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public office, the Ombudsman
may order the bank concerned to
MERCANTILE LAW allow in camera inspection of
bank records and documents.
False. The Bank Secrecy Law
TRUE or FALSE. Answer TRUE if the
prohibits the inspection of a bank account
statement is true, or FALSE if the statement is
unless the permission of the account
false. Explain your answer in not more than
holder is obtained, or upon lawful order of
two (2) sentences. (5%)
the court or when the deposit is the
INTELLECTUAL PROPERTY CODE; IP subject of litigation. Investigation by the
RIGHTS (2009) Ombudsman is not considered as a pending
litigation to allow the examination of the
[a] The Denicola Test in intellectual bank records and documents (Marquez v.
property law states that if design Desierto, 359 SCRA 772 [2001]).
elements of an article reflect a
merger of aesthetic and
functional considerations, the
artistic aspects of the work
cannot be conceptually separable [c] Even if the seller and the buyer
from the utilitarian aspects; thus in a sale in bulk violate the Bulk
the article cannot be Sales Law, the sale would still be
copyrighted. valid.
True. Applying the Denicola Test in False. When the Bulk Sales Law is
Brandir International, Inc. v. Cascade violated, the sale is null and void. When
Pacific Lumber Co. (834 F. 2d 1142, 1988 the provisions of the said law have not
Copr.L.Dec. P26), the United States Court been complied with, the sale is considered
of Appeals for the Second Circuit held that as being fraudulent and void and even
if there is any aesthetic element which can when coupled with delivery, the title over
be separated from the utilitarian elements, the goods does not transfer to the buyer.
then the aesthetic element may be However, civil liabilities arising from the
copyrighted. transaction remain enforceable between
the parties thereto.
[Note: It is suggested that the candidate be
given full credit for whatever answer or
lack of it. Further it is suggested that
terms or any matter originating from CORPORATION CODE; CORPORATE
foreign laws or jurisprudence should not POWERS; SPECIFIC POWER; DECLARE
be asked.] DIVIDENDS (2009)

[d] Dividends on shares of stocks

can only be declared out of
BANKING; BANK SECRECY (2009) unrestricted retained earnings of
the corporation.
[b] If the Ombudsman is convinced
that there is a violation of law SUGGESTED ANSWER:
after investigating a complaint
alleging illicit bank deposits of


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True. Dividends on shares of stock of board of directors and the stockholders from
a corporation, whether cash dividend or approving the sale.
stock dividend, can be validly declared only
out of unrestricted retained earnings (Sec. [a] Can Atty. Edric, who owns only
43, Corporation Code). It cannot be one (1) share in the company,
declared out of the capital. Otherwise, such initiate a derivative suit? Why or
declaration of dividend will violate the why not? (2%)
trust fund doctrine.

Yes, Atty. Edric can initiate a

CORPORATION LAW; LIQUIDATION; derivative suit, otherwise known as the
RECEIVERSHIP (2009) minority stockholders suit. It is allowed by
law to enable the minority stockholder/s to
[e] A bank under receivership can protect the interest of the corporation
still grant new loans and accept against illegal or disadvantageous act/s of
new deposits. its officers or directors, the people who are
supposed to protect the corporation
SUGGESTED ANSWER: (Pascual v. Del Saz Orozco, 19 Phil. 82
False. During the receivership, the
assets and properties of the corporation are
being gathered for conversion into cash in
preparation for distribution to creditors.
Granting new loans and accepting new
deposits would constitute doing business [b] If such suit is commenced,
which is contrary to the purpose and would it constitute an intra-
nature of a receivership proceeding. corporate dispute? If so, why and
where would such a suit be filed?
If not, why not? (2%)


DERIVATIVE SUIT (2009) Yes, such suit would constitute an
intra-corporate dispute as it is a suit
II initiated by a stockholder against other
stockholders who are officers and directors
Atlantis Realty Corporation (ARC), a of the same corporation (P.D. No. 902 A,
local firm engaged in real estate development, Sec. 5[b]). Such suit should be filed in the
plans to sell one of its prime assets a three- Regional Trial Court designated by the
hectare land valued at about P100-million. For Supreme Court as a corporate or
this purpose, the board of directors of ARC commercial court.
unanimously passed a resolution approving
the sale of the property for P75-million to
Shangrila Real Estate Ventures (SREV), a rival
realty firm. The resolution also called for a
special stockholders meeting at which the
[c] Will the suit prosper? Why or
proposed sale would be up for ratification.
why not?
Atty. Edric, a stockholder who owns
only one (1) share in ARC, wants to stop the
sale. He then commences a derivative suit for No. The suit will not prosper. There
and in behalf of the corporation, to enjoin the is no requisite demand on the officers and


