UNIVERSITY OF THE CORDILLERAS

COLLEGE OF LAW
COMMERCIAL LAW REVIEW
COMPREHENSIVE EXAMINATIONS- JANUARY 17, 2008
PRIVATE CORPORATIONS AND RELATED LAWS

INSTRUCTIONS: This examination consists of SEVENTEEN (17) questions. Read

each question carefully before answering. A mere yes or no without any discussion
will not be given credit. Be concise. Begin every answer on a separate page.
Answers to sub-questions may be continued on the same page. Should you commit
a mistake, simply draw a line across the mistake. Do not make any other marks on
your booklet. Do not fold or tear out any page. A deduction of five points will be
indicated if these instructions are not followed. GOOD LUCK!

1.What are the effects of the acquisition by a director of the entire outstanding
capital stock of the corporation? (5 pts)

2.Can the corporate secretary bar a stockholder from exercising the right to vote
when his shares appear in the books and records to have been pledged in favor of
a third person? (5 pts)

3.Can an amendment to the By-Laws rendering non-existent a contractual position

be approved by the SEC? (5 pts)

4.Will the existence of profits render mandatory the declaration of dividends?(5 pts)
Can treasury shares be given as dividends? (5 pts)

5.Explain the “doctrine of equality of shares”. (5 pts)

6.Can a corporation dissolve itself at any time? (2 pts) Assuming that it can dissolve
at any time, what are the effects of dissolution? (2 pts) Does a corporation lose its
legal capacity to sue upon dissolution? (2 pts) Is the intervention of the State
required in voluntary dissolution? (2 pts) Is a corporation considered dissolved by a
90% depletion of its capital stock? (2pts)

7.A corporation bound itself to pay a resigning president who could not get along
with the other directors the value of his shares. The undertaking was covered by a
promissory note. The corporation eventually defaulted on the note. Upon demand to
pay, the corporation awaited the completion of the fiscal year to source the funds
from profits. Is the act of the corporation a violation of the trust fund doctrine? (5
pts)
8.XYZ Corporation entered into a contract with ABC Corporation. A and X are on
the board of both corporations. B and Y are stockholders of both corporations. A
owns 25% of the outstanding capital stock of XYZ Corporation and 30% of the
outstanding capital stock of ABC Corporation. X owns 15% of the outstanding
capital stock of XYZ Corporation and 10% of the outstanding capital stock of ABC
Corporation. B and Y each own 10% of the outstanding capital stock of XYZ
Corporation and 30% of the outstanding capital stock of ABC Corporation.
Assuming that the contract is fair and reasonable, is it voidable at the option of 1 of
the corporations or is it a valid contract? (5 pts)

9.X, a stockholder in ABC Corporation gave a written proxy to stockholder A, with

express authority to appoint a substitute. Prior to the meeting, A designated
stockholder B as his alternate proxy. On the date of the meeting for which the proxy
was intended, A and B were both present. A arrived earlier than B. Who between A
and B should exercise the voting rights pertaining to the shares of X? Why? (5 pts)

10.Mark was invited by his friends to invest in A Corporation, a newly organized firm
engaged in money market and financing operations. Because of his heavy
investments, Mark became the firm’s president and, as such, purchased a big
number of computers, typewriters and other equipment from B Corporation on
installment basis. A Corporation paid the down payment and B Corporation issued
the corresponding receipt. To his chagrin, Mark discovered that the Articles of
Incorporation had not been filed by his friends on that date so he hurriedly attended
to the matter. No sooner had the Certificate of Incorporation been issued by the
SEC, A Corporation became bankrupt after three months. Upon being sued by B
Corporation in his personal capacity, Mark raised among his defenses the doctrines
of de facto corporations and corporations by estoppel. Which of the defenses is
tenable? Explain. (5 pts)

11.AA Corporation is engaged in the business of printing books. Around 70% of its
assets consist of cash in the bank, 25% consists of a printing machine, office
equipment and supplies. AA Corporation plans to sell the machine. Can it be
considered a sale of substantially all of the assets of the corporation? (5 pts)

12.In relation to insider trading, what is meant by “material non-public information”?

(5 pts)

13.X has the following plans: (a)organize the XYZ Country Club, Inc. (b)let the club
buy a 10 hectare land for PHP 10 million which will be developed into a sports and
health club (c) PHP 5 million of the required PHP 10 million needed to develop the
club will be raised thru the sale of certificates of membership (c) the certificate of
membership shall give the purchaser the right to use all club facilities, and shall be
transferable to anyone who meets the criteria for membership. It shall not,
however, give the purchaser any right in the income and assets of the club. X
wants to know whether the certificate of membership is a security. What is your
opinion? (5 pts)

14.S is a minority director in XYZ Corporation, elected through cumulative voting.

During board meetings, he always made it a point to oppose the motions of the
majority. As a result of his actions, the majority of the board thought of a way to oust
him from the corporation. They determined that S had failed to complete payment
on his subscription. The board subsequently made a call for payment of all unpaid
subscriptions on January 1, 2007. On account of the failure of S to pay, the board
declared his shares delinquent, and by resolution, sold all of them in a delinquency
sale on February 15, 2007. As a result, S was deemed ousted from the board and
the corporation. Was the action of the board valid? (5 pts)

15.Can the commission by the corporation of an ultra vires act serve as basis for
the filing of a derivative suit? (5 pts)

16.The board of AAA Corporation is composed of Juan, Ben, Nestor, Mike and
Conrad. Ben owns 40% of the capital stock, while the rest own 15% each. In a
regularly scheduled board meeting, the following matters were taken up:

a.By a vote of 3-1, increased their per diems by 50%.

b.Ratified the authority of Ben in bringing suit in his name against XYZ Corporation,
a corporate debtor.

c.Decided that notwithstanding the absence of Ben during the period of his travel
abroad, the board shall proceed to transact corporate business.

Discuss fully the propriety of each of the actions of the board. (10 pts)

17.How may a corporation reverse an impending bankruptcy if they still have

remaining assets to conduct corporate business? (5 pts)

UNIVERSITY OF THE CORDILLERAS

COLLEGE OF LAW
COMMERCIAL LAW REVIEW
Midterm Examinations-January 26 2005

INSTRUCTIONS: This examination consists of FIFTEEN (15) QUESTIONS and

must be completed in TWO HOURS. Read each question carefully before
answering. A mere yes or no without any discussion will not be given credit. Be
concise. Begin every answer on a separate page. Answers to sub-questions may
be continued on the same page. Should you commit a mistake, simply draw a line
across the mistake. Do not make any other marks on your booklet. Do not fold or
tear out any page. A DEDUCTION of FIVE POINTS will be indicated if these
instructions are not followed. GOOD LUCK!

