER;
(2) Star Shipping Lines should pay the claine of 555
Company. The rnere faet that some cartons were lost end
the 98 cartons rnere damaged is sufficient proof of the
fault of Star Shipping Lines {Larerlzo s,ll.:ipping Lines u.
Chubb cnd Sons, fnc., 431 SCRA 266 [2OO5l). The fact
that 555 Company failed to present a bill of lading makes
no difference, beeause it was the actual consignee (Eas tern
Shipping Lines,Ine. u. Court of Appea.ls, 19O SCRA 512
lf99o]). Moreover, under Article 353 of the Code of
Qommerce, the surrender of the original bill of lading is
not a condition precedent for a common carrier to be
dlscharged of its obligation. If surrender of the original
blll of ladingis not possible, acknowledgment of delivery
by signing the delivery receipt suffices. (Republic u.
Lorenzo Shipping Lines,45O SCRA 55O t2OO5l)
xv
(I) S Development Corporation sued Shangrila
Corporation for using the "S" logo and the tradename
"shangrila" . The former claims that it was the first to register
the logo and the tradename in the Philippines and that it had
bee using the same in its restaurant business.
Shangrila Corporation counters that it is in an aJliliate
of an international organization which has been using such
lngo and tradename "shangrila" for over 2O years.
However, Shangrila Corporation registered the
tradename and logo in the Philippines only after the suit was
flled.
255
 a) Wlrich of the two corporations has a bctter right tu
use the logo and the tradename? Explain.
b) How does the international affiliation of Shangrll;r
Corporation affect the outcome of the dispute? Explain. (59{,)
SUGGES?ED ANSIVER;
(f) a) SDevelopmentCorporationhasabetterright
to use the logo and tradenarne, since it was the first to
registcr the logo and tradename. (Sectionl23(d),
Intellectual Property Code)
S UGGESTED ALTERJVATTTA ATVSWTR :
(U a) $DeveloprnentCorporationhasabetterright
to use the logo and tradename, beeause its certlficate o[
reglstration upon which the lnfringernent case is based
remains valid and subsisting for as long as lt has not beerr
cancelted. (Shangrila Intemo,tional Hotel Illano.gemen t
u. Cd, 959 SCRA 273lz0tlt,
SUGOESTDP ANSIVER:
b) $ince Shangrlla Corporation is not the owncr
of the logo and tradename but is merely an affiliate of thc
international organization which has been usirg them lt
is not ttre oqrner rnd does not have the rights of an owner.
(section I47, Intellectual Property Code)
SUGGESTED AI,TERNATIVD AJYSI{ER :
b) The international affiliation of Shangrikr
Corporation shall have no effect on the outcome of thc
dispute. Section 8 of the Parls Convention provides thut
"there is no automatic protection afforded an entity
whose tradenarne is alleged to be infringed through tht:
use of that name as a trademark by a local entity."
(Kcbnshi Kaisha Isetg,n u. IAC,2O3 SCRA 583 llggfl
t2) Cezar works in a car manufacturing cornparrl,
owned by Joab. Cezar is quite innovative and lorres to tinli,
256
witlr things. Witir lhc rnzrt-crials and parts of thc car, ttc was
irllk to invent a gas-sa\,ing device that u,ill enable cars to
consurne less gas. F rancis, a co-worker, saw how Cezar
r:rcated the device arrd iikewise, carne up with a similar
gadget, also using scrap materia-ls and spare parts of the
cornpany. Thereafter, Francis flled an application for
registrertion of his device with the Bureau of Patents, Eighteen
rnonths later, Cezar fiied his application for the registration
of tris device with the Bureau of Patents.
a) Is the gas-saving device patentable? Bxplain.
b) Assuming that it is patentable, who is entitled to
the patenl? Wtrat, if any, is the rernedy of ihe losing pa*y?
c) Supposing Joab got wind of the inventions of his
employees and also laid claim to the patents, asserling that
C)ozar and Francis were using his materia-ls and comparty
ttme in making tl-re deirices, will his cl;lim prevail over those
of his ernployees? Explain. (5olo)
S UGGES?IDD ^A.I\ISWER ;
l?J a) It is patentable beeause it is new, it involves
ur tnventive step a:ld it is industrially applicable. (Section
31, Intellectual Property Code)
b) Franeis is entitled to the patent, because
hc had the earlier filing date (Section 29, Intellectual
Property Code). The rernedy of Ceear is to file a petition
ln Court for the cancellation of the patent of Francis on
the ground that he is the true and actual inventor, and
lrk for his substitution as patentee. (Sections 67 and 68,
Intellectual Property Code)
e) The claim of Joab will not prevail over those
Of his ernployees, even if they used his materials and
oompany tirne in making the gas-saving device. The
lnvention of the gas-saving deviee is not part of their
toglular duties as employees. ($ection 3O.2(a), Intellectual
Property Corle)
,
25't