COMMERCIAL and TAXATION LAWS

SBCA x UDM COLLABORATION MOCK BAR EXAMINATIONS

Made by: SBCA CBO Academics and ALD Committee

Consulting Mentors: Atty. Uella Vida V. Mancenido-Gayo (Commercial Law) | Atty. Nicasio C. Cabaneiro (Taxation Law)

DISCLAIMER: These questions and answers were written for informational purposes only and compiled in good faith.
They are meant to supplement and not replace legal knowledge acquired over the readers' law school endeavors.

While every care has been attempted in preparing these mock bars, the San Beda College Alabang School of Law
Centralized Bar Operations and Universidad de Manila Centralized Bar Operations make no representations and give
no warranties of whatever nature with respect to these suggested answers, including but not limited to the accuracy,
adequacy, or availability of any information or facts contained therein. Hence, under no circumstances shall both
institutions be held liable for misconception incurred due to the use of these materials or reliance on information
provided in them. Use of these materials and appurtenant information herein shall still be solely the readers' risk.

QUESTION #1. Congressman Cruz has been endorsing his pork barrel allocations to Double Lakes in
exchange for a commission of 40% of the face value of the allocation since his first term in 2007.
After an audit, COA found that the supporting papers of Double Lakes, a non-governmental
organization, were fictitious.

Other than to prepare and submit falsified papers to support the encashment of the pork barrel
checks, it appears that Double Lakes has not done anything on the endorsed projects. Congressman
Cruz likewise does not appear to have bothered to monitor the progress of the projects he endorsed.
It appears that he converted most of the commissions he generated into US dollars, and deposited
these in a foreign currency account with ABC Bank (ABCB). Based on well-supported tips given by a
congressman from another political party, the AMLC sent ABCB an order: (1) to confirm Cong. Cruz’s
deposits with the bank and to provide details of these deposits; and (2) to hold all withdrawals and
other transactions involving the congressman’s bank accounts.

As counsel for ABCB, would you advise the bank to comply with the order?

SUGGESTED ANSWER:
As counsel, I will advise ABCB not to comply with AMLC’s order. A court order is not necessary for AMLC to
inquire into or examine any deposit or investment with any banking institution or non-bank financial
institution and their subsidiaries and affiliates However, AMLC cannot inquire into the deposits of
Congressman Cruz, regardless of currency, without a bank inquiry order from a competent court, as the
crimes involved in this case do not fall under the exceptions which are kidnapping for ransom, violations of
the Dangerous Drugs act, hijacking and other violations of R.A. No. 6235, destructive arson, murder, and
terrorism and conspiracy to commit terrorism.

Thus, the AMLC cannot demand that ABCB to stop all withdrawals and other transactions concerning
Congressman Cruz's accounts because the Court of Appeals has the authority to place a freeze on that
account in response to a request from the AMLC. (Rule 11, Republic Act No. 9160, As Amended By
Republic Act No. 9194 And Republic Act No. 10167)

(2013 Bar Examinations)

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QUESTION #2. Distinguish a “covered transaction report” from a “suspicious transaction report”?

SUGGESTED ANSWER:
A covered transaction report contains transaction/s in cash or other equivalent monetary instrument which
involves a total amount in excess of 500k within one banking day. On the other hand, a suspicion
transaction report involves transactions with covered institutions regardless of the amounts involved which
are made under any of the suspicious circumstances enumerated by law. (Rule 3.b. of RA 9160, as
amended)

(2015 Bar Examinations)

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QUESTION #3. Are common carriers liable for injuries to passengers despite observing ordinary
diligence and care?

SUGGESTED ANSWER:
Yes, common carriers are liable for injuries to passengers despite them observing the ordinary diligence and
care as the law imposes upon them the obligation to exercise extraordinary diligence. Under Article 1755
of the Civil Code, common carriers are bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons with due regard for all the
circumstances. Under Articles 1734 and 1756 of the Civil Code, the defenses available in carriage of goods
such as force majure, acts of public enemy, acts or omission or passengers, or orders or acts of competent
authority may only be invoked in the carriage of passengers when the carrier is able to prove the exercise
of extraordinary diligence. Hence, common carriers are liable for passengers’ injuries if they merely
observed ordinary diligence and care

(2015 Bar Examinations)

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QUESTION #4. Anchor Shipping Lines (Anchor) bought a second-hand passenger ship from Korea. It
decided to modify the design of the bulkhead of the deck of the ship to accommodate more
passengers. However, because of the heavy rains brought by the monsoon, the ship sank with its
passengers in Tablas Strait. The heirs of the passengers then sued Anchor for its liability as a
common carrier on the claim that the reconfiguration of the bulkhead may have compromised the
stability of the ship. Anchor raised the defense that the monsoon is a fortuitous event and, at most,
its liability is prescribed by the Limited Liability Rule. Decide with reasons.