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directors concerned. There is, therefore, no where he resides, as well as in
exhaustion of administrative remedies. the stock and transfer book of
Xerxes Corporation. (3%)

Rule on the foregoing issues with

CHATTEL MORTGAGE (2009) reasons.
Armando, a resident of Manila, The mortgage on the shares of stock
borrowed P3-million from Bernardo, offering should be registered in the chattel
as security his 500 shares of stock worth mortgage registry in the Register of Deeds
P1.5-million in Xerxes Corporation, and his of Makati City where the corporation has
2007 BMW sedan, valued at P2-million. The its principal office and also in the Register
mortgage on the shares of stock was of Deeds of Manila where the mortgagor
registered in the Office of the Register of Deeds resides (Chua Guan v. Samahang
of Makati City where Xerxes Corporation has Magsasaka, Inc., 52 Phil. 472 [1935]).
its principal office. The mortgage on the car Registration of chattel mortgage in the
was registered in the Office of the Register of stock and transfer book is not required to
Deeds of Manila. Armando executed a single make the chattel mortgage valid.
affidavit of Good Faith, covering both Registration of dealings in the stock and
mortgages. transfer book under Section 63 of the
Corporation Code applies only to sale or
Armando defaulted on the payment of
disposition of shares, and has no
his obligation; thus, Bernardo foreclosed on
application to mortgages and other forms
the two chattel mortgages. Armando filed a
of encumbrances (Monserrat v. Ceron, 58
suit to nullify the foreclosure and the
Phil 469 [1933]).
mortgages, raising the following issues:

[a] The execution of only one

Affidavit of Good Faith for both INSURANCE; PERFECTION OF CONTRACT
mortgages invalidated the two (2009)
mortgages; (2%) and
Antartica Life Assurance Corporation
The execution of only one Affidavit (ALAC) publicly offered a specially designed
of Good Faith for both mortgages is not a insurance policy covering persons between
ground to nullify the said mortgages and ages of 50 and 75 who may be afflicted with
the foreclosure thereof. Said mortgages are serious and debilitating illnesses. Quirico
valid as between immediate parties (Lilius applied for insurance coverage, stating that he
v. Manila Railroad Company, 62 Phil. 56 was already 80 years old. Nonetheless, ALAC
[1935]), although they cannot bind third approved his application.
parties (Philippine Refining v. Jarque, 61
Phil. 229 [1935]). Quirco then requested ALAC for
issuance of a cover note while he was trying to
raise fund to pay the insurance premium.
ALAC granted the request. Ten days after he
received the cover note, Quirico had a heart
[b] The mortgage on the shares of seizure and had to be hospitalized, He then
stocks should have been filed a claim on the policy.
registered in the Office of the
[a] Can ALAC validly deny the claim
Register of Deeds of Manila
on the ground that the insurance
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coverage, as publicly offered, was messages, more than 80% of the residents in
available only to person 50 to 75 the subdivision.
years of age? Why or why not?
(2%) Is Cecilio habitually engaged in
commerce even if the grocery store is yet to be
SUGGESTED ANSWER: established? Explain your answer. (3%)

No. By approving the application of SUGGESTED ANSWER:

Quirico who disclosed that he was already
80 years old, ALAC waived the age Yes. Even if the grocery store has yet
requirement. ALAC is now estopped from to be established, Cecilio habitually
raising such defense of age of the insured. engaged in commerce when per his
instructions member of the family
contacted more than 80% of the residents
in the subdivision where they reside.
According to Article 3 of the Code of
Commerce, legal presumption of
[b] Did ALACs issuance of a cover
habitually engaged in commerce shall exist
note result on the perfection of
from the moment the person who intends
the insurance contract between
to engage therein announces through
Quirico and ALAC? Explain (3%)
circulars, newspapers, handbills, posters
SUGGESTED ANSWER: exhibited to the public, or in any other
manner whatsoever, an establishment
The issuance of a cover note by ALAC which has for its object some commercial
resulted in the perfection of the insurance operation. Text messages may qualify to
contract. In that case, it is only because be equivalent to electronic documents.
there is delay in the issuance of the
insurance policy that the cover note was

The cover note is a receipt whereby a

company agrees to insure the insured for
60 days pending the issuance of a regular Lorenzo drew a bill of exchange in the
policy. No separate premium is to be paid amount of P100,000.00 payable to Barbara or
on a cover note. It is not a separate policy order, with his wife, Diana, as drawee. At the
but it is integrated in the regular policy to time the bill was drawn, Diana was unaware
be subsequently issued. that Barbara is Lorenzos paramour.

