2008MERCANTILELAWBAREXAMPUCHAAYOKONAKADAMI!!!

XcorporationenteredintoacontractwithPTContructionCorp.forthelattertoconstruct
andbuildasugarmillwithinsix(6)months.Theyagreedthatincaseofdelay,PT
ConstructionCorp.willpayXCorporationP100,000foreverydayofdelay.Toensure
paymentoftheagreedamountofdamages,PTConstructionCorp.securedfromAtlantic
BankaconfirmedandirrevocableletterofcreditwhichwasacceptedbyXCorporation
induetime.Oneweekbeforetheexpirationofthesix(6)monthperiod,PTConstruction
Corp.requestedforanextensionoftimetodeliverclaimingthatthedelaywasduetothe
faultofXCorporation.Acontroversyastothecauseofthedelaywhichinvolvedthe
workmanshipofthebuildingensued.Thecontroversyremainedunresolved.Despitethe
controversy,XCorporationpresentedaclaimagainstAtlanticBankbyexecutingadraft
againstthe letterofcredit.Can AtlanticBankrefuse payment duetothe unresolved
controversy?Explain.(3%)

ANSWER:

No. The Bank is solidarily liable to pay based on the terms and conditions of
the Letter of Credit. An irrevocable letter of credit is independent of the
contract between the buyer-applicant and the seller-beneficiary.

II

TomCruzobtainedaloanofP1MillionfromXYZBanktofinancehispurchaseof
5,000bagsoffertilizer.HeexecutedatrustreceiptinfavorofXYZBankoverthe5,000
bags of fertilizer. Tom Cruz withdrew the 5,000 bags from the warehouse to be
transportedtoLucenaCitywherehisstorewaslocated.Ontheway,armedrobberstook
fromTomCruzthe5,000bagsoffertilizer.TomCruznowclaimsthathisobligationto
paytheloantoXYZBankisextinguishedbecausethelosswasnotduetohisfault.Is
TomCruzcorrect?Explain.(4%)

ANSWER:

No, Tom Cruzs obligation to pay the loan covered by the trust receipts to
XYZ Bank remains, A Trust receipt is merely a collateral agreement which
serves as security for a loan, with the Bank appearing as the owner of the
goods. The Bank cannot dispose of the goods in any manner it chooses,
because it is not the true owner thereof.

III

Howdoesthe"shelterprinciple"embodiedintheNegotiableInstrumentsLawoperateto
givetherightsofaholderinduecoursetoaholderwhodoesnothavethestatusofa
holderinduecourse?Brieflyexplain.(2%)

ANSWER:

The shelter principle provides that a holder who is not himself a holder in
due course but is not a party to any fraud or illegality affecting the
instrument, and who derives his title from a holder in due course, acquires
the rights of a holder in due course

IV
ABCorporationdrewacheckforpaymenttoXYBank.Thecheckwasgiventoan
officerofABCorporationwhowasinstructedtodeliverittoXYBank.Instead,the
officer,intendingtodefraudtheCorporation,filledupthecheckbymakinghimselfas
the payee and delivered it to XY Bank for deposit to his personal account. AB
Corporation come to know of the officer's fraudulent act after he absconded. AB
CorporationaskedXYBanktorecreditsitsamount.XYBankrefused.Howwouldyou
decidethecase?Explain.(2%)

ANSWER:

I would fin AB Corp. liable for its negligence in delivering an incomplete

instrument to XY Bank.

PanchodrewachecktoBongandGerardjointly.Bongindorsedthecheckandalso
forged Gerard's endorsement. The payor bank paid the check and charged Pancho's
accountfortheamountofthecheck.Gerardreceivednothingfromthepayment.Based
onthefacts,wasPanchoasdrawerdischargedontheinstrument?Why?(2%)

ANSWER:

No. The payee Gerard can recover as he still retains his claim on the debt of
Pancho.

VI

OnJanuary1,2000,AntonioRiverasecuredalifeinsurancefromSOSInsuranceCorp.
forP1MillionwithGemmaRivera,hisadopteddaughter,asthebeneficiary.Antonio
RiveradiedonMarch4,2005andinthepoliceinvestigation,itwasascertainedthat
GemmaRiveraparticipatedasanaccessoryinthekillingofAntonioRivera.CanSOS
InsuranceCorp.avoidliabilitybysettingupasadefensetheparticipationofGemma
RiverainthekillingofAntonioRivera?Discusswithreasons.(4%)

ANSWER:

The interest of a beneficiary shall be forfeited when the beneficiary is the

principal, accomplice, or accessory in willfully bringing about the death of
the insured. In which event, the nearest relative of the insured shall receive
the proceeds of said insurance, if not otherwise disqualified. Thus, the
insurance company must still pay out the proceed of the life insurance
policy to the nearest qualified relative of the insured.

NelsonownedandcontrolledSonnelConstructionCompany.Actingforthecompany,
Nelsoncontractedtheconstructionofabuilding.Withoutfirstinstallingaprotectivenet
atop the sidewalks adjoining the construction site, the company proceeded with the
constructionwork.Onedayaheavypieceoflumberfellfromthebuilding.Itsmasheda
taxicabwhichatthattimehadgoneoffroadandontothesidewalkinordertoavoidthe
traffic.Thetaxicabpassengerdiedasaresult.Couldtheheirsholdthetaxicabownerand
driverliable?Explain.(2%)

ANSWER:

Yes, the taxicab company can be liable for damages because it failed to
comply with its obligation as a common carrier to use extraordinary
diligence in transporting the passenger, and because at the time of death
of the passenger, the cab driver was violating a traffic regulation.