SUGGESTED ANSWER:
Anchor’s defense of the limited liability rule is not applicable in this case. In this case, contributory
negligence on the part of the ship owner was present. The reconfiguration of the bulkhead of the deck of
the ship with the purpose to accommodate more passengers resulted in the vessel being unseaworthy.
(Philippine American General Insurance Company v. Court of Appeals, G.R. No. 116940, June 11,1997,
273 SCRA 262).

(2016 Bar Examinations)

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QUESTION #5. CAB Corporation (CAB) has kept surplus profits in excess of 100% of its paid-in capital
stock. However, since it had entered into a loan agreement with a certain creditor wherein the
declaration of dividends is not allowed without the consent of such creditor CAB, it is unable to
declare dividends. If CAB cannot obtain this consent, will it be justified in not declaring dividends to
its stockholders? Explain.

SUGGESTED ANSWER:
Yes, it is justified for CAB to not declare its dividends to the stockholders. Section 43 of the Revised
Corporation Code clearly states that stock corporations are prohibited from retaining surplus profits in
excess of 100% of their paid-in capital stock. The exception is when the corporation is prohibited under any
loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends
without the consent of the creditor, and such consent has not been secured. Therefore, DEF will be
justified if it refuses to declare dividends.

(2015 Bar Examinations)

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QUESTION #6. Jah offered to sell his car to Josh, an interested buyer. Consequently, Jah emailed
Josh a copy of the proposed Deed of Sale covering the same. After agreeing to its terms, Josh printed
and then signed the emailed copy of the Deed of Sale. He then faxed it to Jah who signed the faxed
copy. Is the copy of the Deed of Sale faxed by Josh to Jah considered an electronic document under
the Electronic Commerce Act? Explain.

SUGGESTED ANSWER:
No, the copy of the Deed of Sale faxed by Josh to Jah is not considered an electronic document under the
Electronic Commerce Act. It has been held that an original printout of a fax transmission via fax machine is
not considered an electronic data message. This is in harmony with the E-Commerce Act’s focus on
“paperless” communications and the “functional equivalent approach.”

Republic Act No. 8792 or Electronic Commerce Act provides that “Electronic document” refers to
information or the representation of information, data, figures, symbols or other modes of written
expression, described or however represented, by which a right is established or an obligation extinguished,
or by which a fact may be proved and affirmed, which is received, recorded, transmitted, stored,
processed, retrieved or produced electronically. Hence, it is not within the scope as the subject document
in a fax machine cannot be stored, processed, retrieved or produced electronically after being received or
transmitted. Facsimile transactions are not, in this sense, papers, but verily paper-based. (MCC Industries
Sales Corporation v. Ssangyong Corporation, cited in Dimaampao & DumlaoEscalante, 2018, p. 382)

(2019 Bar Examinations)

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QUESTION #7. In 2016, Red Bank (RB) proposed to sell to Blue Bank (BB) its banking business for P 10
billion consisting of specified assets and liabilities. The parties reached an eventual agreement,
which they termed as "Purchase and Assumption (P & A) Agreement," in which BB would acquire RB's
specified assets and liabilities, excluding contingent claims, with the further stipulation that it
should be approved by the Bangko Sentral ng Pilipinas (BSP). BSP imposed the condition that RB
should place in escrow Pl billion to cover for contingent claims against it. RB complied. After securing
the approval of the BSP, the two banks signed the agreement. BSP thereafter issued a circular
advising all bank and non-bank intermediaries that effective January 1, 2017, "the banking activities
of RB Bank and BB have been consolidated and the latter has carried out their operations since then."
Was there a merger and consolidation of the two banks in point of the Corporation Code? Explain.
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SUGGESTED ANSWER:
There was no merger or consolidation of the two banks from the viewpoint of the Corporation Code. Under
Sec 78 of the Revised Corporation Code and in the case of Mindanao Savings and Loan Association, Inc.
(MISLAI) vs Willkom (G.R. 178618, October 11, 2010), the merger shall only be effective upon the issuance
of a certificate of merger by the SEC, subject to its prior determination that the merger is not inconsistent
with the Corporation Code or existing laws. Where a party to the merger is a special corporation governed
by its own charter, the Code particularly mandates that a favorable recommendation of the appropriate
government agency should first be obtained. In this case, there is no consolidation or merger because the
bank did not acquire a certificate of merger from SEC furthermore, the banks did not comply with the
requirement set by the BSP. Hence, there was no merger or consolidation.