Barbara then negotiated the bill to her

sister, Elena, who paid for it for value, and
who did not know who Lorenzo was. On due
date, Elena presented the bill to Diana for
V payment, but the latter promptly dishonored
the instrument because by then Diana had
Cecilio is planning to put up a grocery learned of his husbands dalliance.
store in the subdivision where he and his
family reside. To promote his proposed NIL; PRESENTMENT; DISHONOR BY NON-
business venture, he told his wife and three PAYMENT (2009)
children to send out promotional text
[a] Was the bill dishonored by
messages to all residents in the subdivision.
Diana? Explain. (3%)
Cecilios family members did as instructed,
and succeeded in reaching, through text SUGGESTED ANSWER:


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No. The bill was not lawfully television sets, along with some other cargo, in
dishonored by Diana. Elena, to whom the order to lighten the vessel and make it easier
instrument was negotiated, was a holder in to steer the vessel out of the path of the
due course inasmuch as she paid for value typhoon. Eventually, the vessel, with its crew
therefore in good faith. intact, arrived safely in Cebu.

NIL; CONSIDERATION (2009) [a] Will you characterize the jettison

of Romualdos TV sets as an
[b] Does the illicit cause or average. If so, what kind of an
consideration adversely affect the average, and why? If not, why
negotiability? Explain. (3%) not? (3%)
No. The illicit cause or consideration The jettison of Romualdos TV sets
does not adversely affect the negotiability resulted in a general average loss, which
of the bill, especially in the hands of a entitles him to compensation or
holder in due course. Under Section 1 of indemnification from the shipowner and
the Negotiable Instruments Law, the bill of the owners of the cargoes saved by the
exchange is a negotiable instrument. Every jettison.
negotiable instrument is deemed prima
facie to have been issued for a valuable ALTERNATIVE ANSWER:
consideration; and every person whose
signature appears thereon to have become The jettison resulted to a particular
a party thereto for value (Sec. 24, average loss because the damage was due
Negotiable Instruments Law). to the fault of the captain.


[b] Against whom does Romualdo
VII have a cause of action for
indemnity of his lost TV sets?
Global Transport Services, Inc. (GTSI) Explain. (3%)
operates a fleet of cargo vessels plying
interisland routes. One of its vessels, MV SUGGESTED ANSWER:
Dona Juana, left the port of Manila for Cebu
Romualdo has a cause of action for
laden with, among other goods, 10,000
his lost TV sets against the shipowner and
television sets consigned to Romualdo, a TV
the owners of the cargoes saved by the
retailer in Cebu.
jettison. The jettison of the TV sets
When the vessel was about ten nautical resulted in a general average loss, entitled
miles away from Manila, the ship captain Romualdo to indemnity for the lost TV
heard on the radio that a typhoon which, as sets.
announced by PAG-ASA, was on its way out of
the country, had suddenly veered back into
Philippine territory. The captain realized that BANKING; MONETARY BOARD (2009)
MV Dona Juana would traverse the storms
path, but decided to proceed with the voyage. VIII
True enough, the vessel sailed into the storm.
The captain ordered the jettison of the 10,000