1.Corporation XYZ has not been in operation for about two years due to the
physical absence of 4 of the directors who were abroad most of the time. The
absentees include Jose, the chairman and a principal stockholder, who holds 25%
of the outstanding capital stock. The 5 other members of the 9 man board are
residents of the Philippines and are willing to resume operation of the corporation.
May the 5 members of the board convene a meeting to reorganize the corporation
and appoint a new chairman? (4 pts) Assuming your answer is in the affirmative,
can the number of the members of the board be reduced to 5? (4 pts)

2.Can the president of a corporation remove his vice president at will? How can
removal of the vice president be possible? (5 pts)

3.Can an executive committee be created by resolution of the board? (3 pts) Can

non members of the board be members of an executive committee? (2 pts) What
powers cannot be exercised by an executive committee? (5 pts)

4.Corporation ABC has been in operation for three years. The authorized capital
stock of the corporation is PHP 1,000,000.00. 100% of the authorized capital stock
has been subscribed. 50% of the subscribed capital stock has been paid up. During
the first year, it suffered a loss of PHP 200,000.00. On the second year, it realized
PHP 150,000.00 in profits. At the end of the third year, it did not realize any profits
nor did it incur a loss. May the corporation through its board validly declare cash
dividends? (3 pts) Can it declare a stock dividend? (3 pts) Assuming that a stock
dividend is possible, briefly outline the process. (3 pts)

5.Is it legally feasible for an individual to own and operate a corporation by buying
all the outstanding shares of stock, acquiring thereby all the assets and liabilities of
the said corporation? (5 pts)

6.Enumerate three capital generating actions that a corporation may undertake.

Explain each briefly. (6 pts)

7.Alejandro is engaged in buying charcoal and firewood and in reselling them. He

uses two (2) big trucks for the purpose. However, he has no certificate of public
convenience or franchise to do business as a common carrier. In some of his trips,
he loads his trucks with various merchandise of other merchants. He charges them
freight rates much lower than the regular rates. In one of the trips, one (1) cargo
truck was loaded with several boxes of sardines, valued at P100,000.00, belonging
to Pedro. While passing through a mountain road, the truck was hijacked by three
(3) armed men who took all the boxes of sardines and kidnapped the driver and his
helper, releasing them only two (2) days later. Pedro sought to recover from
Alejandro the value of the sardines. However, Alejandro contends that he is not
liable because he is not a common carrier under the Civil Code and, even granting
for the sake of argument that he is, he is not liable for the loss as it was due to a
cause beyond his control. Is Alejandro correct? (5 pts)

8.A Victory Liner bus on its way to Manila stopped to enable a passenger to alight.
At that moment, Bruno, who had been waiting for a ride, boarded the bus. A
moment thereafter, the bus driver, failing to notice that Bruno was still standing on
the bus platform, stepped on the accelerator. Because of the sudden motion, Bruno
slipped and fell down, suffering serious injuries. May Bruno hold Victory Liner liable
for breach of the contract of carriage? (4 pts)

9.What is a bareboat charter? (2 pts) What is a contract of affreightment? (2 pts)

Explain the two fold character of a bill of lading. (4 pts)

10.Fully laden cargo vessels “X” and “Y” collided with each other causing damage
to both vessels and their cargo. Vessel “X” had the last clear chance to avoid the
collision but failed to do so. Is the doctrine of last clear chance in tort applicable to
collisions of vessels at sea under the Code of Commerce? (3 pts) Which vessel
should shoulder liability for the damage suffered by both vessels and by the cargo?
(3 pts) Assuming that the negligence of the captain of vessel “X” was the proximate
cause of the collision, while the negligence of the captain of vessel “Y” was merely
contributory. To which vessel should the collision be deemed imputable? (3 pts)

11.A takes a plane from Manila to Cagayan de Oro via Cebu, where there is a
change of planes. A arrives in Cagayan de Oro, but his suitcases were left in Cebu.
Despite an assurance that they were enroute, the suitcases never arrived. A claims
PHP 1000.00 in damages for the loss of his suitcases, but the airline is only willing
to pay PHP 400.00 on the ground that the ticket stipulates that loss is limited to
PHP 200.00 for every piece of luggage unless a higher value is declared. A was
earlier advised by an airline agent regarding the stipulation but he did not declare a
higher value. To what amount is A entitled to? (4 pts)

12.ABC Corporation transacts with XYZ Corporation. Two of the directors in the 5
man board of ABC Corporation are also directors of the 9 man board of XYZ
Corporation. In addition, both corporations transact with A, who is the owner of 60%
of the outstanding capital stock of ABC Corporation and the elected corporate
secretary of XYZ Corporation. Discuss whether the transactions are void, voidable
or valid. (6 pts) Assuming that XYZ Corporation is a de facto corporation, what
effect will it have on its transactions? (3 pts)

13. Distinguish between a proxy and a voting trust agreement. (5 pts)

14.Ramon is the holder of preferred shares in ABC Corporation. Upon a change in
management brought about by a takeover, all preferred shares were to be
converted into common shares thereby granting stockholders greater rights. Can
Ramon exercise his right of appraisal? (3 pts) Assuming that the conversion is
implemented and Ramon has not paid for his subscription in full , is he entitled to
the common shares corresponding to his preferred shares? (3 pts)

15.What is the doctrine of piercing the veil of corporate fiction? (3 pts) What is the
business opportunity rule? (3 pts) What is a close corporation? (4 pts)

UNIVERSITY OF THE CORDILLERAS

COLLEGE OF LAW
COMMERCIAL LAW REVIEW-MIDTERM EXAMINATIONS
FEBRUARY 9, 2006

INSTRUCTIONS: This examination consists of TWO PARTS. Part 1 has 12

questions. Read each question carefully before answering. Discuss the issue/s
completely. A mere yes or no without any discussion will not be given credit. Be
concise. Begin every answer on a separate page. Answers to sub-questions may
be continued on the same page. Should you commit a mistake, simply draw a line
across the mistake. Part 2 has 15 questions. They are allocated 2 points each. The
object is to choose the BEST ANSWER. Do not make any other marks on your
booklet. Do not fold or tear out any page. A deduction of five points will be indicated
if these instructions are not followed. GOOD LUCK!

PART 1

1.