(2016 Bar Examinations)

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QUESTION #8.
Governor AA has two (2) bank accounts: 1. a Peso savings account with BPE; and 2. a U.S. Dollar
savings account with Metrabank. In 2014, Governor AA's former business partner, Mr. BB, filed a civil
case for collection of sum of money against him. In the same year, a criminal case for Direct Bribery
under the Revised Penal Code was filed against Governor AA. It was alleged in the Information that in
exchange for the expeditious approval of various permits and licenses, Governor AA received
kickbacks which were deposited to his bank accounts. In the event Governor AA is ultimately held
liable in the civil case filed by Mr. BB, may Governor AA's bank accounts in BPE and Metrabank be
subject to garnishment? Explain.

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

(2019 Bar Examinations)

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QUESTION #9.
Zekeboughs, a foreign company, has a distributor in the Philippines, However, the foreign company
still acts in its own name and account despite the appointment of the local distributor. Will this
distributorship be considered as doing business by a foreign company in the Philippines?

SUGGESTED ANSWER:
No, this distributorship cannot be considered as doing business by a foreign company in the Philippines.
Under Sec 3(d) of the Foreign Investments Act (RA 7042, as amended by RA 11647) and in the case of Steel
Case vs Design International Selection, the appointment of a distributor in the Philippines is not sufficient
to constitute doing business unless it is under the full control of the foreign corporation.Here, the
distributor is an independent entity doing business for its own name and account, thus it cannot be
considered as doing business. Hence, Zekeboughs is considered as an unlicensed foreign corporation not
doing business in the Philippines.
(2015 Bar Examinations)
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QUESTION #10. Apollo Corp. (AC) notified its stockholders about the corporation’s issuance of new
shares of stock with a reminder that, pursuant to the AC’s Articles of Incorporation (AOI), any
stockholder who fails to exercise his or her pre-emptive right within three (3) weeks from receipt of
notice would be considered to have waived the same. Beshy, a stockholder of AC, failed to exercise
her pre-emptive right within the said period. However, she claimed that she did not validly waive her
right to do so because a waiver must be expressed in writing. Is Beshy’s contention correct? Explain.

SUGGESTED ANSWER:
No, Beshy’s contention that there is no waiver is incorrect. Under Section 38 of Revised Corporation Code,
all stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition
of shares of any class. However, a stockholder’s pre-emptive right may be denied or limited in the articles
of incorporation, even in the absence of a written waiver. Thus, Beshy waived her pre-emptive right
because she failed to exercise it within the period as provided for and as amended by AC’s AOI.

(2019 Bar Examinations)

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QUESTION #11. Ms. A borrowed from 123 Bank. She mortgaged her house and lot in favor of the bank.
A insured her house. The bank also got the house insured.

Is this double insurance? Explain your answer. (2012 Bar)

Suggested Answer:
No, there is no double insurance in the case at bar. Under Section 95 of the Insurance Code, double
insurance exists where the same person is insured by several insurers separately with respect to the same
subject and interest. Here, A and 123 Bank can both insure the house as they have different insurable
interests therein. A, the borrower mortgagor, has an insurable interest in the house being the owner
thereof, while 123 Bank, the lender, also has an insurable interest in the house as mortgagee thereof. Thus,
there is no double insurance.

(2012 Bar Examinations)

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QUESTION #12. Toni Lhuiller was a well-known musician in the Bicol region who wrote Bicolano songs.
James Blue is a music professor at a nearby university who specializes in native music. When he
heard Toni's musical compositions, he bought a CD of them. He made two copies of the CD and gave
one to his music teacher for their music class to play the CD for the class and discuss Toni's works.