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Maharlikang Pilipino Banking institute to question the
Corporation (MPBC) operates several branches Monetary Boards order?
of Maharlikang Pilipino Rural Bank in Eastern Explain. (3%)
Visayas. Almost all the branch managers are
close relatives of the members of the Board of SUGGESTED ANSWER:
Directors of the corporation. Many
The order of the Monetary Board
undeserving relatives of the branch managers
may be questioned on a petition for
were granted loans. In time, the branches
certiorari on the ground that the action
could not settle their obligations to depositors
taken was in excess of jurisdiction or with
and creditors.
grave abuse of discretion amounting to lact
Receiving reports of these irregularities, or excess of jurisdiction. The petition for
the Supervising and Examining Department certiorari may only be filed by the
(SED) of the Monetary Board prepared a stockholders of record representing the
detailed report (SED Report) specifying the majority of the capital stock within ten
facts and the chronology of events relative to (10) days from the receipt by the board of
the problems that beset MPBC rural bank directors of MPBC of the order directing
branches. The report concluded that the bank receivership, liquidation or conservatorship
branches were unable to pay their liabilities as (Sec. 30, par. [2], R.A. No. 7653).
they fell due, and could not possibly continue
in business without incurring substantial
losses to its depositors and creditors. CORPORATION LAW; CORPORATE
[a] May the Monetary Board order
the closure of the MPBC rural IX
banks relying only on the SED
Report without need of an When is there an ultra vires act on the
examination? Explain. (3%) part of [a] the corporation; [b] the board of
directors; and [c] the corporate officers. (3%)
Yes. Upon receipt of the report of the
SED, the Monetary Board is authorized to [a] Under Section 45 of the
take any of the actions enumerated under Corporation Code, no
Sec. 30, Republic Act No. 7653, otherwise corporation shall possess or
known as the New Central Bank Act, exercise any corporate power
leading to the receivership and liquidation except those conferred by the
of a bank or quasi-bank. There is no Code or by its articles of
requirement that an examination be first incorporation and except such
conducted before a banking institution may as are necessary or incidental
be placed under receivership (Rural Bank to the exercise of the powers
of Buhi v. Court of Appeals, 162 SCRA 288 so conferred. When a
[1988]). corporation does an act or
engages in an activity which is
outside of its express, implied
or incidental powers set out in
its articles of incorporation,
[b] If MPBC hires you as lawyer the act is deemed to be ultra
because the Monetary Board has vires.
forbidden it from carrying on its
[b] When the Board engages in an
business due to its imminent
activity or enters into a
insolvency, what action will you
contract without the
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ratificatory vote of the (b) Those issued or guaranteed by
stockholders in those the government of any foreign
instances where the country with which the
Corporation Code so requires Philippines has diplomatic
such ratificatory vote, such as relations, or any other state on
when the corporation is made the basis of reciprocity,
to invest in another although the SEC may require
corporation or engage in a compliance with the form and
business which is not in content of disclosures;
pursuit of its primary purpose,
the board resolution not (c) Those issued by the receiver or
ratified by stockholders by the trustee in a bankruptcy
owning or representing at least duly approved by the proper
two-thirds of the outstanding adjudicatory board;
capital stock would make the
(d) Those involving the sale or
transaction void, as being
transfer which is by law, under
ultra vires.
the regulation of the OIC,
[c] When a corporate officer HLURB, BIR; and
enters into a contract on
(e) Those issued by banks, except
behalf of the corporation
its own shares.
without having been so
expressly or impliedly [Note: It is suggested that any two (2) of
authorized by the Board of the above exempt securities should
Directors, even when the act be considered as enough answer to
or contract falls within the the question.]
corporations express, implied
or incidental power, then the
unauthorized act of the
corporate officer is deemed to
be ultra vires.

statement is true, or FALSE if the statement is
X false. Explain your answer in not more than
two (2) sentences. (5%)
What are the so-called exempt
securities under the Securities Regulation TRUTH IN LENDING ACT [NOT IN
Code? (2%) SYLLABUS] (2009)

SUGGESTED ANSWER: [a] A loan agreement which provides

that the debtor shall pay interest
Under Section 9 of the Securities at the rate determined by the
Regulation Code, the so-called exempt banks manager violates the
securities are: disclosure requirement of the
Truth in Lending Act.
(a) Those issued or guaranteed by
the government of the SUGGESTED ANSWER:
Philippines or any of its
political subdivisions or True. This is contrary to the duty of
agencies; the creditor to disclose in detail the
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interests, charges and other figures
indicating in details the cost of the credit
granted to the debtor (United Coconut NIL; REQUISITES OF NEGOTIABILITY
Planters Bank v. Beluso, 530 SCRA 567 (2009)
[d] A document, dated July 15,
2009, that reads: Pay to X or
order the sum of P5,000.00 five
TRUST RECEIPTS LAW; WAREHOUSEMANS days after his pet dog, Sparky,
LIEN (2009) dies. Signed Y is a negotiable
[b] Under the Warehouse Receipts
Law, a warehouse man loses his SUGGESTED ANSWER:
lien upon the goods when he
surrenders possession thereof. True. The document is subject to a
term and not a condition. The dying of the
SUGGESTED ANSWER: dog is a day which is certain to come.
Therefore, the order to pay is
True. A lien is dependent on unconditional, in compliance with Section
possession. When a warehouseman 1 of the Negotiable Instruments Law (NIL).
surrenders possession, he thereby loses his
lien on the goods over which he no longer [Note: This answer assumes there is
has possession (Sec. 29 (a), Warehouse a drawee.]
Receipts Law).