Juan has a reputation for turning losing companies into profit generating ones. XYZ
Corporation hires Juan as its President and Chief Executive Officer. In accordance
with usual corporate practice, XYZ Corporation insures the life of Juan designating
itself as the beneficiary. Due to a serious misunderstanding with the majority
stockholders, Juan decided to resign and sell all his shares in XYZ Corporation. A
month after severing all connection to XYZ Corporation, Juan dies. Can XYZ
Corporation claim the benefits of the insurance? (5 pts)Assuming that Juan
transferred to another company, can XYZ Corporation assign the insurance to the
other company? (5 pts)

2.
XYZ Corporation purchased rice from Vietnam for resale to local merchants. It
procured insurance over the cargo. Due to bad weather, the ship transporting the
rice to the Philippines was partially submerged in seawater and with it the cargo of
rice. Upon arrival in Manila, the rice was no longer fit for human consumption and
could only be utilized as animal feed. Can XYZ Corporation claim an actual total
loss? (5 pts) Can XYZ Corporation claim a constructive total loss if the value of the
rice has been reduced by 80% of its original value? (5 pts)

3.

A businessman engaged in the grocery business obtained from X Insurance an

insurance policy for PHP 5,000,000.00 to fully cover his stocks-in-trade from the
risk of fire. Three months thereafter, a fire of accidental origin broke out and
completely destroyed the grocery including his stocks-in-trade. This prompted the
businessman to file with X Insurance a claim for PHP 5,000,000.00 representing the
value of his goods. X Insurance denied the claim because it discovered that at the
time of loss, the stocks-in-trade were mortgaged to a creditor who likewise obtained
from Y Insurance Company fire insurance coverage for the stocks at their full value
of five million pesos. You are engaged to resolve the following queries: (a) May the
businessman and the creditor obtain separate insurance coverage over the same
stocks-in-trade? (b) May X Insurance refuse to pay on the ground that double
insurance is contrary to law? (c) Assuming that recovery is possible, how much
would the businessman and the creditor be allowed to recover from their respective
insurers? Explain. (10 pts)

4.

Jack mortgaged a car to Jill to secure payment of a loan of PHP 500,000.00 that
was to be paid by way of monthly installments of PHP 50,000.00 on the 30th day of
every month until paid. As a condition for the loan, Jack was to obtain insurance
over the car subject of the mortgage and in case of loss, was to deliver the
assigned proceeds to Jill. After paying the requisite monthly installments for 6
months, the car was totally lost by fortuitous event. Jack subsequently receives
PHP 500,000.00 from the insurer. Jill demands immediate delivery of the sum of
PHP 200,000.00. Jack however refuses to deliver because he contends that his
obligation is not yet due and he can pay the balance to Jill in 4 installments of PHP
50,000.00 on the 30th day of every month as agreed upon. Who among them is
correct? (5 pts)

5.
Ben’s residence is insured against fire. His neighbor’s house catches fire and one
of its walls collapses on his residence. Consequently, Ben’s residence is totally
destroyed. Ben’s subsequent claim against his insurer is denied as the latter
contends that while there is a loss, no part of Ben’s residence was burned. Is the
insurer correct? (5 pts)

6.

Distinguish between a warranty and a representation (5 pts) What is meant by co-

insurance? When does it arise? (5 pts) What is the “no fault indemnity clause” in
Compulsory Third Party Liability Insurance? Does its application bar complete
recovery? (5 pts) When does the “incontestability clause” apply? (5 pts)

7.

Tony enters into a contract with Jun to procure fast selling gas saving devices
manufactured by Classy Corporation. The primary consideration of Tony was the
fact that Jun was a substantial stockholder and director of Classy Corporation and
that he was in a position to expedite delivery without a long wait. Unknown to Tony,
the gas saving device was being investigated by the Department of Trade as it
appears that the claims of effectivity were inaccurate. On date stipulated in the
contract for delivery, Tony was unable to receive the goods contracted for. In an
action for recovery of damages against Tony and Classy Corporation, can the “veil
of corporate fiction” be pierced? (5 pts)

8.

The By-Laws of ABC Corporation contains the following provision: “A stockholder of

the corporation is not allowed to be a director of another corporation that directly
competes with the corporation”. X, a stockholder of ABC Corporation is running for
a board seat in XYZ Corporation, a competitor of ABC Corporation. Y, a stockholder
of XYZ Corporation questions the candidacy of X pursuant to the provision of the
By-Laws of ABC Corporation. X responds by saying that XYZ Corporation cannot
allow another corporation to determine the composition of its board. Who between
X and Y is correct? (5 pts)
9.

A corporation by a provision in its By-Laws limits the number of proxies that may be
held by a proxy to no more than five (5) percent of the outstanding capital stock. In
the annual meeting of the corporation, Juan presents proxies secured from
stockholders who hold eight (8) percent of the outstanding capital stock. The
corporate secretary subsequently rejects the proxies. Is the action of the corporate
secretary correct? (5 pts)

10.

AAA Construction is an international corporation which was incorporated in the

USA. It was invited to bid for the construction of a hotel and resort complex in
Boracay. Unfortunately, the project was awarded to another company. Believing that
it had a cause of action against its Philippine representative for not having worked
to get the contract, it commenced suit before a Philippine Court to recover
damages. In its complaint, AAA Construction alleges that it is suing on an isolated
transaction. Can the suit prosper? (5 pts)

11.

Washington Inc. is a corporation engaged in the retail trade. After a business trip to
China, the board of the corporation was able to determine that it could substantially
expand its operation in the Philippines to take advantage of the low prices of goods
in China. To facilitate such business decision, it entered into an agreement that
would allow the supplying company based in China to infuse capital in the
corporation and seat its nominees on the board. You are consulted by the Board of
Washington, Inc., as to how best to effect the agreement in the light of the
prohibition that does not allow foreign equity in a corporation engaged in the retail
trade. What can you advise them? (5 pts)

12.

What makes a corporation a close corporation? (5 pts) What is an intra-corporate

dispute? (5 pts) What are the attributes of a corporation? (5 pts)

PART 2
1.

In XYZ, Incorporated, a non-stock corporation, X was elected as the Treasurer.

Subsequent to his election, he had a dispute with the president. May X be removed
from his post by Y?

a.Yes, because as president, Y has the power to remove corporate officers

b.Yes, because as president, Y is acting in behalf of the corporation
c.No, because the power to remove is exercised solely by the board
d.Neither a, b, or c

2.

Hector, in his capacity as the president of XYZ Corporation signed a contract with
Antonio, in his capacity as the president of ABC Corporation for the development of
the property of Mariano, the majority shareholder of XYZ Corporation. There are
appropriate board resolutions of each corporation authorizing their respective
presidents to contract. ABC Corporation reneged on its obligation as provided for in
the contract. Hector immediately filed suit for specific performance against ABC
Corporation? The suit will:

a.Prosper, as ABC Corporation is in default of its obligation

b.Prosper, as Hector is a duly authorized representative of XYZ Corporation
c.Fail, as the suit must be brought by Mariano against ABC Corporation
d. Fail, as the suit must be brought by XYZ Corporation against ABC Corporation

3.