Did James Blue infringe on Toni’s copyright? Explain.

SUGGESTED ANSWER:
No, James Blue did not infringe on Toni's rights. Under the "fair use" doctrine, a copyrighted work may be
used lawfully for criticism, commentary, news reporting, teaching, scholarship, research, and other similar
purposes that do not violate the author's rights. Hence, there was no copyright infringement because the
copying of the few CDs was done for educational and classroom use only.

(2017 Bar Examinations)

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QUESTION #13. Ogee Corp., Alca Corp., and Seed Corp.'s applications for Mineral Production Sharing
Agreements (MPSA) were pending before the Panel of Arbitrators (POA) of the Department of
Environmental and Natural Resources (DENR) when Regine Corp., a domestic company that is 100%
owned by Filipinos, filed its opposition in 2012. The three corporations planned to conduct mining
and exploratory operations in Palawan. According to the oppositor, Sec. 2, Art. XII of the Constitution
is being violated because Jaya Corp., a 100% Chinese corporation, owns at least 60% of the capital
shareholdings of the applicants.

The summary of the Significant Accounting policies statement of Jaya Corp. reveals that the joint
venture agreement of Jaya Corp. with Chito Corp. and Stell Corp. involves Ogee Corp., Alca Corp.,
and Seed Corp. The ownership of the layered corporations and joint venture agreements show that
Jaya Corp. practically exercises control over the Ogee, Alca, and Seed corporations, contending that
the control test should be applied and its MPSA applicants granted. On the other hand, Jaya Corp.
argues that the "grandfather rule" should be applied. Decide with reasons.

SUGGESTED ANSWER:
The grandfather rule should apply. The Supreme Court held in a similar case that if there is a doubt as to
the locus of beneficial ownership and control, the grandfather rule should apply. Here, even if the capital
shareholding in a mining company is 60% owned by Filipinos and 40% by foreigners, B Corporation, a Chinese
corporation, exercises control over O, P and Q Corporations. Thus, such circumstance creates a doubt as to
where control and beneficial ownership reside that warrants application of the grandfather rule. (Narra
Nickel Mining and Development Corporation v. Redmont Consolidated Mines Corp., G.R. No. 195580,
April 21, 2014).

(2016 Bar Examinations)

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QUESTION #14. Under the Nell Doctrine, the general rule is that where one corporation sells or
otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and
liabilities of the transferor. State the exceptions to the Nell Doctrine.

SUGGESTED ANSWER:
The following are the exceptions to the Nell Doctrine: (a) Where the purchaser expressly or impliedly
agrees to assume such debts; (b) Where the transaction amounts to a consolidation or merger of the
corporations; (c) Where the purchasing corporation is merely a continuation of the selling corporation
(business enterprise transfer); and (d) Where the transaction is entered into fraudulently in order to escape
liability for such debts. (Edward J. Nell Co. v. Pacific Farms, Inc., G.R. No. L-20850, [November 29,
1965], 122 PHIL 825-828)

(2017 Bar Examinations)

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QUESTION #15. Under Article 415 of the Civil Code, in order for machinery and equipment to be
considered real property, the pieces must be placed by the owner of the land and, in addition, must
tend to directly meet the needs of the industry or works carried on by the owner. Oil gasoline
companies install underground tanks in the gasoline stations located on land where the gasoline
stations are located. Are those underground tanks, which were not placed there by the lessee of the
land, considered real property for purposes of real property taxation under the Local Government
Code? Explain. (Atty. Caban’s Question)
SUGGESTED ANSWER:
Yes, those underground tanks, which were not placed there by the lessee of the land, are considered real
property for purposes of real property taxation under the Local Government Code. The case of Caltex
Philippine Inc. vs. CBAA provides that the said equipment and machinery, as appurtenances to the gas
station building or shed owned by Caltex and which fixtures are necessary to the operation of the gas
station, for without them the gas station would be useless, and which have been attached or affixed
permanently to the gas station site or embedded therein, are taxable improvements and machinery within
the meaning of the Assessment Law and the Real Property Tax Code. Hence, those underground tanks are
considered real property for purposes of real property taxation under the Local Government Code.