REGISTERED (2010) [e] A bank is bound to know its
depositors signature is an
[c] The Howey Test states that there inflexible rule in determining the
is an investment contract when a liability of a bank in forgery
person invests money in a cases.
common enterprise and is led to
expect profits primarily from the SUGGESTED ANSWER:
efforts of others.
False. In cases of forgery, the forger
SUGGESTED ANSWER: may not necessarily be a depositor of the
bank, especially in the case of a drawee
The Howey Test requires a bank. Yet in many cases of forgery, it is the
transaction, contract or scheme whereby a drawee bank that is held liable for the loss.
person makes an investment of money in a
common enterprise with the expectation of
profits to be derived solely, not primarily
NIL; CHECKS (2009)
from the efforts of others (Power House
Unlimited Corp. v. SEC, 546 SCRA 567 XII
Gaudencio, a store owner, obtained a
[Note: It is suggested that the P1-million loan from Bathala Financing
candidate be given full credit, for Corporation (BFC). As security, Gaudencio
whatever his answer is or lack thereof, executed a Deed of Assignment of
considering that the term originated from Receivables, assigning fifteen (15) checks
foreign jurisprudence.] received from various customers who bought


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merchandise from his store. The checks were really on the contract of loan, with the
duly indorsed by Gaudencios customers. checks merely serving as collateral to
secure the payment of the loan. By virtue
The Deed of Assignment contains the of the Deed of Assignment which he signed,
following stipulation: Gaudencio undertook to pay for the
receivables if for any reason they cannot be
If for
paid by the obligors (Velasquez v.
any reason, the
Solidbank Corporation, 550 SCRA 119
receivables or
any part thereof
cannot be paid
by the obligors,
unconditionally PROPERTY (2009)
and irrevocably
agrees to pay XIII
the same,
Ciriaco leased a commercial apartment
assuming the
from Supreme Building Corporation (SBC).
liability to pay,
One of the provisions of the one-year lease
by way of
contract states:
penalty, three
percent (3%) of 18. xxx
the total amount The LESSEE
unpaid, for the shall not insure
period of delay against fire the
until the same is chattels,
fully paid. merchandise,
textiles, goods
When the checks became due, BFC
and effects
deposited them for collection, but the drawee
placed at any
banks dishonored all the checks for one of the
stall or store or
following reasons: account closed, payment
space in the
stopped, account under garnishment, or
leased premises
insufficiency of funds. BFC wrote Gaudencio
without first
notifying him of the dishonored checks, and
obtaining the
demanding payment of the loan. Because
written consent
Gaudencio did not pay, BFC filed a collection
of the LESSOR.
In his defence, Gaudencio contended obtains fire
that [a] BFC did not give timely notice of insurance
dishonor (of the checks); and [b] considering coverage
that the checks were duly indorsed, BFC without the
should proceed against the drawers and the consent of the
indorsers of the checks. LESSOR, the
insurance policy
Are Gaudencios defenses tenable? is deemed
Explain. (5%) assigned and
transferred to
the latters
No. Gaudencios defenses are
untenable. The cause of action of BFC was


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Notwithstanding the stipulation in the executors, administrators, receivers, and
contract, without the consent of SBC, Ciriaco assignees in insolvency, or public officers,
insured the merchandise inside the leased acting under judicial process. In this case,
premises against loss by fire in the amount of the receiver is acting under judicial
P500,000.00 with First United Insurance process.
Corporation (FUIC).

