Delos Reyes, Nicole Ann

Manlangit, Jenny Luz

XII

Debtor “A” issued a promissory note in the amount of P10M in favor of commercial bank “Y” secured by
mortgage of his properties worth P30M. When “A” failed to pay his indebtedness, despite demands
made by bank “Y”, the latter instituted a collection suit to enforce payment of the P10M account.
Subsequently, bank “Y” also filed foreclosure proceedings against “A” for the security given for the
account. If you were the Judge, how would you resolve the two cases? (5%)

Suggested Answer:
The case for collection will be allowed to proceed. But the foreclosure proceedings have to be
dismissed. In instituting a foreclosure proceedings, after filing a collection case involving the same
account or transaction, bank “Y” is guilty of spitting a cause of action. The loan of P10M is the principal
obligation while the mortgage securing the same is merely an accessory to said loan obligation. The
collection of the loan and the foreclosure of the mortgage securing said loan constitute one and the
same cause of action. The filing of the collection case bars the subsequent filing of the foreclosure
proceedings

XIII

“A” issue a promissory note payable to “B” or bearer. “A” delivered the note to “B”, “B” indorsed the
note to “C”, “C” placed the note in his drawer, which was stolen by the janitor “X”, “X” indorsed the
note to “D” by forging “C”’s signature. “D” indorsed the note to “E” who in turn delivered the note to
“F”, a holder in due course, without indorsement. Discuss the individual liabilities to “F” of “A”, “B” and
“C”. (5%)

Suggested Answer:
“A” is liable to “F”, As the maker of the promissory note, “A” is directly or primarily liable to “F”, who is a
holder in due course. Despite the presence of the special indorsements on the note, these do not
detract from the fact that a bearer instrument, like the promissory note in question, is always negotiable
by mere delivery, until it is indorsed restrictively “For Deposit Only.”

“B”, as a general endorser, is liable to “F” secondarily. And warrant that the instrument is genuine and in
all respects what it purports to be; that he has good title to it; that all prior partied had capacity to
contract; that he has no knowledge of any fact which would impair the validity of the instrument or
render it valueless; that at the time of his indorsement, the instrument is valid and subsisting; and that
on due presentment, it shall be accepted or paid, or both, according to its tenor, and that if it be
dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder, or to any subsequent indorser who may be compelled to pay.
“C” is not liable to “F” since the latter cannot trace his title to the former. The signature of “C” in the
supposed indorsement by him to “D” was forged by “X”.

“C” can raise the defense of forgery since it was his signature that was forged

Alternative Answer:
As a general endorser, “B” is secondarily liable to “F”.

“C” is liable to “F” since it is due to the negligence of “C” in placing the note in his drawer that
enabled “X” to steal the sam and forge the signature of “C” relative to the indorsement in favor of “D”,
As between “C” and “F” who are both innocent partied, it is “C” whose negligence is the proximate
cause of the loss, Hence, “C” should suffer the loss

XIV

X, Y and Z signed a promissory note in favor of A stating:

“W promise jto pay A on December 31, 2001 the sum of P5,00.00” When the note fell due, A sued X and
Y who put up the defense that A should have impleaded Z, Is the defense valid? Why? (5%)

Suggested Answer
The defense is not valid. The liability of X, Y, and Z under the promissory note is joint. Such being the
case, Z is not and indispensable party. The fact that A did not implead Z will not prevent A from
collecting the proportionate share of X and Y in the payment of the loan.

(Observation: Even if the liability of Z, Y and Z is solidary, the defense would still not be valid.)

XV

The Law on Secrecy of Bank Deposits, otherwise known as RA 1405, is intended to encourage people to
deposit their money in banking institutions and also to discourage private hoarding so that the same
may be properly utilized by banks to assist in the economic development of the country. Is a notice of
garnishment served on a bank at the instance of a creditor of a depositor covered by the said law? State
the reason(s) for your answer. (5%)

Suggested Answer:
No. The notice of garnishment served on a bank as the instance of a creditor of adiposity is not covered
by the Law on Secrecy of Bank Deposits. Garnishment just a part of the process of execution. The
moment a notice of garnishment is served on a bank and there exists a deposit by the judgement
debtor, the bank is directly accountable to the sheriff, for the benefit of the judgement creditor, for the
whole amount of the deposit, in such event, the amount of the deposit becomes, In effect, a subject of
the litigation.

