7.

X secured a loan from BBB Bank to pay for the importation of some dried fruits.

Upon arrival of the goods consisting of dried fruits imported by X but before delivery to him, a trust
receipt was executed by X to cover the transfer of the dried fruits to his possession.

The dried fruits were so saleable but instead of turning over the proceeds of the sale, X used the funds
to pay for the medical expenses of his mother who was sick of cancer of the bone. Which statement
is most accurate?

a. X cannot be held criminally liable because although he did not pay the bank he used the
proceeds for a good reason.

b. Fraud or deceit is a necessary element to hold X criminally liable for non-payment under
the Trust Receipts Law.

c. X can be held criminally liable under the Trust Receipts Law regardless of the
purpose or intention for the use of the proceeds.

d. X cannot be held criminally liable because the underlying obligation is one of simple loan.

EXPLANATION:

X can be held liable under the Trust Receipts Law under Sec. 13 of the said law.

The Trust Receipts Law, being a special law does not contemplate the defense of either good faith
or any circumstance. It merely prescribed that failure to turn over the proceeds of the goods upon
sale or the goods themselves upon non-sale.

Failure to do such will make them punishable under the Trust Receipts Law which punishes
dishonesty and abuse of confidence in the handling of the money or goods to the prejudice of
another in accordance with the case of People v. Nitafan.
1. Define the following terms:

a) Trust fund doctrine

Subscribed capital is a trust fund for the payment of the debts of the corporation, to which the
creditors may look for satisfaction.

Until the liquidation of the corporation, no part of the subscribed capital may be returned or
released to the stockholder (except in the redemption of redeemable shares) without violating this
principle.

Thus, dividends must never impair the subscribed capital; subscription commitments cannot be
condoned or remitted; nor can the corporation buy its own shares using the subscribed capital as the
considerations therefor.

b) Unfair competition

Unfair competition is the employment of deception or any other means contrary to good faith by
which a person shall pass off the goods manufactured by him or in which he deals, or his business,
or services, for those of another who has already established goodwill for his similar goods, business
or services, or any acts calculated to produce the same result. (Asia Brewery Inc., v. Court of Appeals)

c) Insurable interest in property

Under Sec. 14 of the Insurance Code, an insurable interest in property may consist in:

(a) An existing interest;

(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.

d) Splitting of deposits

Splitting of deposit occurs whenever a deposit account/s with an outstanding balance of more than
the statutory maximum amount of insured deposit maintained under the name of a natural or
juridical person/s is/are broken down and transferred into two or more accounts in the name/s of
natural or juridical person/s or entity/entities who have no beneficial ownership on transferred
deposits in their names within one hundred twenty (120) days immediately preceding or during a
bank-declared bank holiday, or immediately preceding a closure order issued by the Monetary Board
of the Bangko Sentral ng Pilipinas (BSP) for the purpose of availing of the maximum deposit
insurance coverage.

2. Ms. J. offered to sell her car to Ms. K, an interested buyer. Consequently, Ms. J. emailed Ms. K a
copy of the proposed Deed of Sale covering the same. After agreeing to its terms, Ms. K. printed and
then signed the mail copy of the Deed of Sale. She the faxed it to Ms. J. who signed the faxed copy.
Is the copy of the Deed of Sale faxed by Ms. K to Ms. J. considered an electronic document under
the Electronic Commerce Act? Explain.

Yes. Under Sec. 3(f) of the Electronic Commerce Act, electronic document is defined as any
information or representation of data or information however represented by which a right is
established, obligation extinguished or a fact may be proved or affirmed which is received, stored,
produced electronically.

In this regard, the faxed document can be considered as electronically produced by a system which
originated from mail and subsequently gives rights and obligations to both parties, is liberally
construed by the E-Commerce Act.

3. W Medical, Inc. operated a full service hospital named WMed. Using its stockholders’ advances and
mortgage loan from Bank X, W Medical Inc. commenced the construction of a new 11-storey WMed
Annex Building. Unfortunately, due to financial constraints, only 7 floors were constructed and the
WMed Annex Building remained unfinished.

Despite the non-completion of the WMed Annex Building, W Medical Inc. continued its operations
and earn modest revenues. While W. Medical, Inc.’s assets are more than its liabilities and it is able to
return a monthly profit, it could not pay its loan installments to Bank X as they fall due.

a) What is the concept of “insolvency” under Financial Rehabilitation and Insolvency Act?
May W Medical Inc. be considered “insolvent” under FRIA? Explain.

The state of being insolvent as defined under the FRIA refers to the financial condition of a debtor
that is generally unable to pay its or his liabilities as they fall due in the ordinary course of business
or has liabilities that are greater than its or his assets.