A marine insurance policy on cargo states that the insurer is liable for losses
incident to perils of the sea. During the voyage, waves measuring ten feet in height
caused seawater to enter the cargo hold through a loosely secured hatch. The
cargo was damaged. The insured:

a.Can recover because the proximate cause of the loss is a peril of the sea
b.Can recover because the proximate cause of the loss is a peril of the ship
c.Cannot recover because the proximate cause of the loss is a peril of the ship
d.Neither a, b, or c

4.

The corporate term of ABC Corporation expired on December 31, 2004. On March
1, 2005, an election was held to elect directors. Can the board so elected validly
exercise corporate functions?
a.Yes, as the corporation cannot function without a board
b.Yes, as the corporation continues to be in existence
c.No, expiration of the term implies cessation of the authority to act as a body politic
d.No, as the directors then sitting at expiration of the term shall holdover

5.

Manuel applied for and was issued a life insurance policy by First Insurance
Corporation. In his application, he states that he was never confined in a hospital
for medical treatment. The truth however is that Manuel was confined at the Makati
Medical Center for a substance abuse problem. Such non disclosure of the truth is
tantamount to:

a.Concealment
b. Misrepresentation
c.Misrepresentation in breach of the insurance contract
d.Concealment in breach of the insurance contract

6.

X has been designated as the beneficiary of a life insurance policy procured by Y.

The policy states that X’s consent is required when there is a change in the
designation of another beneficiary and that he shall be entitled to the benefits of the
insurance as long as he claims the benefits personally at the time it is payable. X
dies before Y. The benefits when due, shall be payable to:

a.The legal representatives of X

b.The legal representatives of Y
c.The estate of X
d.The estate of Y

7.

Arnold purchased 30 computers from IBM. The computers were to be delivered

from Makati City to his business address in Baguio City. Payment to be made upon
his receipt of the computers. Arnold procured insurance for loss or damage while in
transit. The computers were subsequently lost while in transit. A subsequent claim
by Arnold on the insurance will be resolved:

a.In favor of Arnold, as he has insurable interest at the inception of the insurance
contract and at the occurrence of the loss
b.In favor of Arnold, as he has insurable interest at the point of purchase
c.Against Arnold, as he has no insurable interest at the inception of the insurance
contract nor at the occurrence of the loss
d.Against Arnold, as the insurance was procured by way of gaming

8.

A corporation was created by a special law. Later, the law creating it was declared
invalid. Such corporation is now:

a.A de facto corporation

b.A de jure corporation
c.A corporation by estoppel
d.Neither a, b or c

9.

Max became a stockholder of Prime Corporation on January 1, 2003, when he was

given 1 share by Bruno, another stockholder, to qualify him as a director. In 2005,
Max was not re-elected as a director but he continued to remain as a stockholder
on record. Feeling slighted by his non election, Max disclosed that while he was a
director, he discovered that on December 1, 2002, Prime Corporation, by
unanimous vote of the then board, issued 1,000 shares to Paquito, a lawyer who
had successfully defended it from a damage suit that is pending appeal. Can Max
bring a suit in the name of the corporation to question the issuance of shares to
Paquito?

a.Yes, because demand upon the board to sue will probably be ignored
b.Yes, because the intent of Max is to seek redress for a violation of the rights of
the corporation
c.a and b
d.No, because Max has no personality to bring the suit

10.

Under the same facts as stated in Question (10), can the shares issued to Paquito
be considered as watered?

a.Yes, because the corporation must receive an amount of money equivalent to par
or issued value in consideration of the issuance of shares
b.Yes, because there was no subscription contract entered into between the
corporation and Paquito
c.Yes, if the value of services is less than par or issued value
d.Yes, as services must be completely rendered if it is to be accepted as
consideration for the issuance of shares

11.
A corporation bound itself to pay a resigning president who could not get along with
the other directors the value of his shares. The undertaking was covered by a
promissory note. The corporation eventually defaulted on the note. Upon demand to
pay, the corporation awaited the completion of the fiscal year to source the funds
from profits. Is the act of the corporation a violation of the trust fund doctrine?

a.Yes, because the conditions for the acquisition of its own shares do not exist
b.Yes, because it constitutes a premature distribution of assets
c.No, because it was undertaken for a legitimate corporate purpose
d.No, because the interest of the corporation was best served by severing the
relationship with its former president

12.

An insurance policy is taken out by Jim on a car registered in the name of the firm
of “Jim and Partners. In case of a loss, recovery on the policy may be had by:

a.Jim
b.Jim and his partners
c.Firm of Jim and Partners
d.Neither a, b, or c

13.

In procuring insurance to cover his residence against fire, Jose warrants that no
flammable materials will be stored within the premises. The policy is issued on
December 15, 2005. Unknown to Jose, his son had bought fireworks earlier in day,
although they were delivered and stored within the premises on December 26,
2005. If fire razes the residence to the ground on December 20, 2005, the insurer
is:

a.Liable, as the breach was not fraudulent

b.Liable, as the loss occurred before breach
c.Not liable, as the breach was at the inception of the insurance
d.Not liable, as the breach was fraudulent

14.

Popeye secures insurance to cover the voyage of his vessel from Manila to
Zamboanga. The route to be taken by the vessel includes stops to load and unload
cargo in Iloilo, Cebu, then on to Zamboanga. The voyage was to take five days.
Due however to excellent weather and efficient cargo handling, the voyage was
completed in three days. Is Popeye entitled to a partial return of the premium paid?

a.No, because the voyage was indivisible

b.No, because the insurer was nevertheless exposed to the contemplated risks
c.Yes, because the insurer was exposed to the contemplated risks for a shorter
period of time
d.Yes, because the voyage was divisible

ASSESSMENT EXAMINATION
CORPORATION CODE AND RELATED LAWS

INSTRUCTIONS: Determine if the following statements are true or false. Write T if

true or F if false in the space provided for. SCORE: ___________

____1.The law creating a XYZ corporation has been declared invalid. Hence, XYZ
Corporation is now a de facto corporation.

____2.X subscribed to 100 shares of ABC Corporation. X paid 25% of the value of
the said subscription. Pending payment of the entire consideration, X can be
enjoined from voting at a stockholders meeting.

____3.The board of ABC Corporation can declare that for every share of stock held
by its 100 stockholders, they would be entitled to receive one share of stock of XYZ
Corporation by way of a dividend without the need for the approval of its
stockholders.