A day before the lease contract expired,

fire broke out inside the leased premises, INTELLECTUAL PROPERTY CODE;
damaging Ciriacos merchandise. Having TRADEMARKS; INFRINGMENT AND
learned of the insurance earlier procured by REMEDIES (2009)
Ciriaco, SBC demanded from FUIC that the
proceeds of the insurance policy be paid
directly to it, as provided in the lease contract. After disposing of his last opponent in
only two rounds in Las Vegas, the renowned
Who is legally entitled to receive the
Filipino boxer Sonny Bachao arrived at the
insurance proceeds? Explain. (4%)
Ninoy Aquino International Airport met by
SUGGESTED ANSWER: thousands of hero-worshipping fans and
hundreds of media photographers. The
Ciriaco is entitled to receive the following day, a colored photograph of Sonny
proceeds of the insurance policy. The wearing a black polo shirt embroidered with
stipulation that the policy is deemed the 2-inch Lacoste crocodile logo appeared on
assigned and transferred to SBC is void, the front page of every Philippine newspaper.
because SBC has no insurable interest in
the merchandise of Ciriaco (Cha v. Court of Lacoste International, the French firm
Appeals, 277 SCRA 690 [1997]). that manufactures Lacoste apparel and owns
the Lacoste trademark, decided to cash in on
the universal popularity of the boxing icon. It
reprinted the photographs with the permission
BULK SALES LAW (2009) of the newspaper publishers, and went on a
world-wide blitz of print commercials in which
Sonny is shown wearing a Lacoste shirt
XXX Corporation (XXX) and its sister alongside the phrase Sonny Bachao just loves
company, YYY Corporation (YYY), are both Lacoste.
under judicial receivership. The receiver has
When Sonny sees the Lacoste
the option to sell all or substantially all of the
advertisements, he hires you as a lawyer and
properties of YYY to XXX, or simply merge the
asks you to sue Lacoste International before a
two corporations. Under either option, the
Philippine court:
requirements under the Corporation Code
have to be complied with. [a] For trademark infringement in
the Philippines because Lacoste
The receiver seeks your advice on
International used his image
whether the Bulk Sales Law will apply to
without his permission; (2%)
either, or both, options. What will your advice
be? Explain. (4%) SUGGESTED ANSWER:
SUGGESTED ANSWER: Sonny Bachao cannot sue for
infringement of trademark. The
I will advice the receiver that the
photographs showing him wearing a
Bulk Sales Law does not apply to both
Lacoste shirt were not registered as a
options. Section 8 of the Bulk Sales Law
trademark (Pearl & Dean [Phil.], Inc. v.
expressly provides that it will not apply to
Shoemart, Inc., 409 SCRA 231 [2003]).
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No. Philippine courts have
jurisdiction over it, if it is doing business
[b] For copyright infringement in the Philippines. Moreover, under Section
because of the unauthorized use 133 of the Corporation Code, while a
of the published photographs; foreign corporation doing business in the
(2%) and Philippines without license to do business
cannot sue or intervene in any action, it
may be sued or proceeded against before
Sonny Bachao cannot sue for our courts or administrative tribunal (De
infringement of copyright for the Joya v. Marquez, 481 SCRA 376 [2006]).
unauthorized use of the photographs
showing him wearing a Lacoste shirt. The
copyright to the photographs belongs to CORPORATION LAW; STOCKHOLDERS AND
the newspapers which published them MEMBERS; PROPRIETARY RIGHTS; RIGHT
inasmuch as the photographs were the TO DIVIDENDS (2008)
result of the performance of the regular
duties of the photographers (Subsection XVI
178.3 [b], Intellectual Property Code [IPC]).
Moreover, the newspaper publishers On September 15, 2007, XYZ
authorized the reproduction of the Corporation issued to Paterno eight hundred
photographs (Section 177, Intellectual (800) preferred shares with the following
Property Code). terms:

Preferred shares
[c] For injunction in order to stop shall have the
Lacoste International from following rights
featuring him in their preferences,
commercials. (2%) qualifications,
and limitations,
Will these actions prosper? Explain.
to wit:
1. The
The complaint for injunction to stop right to receive a
Lacoste International from featuring him in quarterly
its advertisements will prosper. This is a dividend of One
violation of subsection 123.4 (c) of the IPC Per Centum (1%)
and Art. 169 in relation to Art. 170 of the cumulative and
IPC. participating;


FOREIGN CORPORATIONS (2009) shares may be
redeemed, by
[d] Can Lacoste International validly drawing of lots,
invoke the defense that it is not a at any time
Philippine company and, after two (2)
therefore, Philippine courts have years from date
no jurisdiction? Explain. (2%) of issue, at the
option of the
SUGGESTED ANSWER: Corporation; x x