XVI

“A” applied for a non-medical life insurance. The insured did not inform the insurer that one week prior
to his application for insurance; he was examined and confined at St. Luke’s Hospital where he was
diagnosed for lung cancer. The insured soon thereafter died in a plane crash. Is the insurer liable
considering that the fact concealed had no bearing with the cause of death of the insured? Why? (5%)

Suggested Answer:

No. The concealed fast is material to the approval and issuance of the insurance policy. It is well settled
that the insured need not die of the disease he failed to disclose to the insurer. It is sufficient that his
non-disclosure misled the insurer in forming his estimate of the risks of the proposed insurance policy or
in making inquiries

XVII

JQ, Owner of a condominium unit, insured the same against fire with XYZ Insurance Co., and made the
loss payable to his brother, MLQ. In case of loss by fire of the said condominium unit, who may recover
on the fire insurance policy? State the reason(s) for your answer (5%)

Suggested Answer:

JQ can recover on the fire insurance policy for the loss of the said condominium unit. He has the
insurable interest as owner-insured. As beneficiary in the fire insurance policy, MLQ cannot recover on
the fire insurance policy. For the beneficiary to recover on the fire or property insurance policy, it is
required that he must have insurable interest in the property insured. In this case, MLQ does not have
insurable interest in the condominium unit.

XVIII

“A” is a merchant engaged in the sale of a variety of goods and merchandise. Because of the economic
crisis, he incurred indebtedness to “X”, “Y”, and “Z”, thereafter, “A” sold to “B” all the stock of goods
and merchandise.

a) What steps should “A” undertake to effect a valid sale in bulk of his goods to “B”
b) Suppose “A” submitted a false statement on the schedule of his creditors, what is the effect of
such false statement as to Vendee “B”. (2%)
c) What is the right of creditors “X” , “Y” and “Z” if “A” failed to comply with the procedure/steps
required by law under question latter (a) hereof (1%)

Suggested Answer:
a) “A” must prepare an affidavit stating the names of all his creditors, In this case, “X”, “Y” and “Z”, their
addresses, the amount of their credits and their maturity. “A” should give the affidavit to “B” who, In
turn, should furnish a copy to each creditor and notify the creditors that there is a proposed bulk sale in
order to enable this latter to protect their interest

b) If the vendee does not have knowledge of the falsity of the schedule, the sale is valid. However, if the
vendee has knowledge of such falsity, the sale is void because he is in bad faith.

c) The recourse of “X” , “Y” and “Z” is to question the validity of the sale from “A” to “B” so as to recover
the goods and merchandise to satisfy their credits.

XIX
Suppose “A” is the owner of several inactive securities. To create and appearance of active trading for
such securities, “A” connives with “B” by which “A” will offer for sale some of his securities and “B” will
buy them at a certain fixed price with the understanding that although there would be an apparent sale,
“A” will retain the beneficial ownership thereof.

a) Is the arrangement lawful? (3%)

b) If the sale materializes, what is it called (2%)

Suggested Answer:

a) No. The arrangement is not lawful. It is an artificial manipulation of the price of securities. This is
prohibited by the Securities Regulation Code.
b) If the sale materializes, it is called a wash sale or simulated sale.

XX

Suppose “A” was riding on an airplane of a common carrier when the accident happened and “A”
suffered serious injuries. In an action by A” against the common carrier, the latter claimed that – (1)
there was a stipulation in the ticket issued to “A” absolutely exempting the carrier from liability from the
passenger’s death or injuries and notices were posted by the common carrier, and (2) “A” was given a
discount on his plane fare thereby reducing the liability of the common carrier with respect to “A” in
particular.

a) Are those valid defenses? (1%)

b) What are the defenses available to any common carrier to limit or exempt it from liability? (4%)

Suggested Answer:

a) No. These are not valid defenses because they are contrary to law as they are in violation of the
extraordinary diligence required of common carriers (Article 1757, 1758 New Civil Code)
b) The defenses available to any common carrier to limit or exempt it from liability are: Observance
of extraordinary diligence, or the proximate cause of the incident is a fortuitous event or force
majeure, act or omission of the shipper or owner of the goods, the character of the goods or
defects in the packing or in the containers, and order or act of competent public authority,
without the common carrier being guilty of even simple negligence. (Article 1734, New Civil
Code)