____4.A vacancy in the board due to an increase in the number of required

directors can be filled up by the board as long as it still constitutes a quorum.

____5.A contract entered into between corporations A and B who have the same
majority stockholder, who acts as the president in Corporation A and as secretary in
Corporation B is valid.

____6.A stock corporation can be converted into a non- stock corporation by

amendment of its Articles.

____7.The lack of a license to transact business does not bar a foreign corporation
from bringing suit before a Philippine court.

____8.A sale of treasury shares at a price less than its stated par value does not
violate the Trust Fund Doctrine.

____9.The Business Judgment Rule bars courts from interfering in corporate

management if the questioned acts are undertaken in good faith and do not amount
to the wanton destruction of the rights of the minority.
____10.No pre-emptive rights exist when the shares are issued with the approval
stockholders representing 2/3 of the outstanding capital stock in exchange for a
property to be used by the president of the corporation.

____11.An ultra vires is always considered an unlawful or illegal act.

____12.Stockholders or members are entitled to payment or compensation for

attending meetings.

____13.Privilege granted to a party to subscribe to a certain portion of unissued

stock within a certain period is a subscription contract.

____14.A derivative suit is available as a remedy in cases where the corporate

officers are over compensated.

____15.The right of appraisal may be exercised when the shares of a stockholder

of Corporation A is required to be exchanged for the shares in Corporation B.

____16.A savings bank with 12 stockholders who have agreed to convey their
shares only to each other should they be inclined to dispose of them is considered
as close corporation.

____17.Dissolution brings about the termination of corporate existence as far as

the right to go on doing ordinary business.

____18.An intra-corporate dispute is determined by the status of the relationship

between the parties and nature of the question that is the subject of the
controversy.

____19.An order to buy a security with knowledge that a corresponding order to sell
the same security at substantially the same price and time by another party is a
prohibited manipulation of its price.

____20.Insider trading occurs when corporate officers sell to each other shares of
stock of the corporation where they are both officers, while in possession of
material information with respect to the shares that is not generally available to the
public.

RENATO S. RONDEZ
Partner, Law Firm of Rondez & Partners
Professor, College of Law, University of the Cordilleras
April 2008
Page 1 of 2
DIAGNOSTIC EXAMINATION-CORPORATIONS

INSTRUCTIONS: This diagnostic examination consists of 20 items. You are to

choose the BEST ANSWER by encircling the letter corresponding to your choice. If
you want to change your answer, you must draw an X over the answer first chosen,
and then proceed to encircle your choice.

NAME: _________________________________ SCORE:

________________________

1.

In XYZ, Incorporated, a non-stock corporation, X was elected as the Treasurer.

Subsequent to his election, he had a dispute with the president. May X be removed
from his post by Y?

a.Yes, because as president, Y has the power to remove corporate officers

b.Yes, because as president, Y is acting in behalf of the corporation
c.No, because the power to remove is exercised solely by the board
d.Neither a, b, or c

2.

Hector, in his capacity as the president of XYZ Corporation signed a contract with
Antonio, in his capacity as the president of ABC Corporation for the development of
the property of Mariano, the majority shareholder of XYZ Corporation. There are
appropriate board resolutions of each corporation authorizing their respective
presidents to contract. ABC Corporation reneged on its obligation as provided for in
the contract. Hector immediately filed suit for specific performance against ABC
Corporation? The suit will:

a.Prosper, as ABC Corporation is in default of its obligation

b.Prosper, as Hector is a duly authorized representative of XYZ Corporation
c.Fail, as the suit must be brought by Mariano against ABC Corporation
d. Fail, as the suit must be brought by XYZ Corporation against ABC Corporation

3.

The corporate term of ABC Corporation expired on December 31, 2004. On March
1, 2005, an election was held to elect directors. Can the board so elected validly
exercise corporate functions?

a.Yes, as the corporation cannot function without a board

b.Yes, as the corporation continues to be in existence
c.No, expiration of the term implies cessation of the authority to act as a body politic
d.No, as the directors then sitting at expiration of the term shall holdover

4.

A corporation was created by a special law. Later, the law creating it was declared
invalid. Such corporation is now:

a.A de facto corporation

b.A de jure corporation
c.A corporation by estoppel
d.Neither a, b or c

5.

Max became a stockholder of Prime Corporation on January 1, 2003, when he was

given 1 share by Bruno, another stockholder, to qualify him as a director. In 2005,
Max was not re-elected as a director but he continued to remain as a stockholder
on record. Feeling slighted by his non election, Max disclosed that while he was a
director, he discovered that on December 1, 2002, Prime Corporation, by
unanimous vote of the then board, issued 1,000 shares to Paquito, a lawyer who
had successfully defended it from a damage suit that is pending appeal. Can Max
bring a suit in the name of the corporation to question the issuance of shares to
Paquito?

a.Yes, because demand upon the board to sue will probably be ignored
b.Yes, because the intent of Max is to seek redress for a violation of the rights of
the corporation
c.a and b
d.No, because Max has no personality to bring the suit

6.

Under the same facts as stated in Question (5), can the shares issued to Paquito
be considered as watered?

a.Yes, because the corporation must receive an amount of money equivalent to par
or issued value in consideration of the issuance of shares
b.Yes, because there was no subscription contract entered into between the
corporation and Paquito
c.Yes, if the value of services is less than par or issued value
d.Yes, as services must be completely rendered if it is to be accepted as
consideration for the issuance of shares
7.

A corporation bound itself to pay a resigning president who could not get along with
the other directors the value of his shares. The undertaking was covered by a
promissory note. The corporation eventually defaulted on the note. Upon demand to
pay, the corporation awaited the completion of the fiscal year to source the funds
from profits. Is the act of the corporation a violation of the trust fund doctrine?

a.Yes, because the conditions for the acquisition of its own shares do not exist
b.Yes, because it constitutes a premature distribution of assets
c.No, because it was undertaken for a legitimate corporate purpose
d.No, because the interest of the corporation was best served by severing the
relationship with its former president

8.

In the distribution of profits in a corporation and in a partnership, which of the

following is false?

a.Only those who have given capital are entitled to a share of the profits
b.The share in the profits is determined by the extent of the given capital
c.The delivery of a share in the profits is a demandable right
d.The period for delivery of a share in the profits is determined by agreement

9.

A Corporation and B Corporation intend to merge. To effect the merger, each of the
corporations executes the required plan and articles of merger. It is also their
intention to have A Corporation survive upon merger. A certificate of merger is
subsequently issued by the SEC. Which among the following may ensue?

a.A Corporation can now bring suit against X, a debtor of B Corporation

b.Y, a creditor of B Corporation can maintain his pending suit against it
c.The credit of Z, a creditor of A Corporation may be secured by property of B
Corporation
d.(a), (b) and (c)

10.