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Today, Paterno sues XYZ Corporation purchase agreement (with Leon and Carina) of
for specific performance, for the payment of October 6, 1996.
dividends and to compel the redemption of,
the preferred shares, under the terms and SUGGESTED ANSWER:
conditions provided in the stock certificates.
The contention of PPR is not correct.
Will the suit prosper? Explain. (3%)
It is settled that no securities shall be sold
SUGGESTED ANSWER: or offered for sale or distribution in the
Philippines without a registration duly filed
No. The suit will not prosper. Paterno and approved by the Commission.
cannot compel XYZ Corporation to pay Corporate registration is one of the
dividends, which have to be declared by the requirements under Section 8 of Batas
Board of Directors and the latter cannot do Pambansa Blg. 178 (Timeshare Realty
so unless there are sufficient unrestricted Corporation v. Lao, 544 SCRA 257 [2008]).
retained earnings. Otherwise the
corporation will be forced to use its capital ALTERNATIVE ANSWER:
to make said payments in violation of the
No. Such contention is not correct.
trust fund doctrine. Likewise, redemption
Sale or offer to sell securities which are not
of shares cannot be compelled. While the
exempt securities or which do not arise out
certificate allows such redemption, the
of exemption transactions, and, therefore,
option and discretion to do so are clearly
requiring registration, is unlawful as such
vested in the Corporation (Republic
act is violative of the Securities Regulation
Planters Bank v. Agana, 269 SCRA 1
Code. Subsequent grant of authority by the
SEC does not retroact to past sales or
offers to sell.



Philippine Palaces Realty (PPR) had
Triple A Corporation (Triple A) was
been representing itself as a registered broker
incorporated in 1960, with 500 founders
of securities, duly authorized by the Securities
shares and 78 common shares as its initial
and Exchange Commission (SEC). On October
capital stock subscription. However, Triple A
6, 1996, PPR sold to spouses Leon and Carina
registered its stock and transfer book only in
one (1) timeshare of Palacio del Boracay for
1978, and recorded merely 33 common shares
US$7,500.00. However, its Registration
as the corporations issues and outstanding
Statement became effective only on February
11, 1998 after the SEC issued a resolution
declaring that PPR was authorized to sell CORPORATION LAW; INCORPORATION AND
securities, including timeshares. ORGANIZATION; ARTICLES OF
On March 30, 1998, Leon and Carina
wrote PPR rescinding their purchase [a] In 1982, Juancho, the sole heir
agreement and demanding the refund of the of one of the original
amount they paid, because the Palacio del incorporators filed a petition with
Boracay timeshare was sold to them by PPR the Securities and Exchange
without the requisite license or authority from Commission (SEC) for the
the SEC. PPR contended that the grant of the registration of his property rights
SEC authority had the effect of ratifying the over 120 founders shares and
12 common shares. The petition


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was supported by a copy of the CORPORATION LAW; CAPITAL
Articles of Incorporation STRUCTURE; STOCK AND TRANSFER
indicating the incorporators BOOK (2009)
initial capital stock subscription.
Will the petition be granted? Why [c] What is a stock and transfer
or why not? (3%) book? (1%)


Yes. The articles of incorporation A stock and transfer book is a book

defines the charter of the corporation and which records all stocks in the name of the
the contractual relationship between the stockholders alphabetically arranged; the
State and the corporation, the State and installments paid or unpaid on all stocks
the stockholders, and between the for which subscription has been made and
corporation and the stockholders. Its the date of payment of any installment, a
contents are thus binding upon both the statement of every alienation, sale or
corporation and the stockholders, transfer of stock made, the date thereof,
conferring on Juancho a clear right to have and by and to whom made; and such other
his stockholding recorded (Lanuza v. Court entries as the by-laws may prescribe
of Appeals, 454 SCRA 54 [2005]). (Section 74, Corporation Code).