In this regard, the W Medical, Inc. does not fall within the ambit of the conditions posed by the law
wherein the business must either have its liabilities greater than its assets or they must generally fail to
to pay its liabilities as they fall due.

The company is still able to earn modest profits and viably operate despite falling on hard times. It
cannot be seen that they are not financially viable as to generally fail to meet its obligations with its
creditors, stockholders, and clients. As such it is not insolvent.

b) Assuming that W Medical, Inc. is considered “insolvent”, may it file a petition for
suspension of payments under FRIA? Explain.

c) Assuming that W. Medical, Inc. is considered “insolvent”, what are the legally
recognized modes of rehabilitation it may opt to avail of?

d) If W Medical, Inc. files a petition for rehabilitation proceedings before the court, is it
possible for the rehabilitation proceedings to be converted into one for liquidation? Explain.
4. EFG, Inc. is indebted to Bank Y in the amount of P50,000,000.00. The loan was secured by
a suretyship agreement issued by Z Insurance Co.

Due to EFG, Inc’s default, Bank Y filed a case against Z. Insurance Co. as surety. There is
also a pending criminal case for violation of the Bouncing Checks Law against the President
of EFG, Inc. Mr. P who signed the check as signatory for the company.

Unable to meet its obligations as they fell due, EFG, Inc. filed a petition for rehabilitation.
Finding the petition sufficient in form and substance, the court issued a Commencement
Order, which was thereafter published.

a) Should the case filed against Z Insurance Co. be suspended in light of the
Commencement Order? Explain.

b) Should the criminal case filed against Mr. P be suspended in the light of the
Commencement Order? Explain.

5. Enumerate at least 2 rights of a data subject under the Data Privacy Act.

a. Right to be informed.

b. Right to rectify or correct inaccurate data.

6. Mayor J has 2 bank accounts: 1) a Peso savings account with Bank P; 2) a US Dollar savings
account with Bank D.

In 2018, Mayor J’s former business partner, Mr. K, filed a civil case for collection of a sum of
money against him.

In the same year, a criminal case for Direct Bribery under the Revised Penal Code was filed
against Mayor J. It was alleged in the information that in exchange for the expeditious
approval of various permits and licenses, Mayor J received kickbacks which amounts were
deposited to his bank accounts.

a) In the event Mayor J. is held ultimately liable in the civil case filed by Mr. K, may
Mayor J’s bank accounts in Bank P and Bank D be subject to garnishment? Explain.

b) Assuming that the prosecution in the criminal case sought from the court an inquiry
of Mayor J’s bank account in Bank P and Bank D, may a bank inquiry order be issued?
Explain.

7. Several public officials were charged before the Sandiganbayan for violation of the Anti-
Graft and Corruption Practices Act involving the anomalous award of a multi-billion contract
to Corporation Z. The information alleged that each of the accused received kickbacks from
Corporation Z in exchange for the dispensation of certain bidding requirements, and that the
said kickbacks were deposited to the accused’s respective bank accounts in the Philippines.
Upon request of the Office of the Ombudsman, the Compliance and Investigation Staff of the
Anti-Money Laundering Council conducted an intelligence database search. The search
revealed that there were remittances to the bank accounts of the accused with 6 different
banks.

a) May the AMLC examine the bank accounts of the accused-public officials even without
seeking a prior court order? Explain.

b) May the court order be issued ex parte for the freezing of the bank accounts of the accused-
public officials upon application of the AMLC? If so, in what instance may this be done and
which court can issue such order? Explain.

8. F. Corp., a corporation engaged in the export of fertilizers, entered into a sale of its products
with Mr. P. in this relation, Bank C, F Corp.’s bank, received an irrevocable letter of credit,
payable on sight, issued by Bank I for the account of its client, Mr. P, in the amount of
P1,000,000.00 to cover the purchase price of the sale. In the letter of credit, bank C was
designated as the confirming bank.

After being presented the required documents under the letter of credit, Bank C. Issued in
favor of F Corp. a cashier’s check in the amount of P1,000,000.00

Bank C the informed bank I of the payment made pursuant to the letter of credit. Thereafter,
bank C. Transmitted the documents presented by F Corp. to Bank I and sought to be
reimbursed for the amount it paid to F Corp.

Bank I, however, refused to reimbursed Bank C for the reason that it received an e-mail
coming from Mr. P. that the latter will not make any payment to Bank I in relation to the letter
of credit because the products shipped to him by F Corp. were of substandard quality.

a) Is Bank I’s refusal to reimbursed Bank C warranted? Explain.

b) Assuming that the documents submitted by F Corp. were proven to be actually forged
but were nonetheless accepted by Bank C as sufficient, may Bank I refuse Bank C’s claim for
reimbursement? Explain.