AAA Corporation has acquired the entire capital stock of ZZZ Corporation by
exchanging two of its shares for each share of the latter corporation, thereby
acquiring all the assets and assuming all the liabilities attached to the assets of the
latter corporation. As a consequence thereof:
a.AAA Corporation has merged with ZZZ Corporation
b.AAA Corporation has consolidated with ZZZ Corporation
c.ZZZ Corporation has sold all its assets and accompanying liabilities to AAA
Corporation
d.Neither (a), (b), or (c)

11.

In its Articles of Incorporation, ABC Corporation was supposed to exist for 10 years.
After 11 years from the date of its incorporation, it continues to exist. ABC
Corporation is now a:

a.Corporation by Estoppel
b.Corporation De Jure
c.Corporation De Facto
d.Neither (a), (b), or (c)

12.

XYZ Corporation entered into a contract with ABC Corporation. A and X are on the
board of both corporations. B and Y are stockholders of both corporations. A owns
25% of the outstanding capital stock of XYZ Corporation and 30% of the
outstanding capital stock of ABC Corporation. X owns 15% of the outstanding
capital stock of XYZ Corporation and 10% of the outstanding capital stock of ABC
Corporation. B and Y each own 10% of the outstanding capital stock of XYZ
Corporation and 30% of the outstanding capital stock of ABC Corporation. The
contract is:

a.Valid, because it is not contract involving interlocking directors

b.Valid, because it is fair an reasonable
c.Voidable, because of the presence of interlocking directors
d. Voidable, because it is in effect a contract between XYZ Corporation and its
directors

13.

The corporate powers that are not vested by law in the board of a corporation, does
not include:

a. Removal of directors or trustees

b. Grant of per diems to directors
c. Delegation of the power to amend By-Laws
d.Calling of a meeting of the stockholders, upon good cause, when no person is
authorized to call it
14.

X, a stockholder in ABC Corporation gave a written proxy to stockholder A. Prior to

the meeting, A designated stockholder B as his alternate proxy. On the date of the
meeting for which the proxy was intended, A and B were both present. A arrived
earlier than B. Who between A and B should exercise the voting rights pertaining to
the shares of X?

a.A, because the proxy was originally given to him

b.A, because he had impliedly revoked the proxy given to B
c.B, because the later presentation his proxy revoked the proxy given to A
d.B, because the execution of his subsequent proxy has the effect of revoking the
proxy of A

15.

The trust fund doctrine is violated by a corporation’s acquisition of its own shares
when:

a.The corporation takes up redeemable shares before they are due

b.The corporation is the sole bidder at a delinquency sale
c.The corporation pays a dissenting stockholder
d.(b) and (c)

16.

X subscribed to 100 shares of ABC Corporation. X paid 25% of the value of the said
subscription. During an ensuing stockholders’ meeting, X sought to vote his 100
shares but was prevented from doing so by the corporate secretary because he has
a balance on his subscription. The act of the corporate secretary is improper:

a.Because X can exercise all the rights of a stockholder

b.Because X can settle his subscription prior to the conduct of the meeting
c.Because the corporate secretary is not the proper party to raise the matter of an
unpaid subscription
d.Because only the board can demand the payment of an unpaid subscription

17.
A,B,C, D and E decided to form XYZ Corporation to engage in the business of
manufacturing and sale of computers, with authorized capital stock of PHP
1,000,000.00. All five incorporators subscribed equally. Even before they could pay
for 25% of their respective subscriptions, they had already entered into a contract to
supply a university with computers. For lack of funds though, they were unable to
comply with their contract. What is the liability of XYZ Corporation?

a.XYZ Corporation incurs no liability because the A,B, C, D and E as stockholders

are the ones who will be liable
b.XYZ Corporation incurs sole liability because it is a corporate debt that has been
incurred
c.XYZ Corporation incurs no liability because A,B,C,D and E incur personal liability
d. XYZ Corporation incurs solidary liability with A,B,C,D and E

18.

ABC Corporation has authorized capital stock of PHP 1,000,000.00 divided into
50,000 common shares and 50,000 preferred shares. At its inception, the
Corporation offered for subscription all the common shares. However, only 40,000
shares were subscribed. Recently, the directors thought of raising additional capital
and decided to offer to the public all the authorized shares of the Corporation at
their market value. Would Mr. X, a stockholder holding 4,000 shares, have pre-
emptive rights to the remaining 10,000 shares?

a.Yes, because all stockholders of a corporation shall enjoy pre-emptive right to

subscribe to all issues or disposition of shares of any class, in proportion to their
respective shareholdings
b.Yes, because the interest of X will be diminished
c.No, because these shares have already been offered at incorporation and he
chose not to subscribe to them. He, therefore, has waived his right thereto and the
corporation may offer them to anyone
d.(a) and (b)

19.

Plaintiffs filed a collection action against X Corporation. Upon execution of the

court’s decision, X Corporation was found to be without assets. Thereafter plaintiffs
filed an action against its present and its present and past stockholder Y
Corporation which owned substantially all of the stocks of X Corporation. The two
corporations have the same board of directors and Y Corporation financed the
operations of X Corporation. May Y Corporation be held liable for the debts of X
Corporation?
a.Yes, because both corporations have the same board of directors
b.Yes, because the situation justifies the conclusion that X Corporation is merely an
extension of the personality of Y Corporation
c.Yes, because the doctrine of piercing the veil of corporate fiction applies
d.(a) and (b)

20.

What is the nationality of a corporation organized and incorporated under the laws
of a foreign country but is owned 100% by Filipinos?

a.It is a Filipino corporation

b.It is a Foreign corporation
c.It is both a Foreign corporation and a Filipino corporation
d.Neither (a), (b) or (c)

UNIVERSITY OF THE CORDILLERAS

COLLEGE OF LAW
FINAL EXAMINATIONS-COMMERCIAL LAW REVIEW
MARCH 12 2008

INSTRUCTIONS: This examination consists of THREE SECTIONS. The First

Section consists of NINETEEN (19) questions. The Second Section consists of
FIVE (5) questions, with a bonus of 10 points. The Third Section consists of TEN
(10) questions. Your score for the second section shall be applied to complete the
100 points allocated for the quizzes. Your score for the third section shall be applied
to complete your recitation grade and is optional. Read each question carefully
before answering. In cases where applicable (a) discuss the issue/s completely (b)
a mere yes or no without any discussion will not be given credit (c) be concise.
Begin every answer on a separate page. Answers to sub-questions may be
continued on the same page. Should you commit a mistake, simply draw a line
across the mistake. Do not make any other marks on your booklet. Do not fold or
tear out any page. A deduction of five points will be indicated if these instructions
are not followed. GOOD LUCK!