XI

SinceFebruary8,1935,thelegislaturehasnotpassedevenasinglelawcreatingaprivate
corporation.WhatprovisionoftheConstitutionprecludesthepassageofsuchalaw?
(3%)

ANSWER:

Under Sec. 16, Art. XII of the 1987 Constitution, Congress cannot, except by
general law, provide for the formation, organization, or regulation of
private corporations. It is only government owned or controlled
corporations that may be created or established through special charters.
Consequently, it has been held that a private corporation created pursuant
to a special law is a nullity, and such special law is void for being in
violation of the Constitution

XIII

GrandGasCorporation,apublicitylistedcompany,discoverafterextensivedrillinga
richdepositofnaturalgasalongthecoastofAntique.Forfive(5)months,thecompany
didnotdisclosethediscoverysothatitcouldquitelyandcheaplyacquireneighboring
landandsecuremininginformationtotheSecuritiesandExchangeCommission,allthe
directorsandkeyofficerofthecompanyboughtshareswentup.Thedirectorsandofficer
soldtheirsharesathugeprofits.WhatprovisionoftheSecuritiesRegulationCode(SRC)
didtheyviolate,ifany?Explain.(4%)

ANSWER:

Section27ofSRCorInsiderTradingwhich declares it unlawful for an insider

to sell or buy its securities, if they know of a fact of special significance
with respect to the company or the security, that is not generally available
to the public, before such material information made public through
disclosure proceedings.

XIV

AceCruzsubscribedto100,000sharesofstockofJPDevelopmentCorporation,which
hasaparvalueofP1pershare.HepaidP25,000andpromisedtopaythebalancebefore
December31,2008.JPDevelopmentCorporationdeclaredacashdividendonOctober
15,2008,payableonDecember1,2008.ForhowmanysharesisAceCruzentitledtobe
paidcashdividends?Explain.(2%)

ANSWER:

Ace Cruz is entitled to be paid each cash dividends to the entire 100,1000
shares subscribed, and not only to the paid-up portion thereof. The legal
character of being a stockholder, and therefore the entitlement to all the
rights of a stockholder, are determined from the time of subscription and
not from payment of the subscription.

XVII
OnJanuary1,2008,AlobtainedaloanofP10,000fromBobtobepaidonJanuary
30,2008,securedbyachattelmortgageonaToyotamotorcar.OnFebruary1,2008,Al
obtainedanotherloanofP10,000fromBobtobepaidonFebruary15,2008.hesecured
thisbyexecutingachattelmortgageonaHondamotorcycle.Ontheduedateofthefirst
loanAlfailedtopay.Bobforeclosedthechattelmortgagebutthecarwasbiddedfor
P6,000only.AlalsofailedtopaythesecondloandueonFebruary15,2008.Bobfiledan
actionforcollectionofsummoney.AlfiledamotiontodismissclaimingthatBobshould
firstcforeclosedthemortgageontheHondamotorcyclebeforehecanfiletheactionfor
sumofmoney.Decidewithreasons.(4%)

ANSWER:

Bob has the legal right to file a collection suit for a sum of money in lieu of
foreclosing on the chattel mortgage. It has been ruled that a c chattel
mortgage is a security arrangement to support a primary contract

XVIII

Canadistressedcorporationfileapetitionforcorporaterehabilitationafterthedismissal
ofitsearlierpetitionforinsolvency?Why?(2%)

ANSWER:

Yes, when a distressed corporations petition for insolvency has been

dismissed, it can only mean that it still possesses more than enough assets
to cover all its liabilities, and consequently, it can still be rehabilitated

XIX

Industry Bank, which has a net worth of P1 Billion, extended a loan to Celestial
PropertiesInc.amountingtoP270Million.Theloanwassecuredbyamortgageovera
vastcommerciallotintheFortBonifacioGlobalCity,appraisedatP350Million.After
audit,theBangkoSentralngPilipinasgavenoticethattheloantoCelestialProperties
exceededthesingleborrower'slimitof25%ofthebank'snetworthunderarecentBSP
Circular.Inlightofotherprevioussimilarviolationsofthecreditlimitrequirement,the
BSPadvisedIndustryBanktoreducetheamountoftheloantoCelestialPropertiesunder
pain of severe sanctions. When Industry Bank informed Celestial Properties that it
intendedtoreducetheloanbyP50Million,CelestialPropertiescounteredthatthebank
shouldfirstreleaseapartofthecollateralworthP50Million.IndustryBankrejectedthe
counterproposal, and reffered the matter to you as counsel. How would you advise
IndustryBanktoproceed,withitsbestinterestinmind?(5%)

ANSWER:

With a net worth of P1.0 Billion, the maximum loan exposure of the bank to
Celestial Properties can reach up to P250.0 Million. The bank should proceed with
to reduce the loan of Celestial properties by P20.0 Million, but should not release
any part of the collateral by the amount of reduction. The collateral is a single
commercial lot in the Fort, covered by a single title and beings essentially
indivisible in character, the mortgage cannot be partially released. Besides,
since a real estate mortgage cannot be partially released. Besides, since a real
estate mortgage is merely a collateral contract, it can be enforced only to the
amount of the loan; and the moment the loan exposure is reduced, then
automatically, reduction of the collateral coverage of the real estate mortgage
follows.