(Atty Cabaneiro Mockbar Q&A 2023)

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QUESTION #16. About five years ago, a diversion road was constructed by the government to cut travel
time to the northern provinces in Luzon by the construction of the Tarlac-Pangasinan-La Union
Expressway (TPLEX). The diversion road passed through various agricultural lands along the route and
this improvement increased the market value of the parcels of land in various areas in Pampanga,
Pangasinan and Tarlac. While before the lands were solely agricultural in nature, now some of these
lands became commercial. A vice mayor of one of the towns where the TPLEX passed consulted you
on what kind of tax can his town collect with the introduction of said improvement. What will be your
advice to the vice mayor? Discuss your reasons to support your advice.

SUGGESTED ANSWER:
I will advise the vice mayor to propose to the Sanggunian the enactment of an ordinance imposing a special
levy under Section 240 of the Local Government Code of 1991. Section 240 of the LGC provides that a
province, city or municipality may levy a special levy on the lands within its territorial jurisdiction
especially benefited by public works projects or improvements funded by the local government unit
concerned. This is also called an special assessment on lands benefited by public improvements in an
amount not exceeding 60% of the actual cost of such projects and improvements.

(Atty Cabaneiro Mockbar Q&A 2023)

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QUESTION #17. What is tax mapping?

Answer: It is a mere verification made by the BIR of a taxpayer’s compliance with registration and other
requirements prior to, during, and after its business operations such as the following: (a) registration of the
head office and branches; (b) payment of annual registration fee and posting of the same in the place of
business; (c) authority to print receipt and invoices; (d) the issuance of receipts and invoices on every sale;
(e) the contents of such receipts and invoices; (f) registration of cash register machines, point of sale
machines, and computerized accounting systems; and (g) registration of books of accounts.

(Atty Cabaneiro Mockbar Q&A 2023)

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QUESTION #18. Dante Company is a hotel company registered as a Local Economic Enterprise (LEE) of
the City of Dapitan. The company is asserting that, as a LEE owned and operated by a local
government unit, it should no longer be required to pay income taxes to the BIR. It argues that all
revenues collected by it must accrue exclusively to the City government of Dapitan. Is the company
correct?
Answer: No, the company is incorrect in claiming that they are not required to pay income tax. Section 30
provides for the list of organizations that shall not be taxed in respect to income received by them. In this
case, Dante company is not one of those corporations exempt from taxes under section 30 of the tax code
or under any special laws. Besides, the act of an LGU in its corporate capacity and for the purpose of
economic gain may be subject to tax just like any other private or government corporation. Hence, Dante
Company must still pay income taxes to the BIR.

(Atty Cabaneiro Mockbar Q&A 2023)

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QUESTION #19. Star Municipality imposes a franchise tax on franchise holders within its territorial
jurisdiction. However, it comes to light that the authority to levy and impose franchise taxes solely
belongs to provinces and cities, and municipalities lack such power. As a result, the franchise tax
levied by ABC Municipality is deemed null and void.

Subsequently, Star Municipality undergoes a transformation and is converted into "Star City." Despite
this conversion, the nullity of the franchise tax imposed during its municipality status remains
unchanged. Is the franchise tax imposed by Star Municipality, will remain unchanged even with its
conversion into Star City?

ANS: Yes, it will remain unchanged. In the case of City of Pasig v. Manila Electric Co., (G.R. No. 181710,
March 7, 2018) a municipality is bereft of authority to levy and impose franchise tax on franchise holders
within its territorial jurisdiction. That authority belongs to provinces and cities only. A franchise tax levied
by a municipality is, thus, null and void. The nullity is not cured by the subsequent conversion of the
municipality into a city.

Applying this principle on the given scenario, Star imposed the aforementioned franchise tax while it was
still a municipality. As a result, the imposition is void because Star did not have the authority to do so. Even
after Star was converted to a city, the aforementioned franchise tax did not change because the
subsequent conversion did not remove the aforementioned nullity. Thus, the franchise tax imposition will
therefore continue in its current form.

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Question #20: Discuss the original exclusive jurisdiction of the Court of Tax Appeals over criminal
cases.

Under RA 9282, the Court of Tax Appeals Exclusive original jurisdiction over all criminal offenses arising
from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided, however, That
offenses or felonies mentioned in this paragraph where the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no specified
amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate.

(Atty Cabaneiro Mockbar Q&A 2023)

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