[b] On May 6, 1992, a special
One of the passenger buses owned by
stockholders meeting was held.
Continental Transit Corporation (CTC), plying
At this meeting, what would have
its usual route, figures in a collision with
constituted a quorum? Explain.
another bus owned by Universal Transport,
Inc. (UTI). Among those injured inside the CTC
SUGGESTED ANSWER: bus were: Romeo, a stow away; Samuel, a
pickpocket then in the act of robbing his
A quorum consists of the majority of seatmate when the collision occurred;
the totality of the shares which have been Teresita, the bus drivers mistress who usually
subscribed and issued. Thus, the quorum accompanied the driver on his trips for free;
for such meeting would be 289 shares or a and Uriel, holder of a free riding pass he won
majority of the 576 shares issued and in a raffle held by CTC.
outstanding as indicated in the articles of
incorporation. This includes the 33 TRANSPORATION LAW; SAFETY OF
common shares reflected in the stock and PASSENGERS (2009)
transfer book, there being no mention or
[a] Will a suit for breach of contract
showing of any transaction effected from
of carriage filed by Romeo,
the time of Triple As incorporation in
Samuel, Teresita, and Uriel
1960 up to the said meeting (Section 52, in
against CTC prosper? Explain.
relation to Section 137 of the Corporation
Code; Lanuza v. Court of Appeals, 454

Romeo cannot sue for breach of

contract of carriage. A stowaway like
Romeo, who secures passage by fraud, is


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not a passenger (Vda. De Nueca v. Manila With respect to Romeo, Samuel and
Railroad Company, 13 C.A.R 49 [1968]). Teresita, since there was no pre-existing
contractual relationship between them and
Samuel and Teresita cannot sue for CTC, CTC can raise the defense that it
breach of contract of carriage. The exercised the due diligence of a good father
elements in the definition of a passenger of a family in the selection and supervision
are: an undertaking of a person to travel in of its driver (Article 2180, New Civil Code).
the conveyance provided by the carrier and
an acceptance by the carrier of the person It can raise the same defense against
as a passenger. (14 Am Jur 2d, Carriers, So. Uriel if there is a stipulation that exempts
714, p. 164). Samuel did not board the bus it from liability for simple negligence, but
to be transported but to commit robbery. not for willful acts or gross negligence
Teresita did not board the bus to be (Article 1758, New Civil Code).
transported but to accompany the driver
while he was performing his work. CTC can also raise against all the
plaintiffs the defense that the collision was
Uriel can sue for breach of contract. due exclusively to the negligence of the
He was a passenger although he was being driver of UTI, and this constitutes a
transported gratuitously, because he won a fortuitous event, because there was no
free riding pass in a raffle held by CTC concurrent negligence on the part of its
(Article 1758, New Civil Code). own driver (Ampang v. Guinoo Transport
Company, G.R. No. L-5044, April 30, 1953).

CTC can also raise against Samuel

TRANSPORATION LAW; SAFETY OF the defense that he was engaged in a
PASSENGERS (2009) seriously illegal act at the time of the
collision, which can render him liable for
[b] Do Romeo, Samuel, Teresita, and
damages on the basis of quasi-delict
Uriel have a cause of action for
(Dobbs, the Law of Torts, pp 524-525).
damages against UTI? Explain.
(3%) Since UTI had no pre-existing
contractual relationship with any of the
plaintiffs, it can raise the defense that it
Romeo, Samuel, Teresita and Uriel exercised due diligence in the selection and
may sue UTI on the basis of quasi-delict supervision of its driver, that the collision
since they have no pre-existing contractual was due exclusively to the negligence of
relationship with UTI. They may allege that CTC, and that Samuel was committing a
the collision was due to the negligence of serious illegal act at the time of the
driver of UTI and UTI was negligent in the collision.
selection and supervision of its driver
(Articles 2176 and 2180, New Civil Code).
SRC (2009)

CARRIERS (2009) Under the Securities Regulation Code,
what is the Margin Trading Rule? (2%)
[c] What, if any, are the valid
defenses that CTC and UTI can SUGGESTED ANSWER:
raise in the respective actions
against them? Explain. (3%) Under the Margin Trading Rule, no
registered broker or dealer, or member of
SUGGESTED ANSWER: an exchange shall extend credit on any


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security an amount greater than whichever
is higher of:

a) 65 per cent of the current

market price of the security,
b) 100 per cent of the lowest
market price of the security
during the preceding 36
calendar months, but not more
than 75 per cent of the current
market price (Section 48,
Securities Regulation Code).

The purpose of the Margin Trading

Rule is to prevent excessive use of credit
for the purchase of securities. It is a
counter to a brokers desire to generate
more sales by encouraging clients to buy
securities on credit (Carolina Industries
Inc. v. CMS Stock Brokerage, Inc., 97 SCRA
734 [1980]).