1.Juan, an agent of First Life Insurance Company, induced Jose, who was suffering
from a terminal disease to apply for a PHP 1,000,000.00 life insurance. Upon the
instructions of Juan, Jose filled up the application form and submitted himself to a
medical examination. Juan in connivance with the doctor, submitted a medical
examination result that indicated that Jose was not suffering from any disease. Jose
dies after the insurance has been in effect for three years. May the designated
beneficiary claim the proceeds of the insurance? (5 pts)
2.Jill was engaged by Jack for the purpose of facilitating the shipment of export
quality tuna from General Santos City to Manila. Jill subsequently informed Jack by
email that the vessel on which the shipment was loaded had sailed but failing to
state that the vessel had run aground. Jill was aware of such fact even prior to
sending the email that the vessel had sailed. Jack, in good faith, secured insurance
on the shipment. Due to what happened to the vessel, the shipment never reached
Manila and was a total loss. Can Jack recover on the insurance? (5 pts)

3.Bobby has a house worth PHP 2,000,000.00. He obtains a fire insurance policy
that fixes the value of the house at PHP 1,500,000.00. The house is totally
destroyed by a fire. After a claim is made, the insurer informs Bobby that he is not
entitled to receive PHP 1,500,000.00 as he is a co-insurer, having insured his
house for an amount less than its value. Is the insurer correct? (3 pts) Assuming
that the house was mortgaged to Ben for PHP 500,000.00, is Ben entitled to
receive part of the proceeds in settlement of the mortgage debt? (2 pts)

4.On January 5, 2008, a fire insurance policy was delivered by XYZ Insurance to
Dan. By agreement, the premium was to be paid on January 15, 2008 and that XYZ
Insurance would send a representative to pick it up from Dan. On January 15, Dan
gave the amount of PHP 5,500.00 for the premium to his secretary with instructions
to hand it over to the representative of XYZ Company. The representative never
arrived. Two days later the covered property was totally burned. The claim of Dan
was denied by XYZ Insurance on account of his failure to pay the premium. Is the
insurance company correct? (5 pts)

5.State three corporate acts, besides electing directors or trustees, that is vested
exclusively in the stockholders or members of a corporation. (3 pts) When is a
director or officer of a corporation personally liable for a corporate act? (5 pts) What
is the purpose of the requiring the election of an independent director? (2 pts)

6.The By-Laws of Acme Corporation provides that for the transaction of business of
the corporation involving amounts of at least PHP 1,000,000.00, the affirmative vote
of a majority of a quorum consisting of 40% of the outstanding capital stock shall be
necessary to authorize or ratify the subject transaction. Is this provision valid?(5
pts)

7.XYZ Corporation was originally incorporated on March 1, 1975 for a term of 25

years. In 2002, it purchased real property for which title was issued in its name. In
2005, it was discovered that it was operating under a lapsed corporate term. To
address what it believed as an administrative oversight, it re-incorporated under the
same name, capital structure, purpose, principal office and substantially the same
incorporators, board and officers. Is the re-incorporated XYZ Corporation
considered as the owner of the property acquired in 2002? (5 pts)
8.A foreign corporation and a domestic corporation commenced negotiations for the
former to supply the latter with raw materials. At the conclusion of the negotiations,
the domestic corporation was able to secure an agreement that it would be granted
90-day credit terms for every purchase of raw materials. Is the foreign corporation
deemed to be doing business in the Philippines? (5 pts)

9.When a person is given the right to subscribe to a certain portion of the unissued
stock of a corporation within a certain period and under certain terms and
conditions, it is a subscription contract? (3 pts)

10.XYZ Corporation has been operating unprofitably from date of incorporation to

2007. Towards the end of last year, the corporation’s Chairman and President, X
was able to determine that the effect of newly passed legislation on the market is to
make XYZ Corporation profitable. X then resolved to implement a plan to buy out
the stockholders of XYZ Corporation without disclosing what he had come to
determine. Is X insider trading? (5 pts)

11.George signed a blank check which he inadvertently left on top of his desk. The
check was then stolen by Maria, his secretary, who filled in the amount of PHP
50,000.00 and made it payable to Juana Dela Cruz or order. Maria, then indorsed
the check in the name of Juana Dela Cruz and passed it to Manuel, thereafter
Manuel negotiated the check to Antonio, then Antonio to Edgar, and Edgar to
Fernando. Can Fernando enforce the check against George? (2 pts) Suppose
Fernando is a holder in due course, will your answer be the same? (2 pts) Can
Fernando enforce liability against Maria? (2 pts)

12.When may the holder of a bill of exchange consider the negotiable instrument as
a promissory note? (2 pts) An indorsement of a promissory note for PHP 10,000.00
states: Pay to Juan, PHP 7,500.00. What would be the effect of such an
indorsement? (2 pts) Can Juan be considered as the holder of the promissory
note?(2 pts)

13.In payment of computers he had purchased, Pedro drew a check upon the
Philippine National Bank for PHP 100,000.00 payable to the order of AceTech, the
seller in Manila. He sent the check by mail. Later, for valuable consideration,
AceTech indorsed the check “without recourse” to Juan. The latter indorsed it in
blank for consideration to Pablo, who in turn sold it for PHP 80,000.00 by delivery to
Richard. The computers were never forwarded to Pedro. Richard eventually
presented the check to PNB but payment was refused because Pablo had not
indorsed it. Is the Bank right in so refusing? (2 pts) If Richard gave due notice to
AceTech. , may he recover from the latter? (2 pts)If Richard gave due notice to
Pedro, may he recover from the latter even if the computers were never delivered?
(2 pts)May Richard recover from Juan? (2 pts) May he recover from Pablo? (2 pts)
14.Abby shipped four boxes of goods from Manila to Davao on board a vessel
owned by BNR Shipping. When the boxes were delivered to the Benjo, he saw that
box number 1 and 3 showed external signs of damages. Benjo paid the the freight
charges upon his receipt of the boxes. Two days later, Benjo discovered that the
contents of box number 2 had been damaged. Benjo seeks your advice on whether
he may proceed against BNR Shipping for the discovered damages. What would
your advice be? (3 pts)

15.Whoopie, shipped on board a vessel owned by Barbara, movie chairs to be

installed by Elizabeth in her theatre. No date for delivery was fixed or indemnity for
delay stipulated. Due to her preoccupation with other details related to the opening
of her theatre, Elizabeth was unable to claim them promptly. Consequently, the
movie chairs were shipped back to the point of origin, and upon their return, were
eventually re-shipped to the point of destination. Upon arrival, the inauguration date
of the theatre had passed and had to be reset. Does Elizabeth have a cause of
action against Barbara? (3 pts)

16.A was a passenger on Island Air, a common carrier flying from Manila to
Caticlan. While enroute to its destination, an accident occurred causing A serious
injuries. In a subsequent action against the common carrier, it claims (a) that the
ticket of A contains a stipulation exempting it from liability for death or injury to its
passengers (b) that its terminal prominently displayed notices that it is not bound to
observe extra-ordinary diligence, and (c) the ticket of A was purchased at a 50%
discount. Are these claims sufficient to avoid liability? (3 pts)

17.Explain the prior operator rule. Distinguish it from the prior applicant rule. (4 pts)

18.X, a rich trader, boarded the M/V Cebu, a small vessel with a value of PHP
3,000,000.00 and owned by Y, plying the route Cotabato to Pagadian City. X had in
his possession a diamond worth PHP 5,000,000.00. The vessel had a capacity of
40 passengers. Near Pagadian, the vessel was met by stormy weather and was hit
by ten foot waves every three seconds. Soon, water entered the vessel and the
captain ordered the distribution of life belts to the passengers. He told them the
vessel was sinking and for them to take care of themselves. The vessel turned out
to be overloaded by 20 passengers and had no sufficient life belts. X failed to get a
life belt and died when the vessel totally sunk. The heirs of X sued Y for
P10,000,000.00 in damages. Y raised the defense of limited liability. Decide. (5 pts)

19.Vessels A and B collided with each other. The negligence of the captain of
Vessel A is the proximate cause. However, the captain of Vessel B is guilty of
contributory negligence. Who would be primarily liable for the damage sustained by
the vessels? (3 pts) Assuming both carried cargo, who would be liable for the
damages to the cargo? (2 pts) When will the act of a vessel in changing course to
avoid a collision which even if mistaken will not create liability? (2 pts)
Section II

1.Explain the “close now, hear later” power of the Bangko Sentral as exercised by
the Monetary Board. (5 pts) Explain the “fit and proper rule” (5 pts)

2.When does an inquiry without a court order under the Anti Money Laundering Act
constitute an exemption of the Bank Secrecy Law? (10 pts)

3.Who are the basic parties to a letter of credit and what determines their
respective obligations? (6 pts) What is the purpose of a stand-by letter of credit? (4
pts)

4.X purchases raw materials on credit from ABC Store. X then utilizes the goods to
come up with a finished product. As he is unable to immediately sell the goods, he
obtains a loan from 123 Bank to pay for the raw materials. As a condition for the
grant of the loan, the bank requires him to execute a trust receipt over the finished
products. Is this a proper trust receipt transaction? (10 pts)

5.What is the effect of the words “non-negotiable” on a warehouse receipt that

states that the goods described therein are deliverable to bearer? (5 pts) When is
the warehouseman justified in refusing to deliver the goods covered by a
warehouse receipt? (5 pts)

6.Bonus. (10 pts)

Section III: Determine if the statement is True or False

1.In a marine insurance contract, the insurer is liable for the expenses incurred by
the insured when it is so stipulated he should labor for the recovery of the property
insured.

2.The right of the insurer to rescind may be exercised even if loss or death has
occurred, provided the incontestability clause does not apply.

3.The amount that is paid to redeem a vessel from pirates is a general average.

4.For payment to be considered as having been made in due course, it must only
be paid at the date of maturity of the instrument.

5.A stockholder bringing a derivative suit is a mere nominal party.

6.The unregistered transferee of a certificate of stock has the right to vote and be
voted upon until challenged.
7.Indorsers are liable in the order determined by the holder of the instrument.

8.An accommodation party will only be liable to a holder for value if the latter did not
know that at his taking of the instrument that he was an accommodation party.

9.The doctrine of piercing the veil of corporate fiction may justify service of
summons directed to a corporation on the principal stockholder.

10.The extra-ordinary diligence required of a common carrier in a contract of

carriage involving passengers may be reduced to diligence of a good father of a
family by a reasonable contractual stipulation which is supported by valuable
consideration.

UNIVERSITY OF THE CORDILLERAS

COLLEGE OF LAW
COMMERCIAL LAW REVIEW
Final Examinations-March 16, 2005

INSTRUCTIONS: This examination consists of TWENTY (20) questions. Read

each question carefully before answering. Discuss the issue/s completely. A mere
yes or no without any discussion will not be given credit. Be concise. Begin every
answer on a separate page. Answers to sub-questions may be continued on the
same page. Should you commit a mistake, simply draw a line across the mistake.
Do not make any other marks on your booklet. Do not fold or tear out any page. A
deduction of five points will be indicated if these instructions are not followed.
GOOD LUCK!

1.

Hector, in his capacity as the president of XYZ Corporation, signed a contract with
Antonio, in his capacity as the president of ABC Corporation for the development of
the property of Mariano, the majority shareholder of XYZ Corporation. ABC
Corporation reneged on its obligation as provided for the in the contract. XYZ
Corporation immediately filed suit for specific performance against Antonio? Will the
suit prosper? (5 pts)

2.

Jack makes a note for PHP 25,000.00 payable to the order of Jill. Jill negotiates the
note to John, who is aware that Jack is not a party for value. Can Jack avoid
payment to John upon maturity by claiming absence of consideration? Assuming
Jack is liable to pay, may he recover the amount from Jill? (3 pts)
3.

What damages are recoverable in an action for breach of the contract of carriage?
(3 pts) What will constitute a prima facie case against a common carrier in a claim
for damages for the carriage of goods? (2 pts) What is the effect of the Warsaw
Convention on an award of damages? (3 pts) What is the nature of an airline’s
contract of carriage? (2 pts)

4.

Camilla insured the five carat diamond engagement ring given to her by Charles
against loss with ABC Insurance for PHP 10,000,000.00. ABC Insurance reinsured
the risk with XYZ Insurance. The diamond ring was eventually stolen but ABC
Insurance could not pay because it was insolvent. May ABC Insurance recover from
XYZ Insurance? May Camilla recover from XYZ Insurance? (5 pts)

5.

Noel is the holder of a note issued by Tony, which was indorsed in succession by
Dan, Ike, and Arnel. What is the effect of a renunciation by Noel in favor of Ike? If
the renunciation is in favor of Tony? (3 pts)

6.

A common carrier enters into a contract with a company to provide the latter buses
during its annual company conference for the purpose of ferrying delegates from
designated pick up points to the conference venue. The contract stipulates that the
company answers for gasoline and holds the common carrier exempt from acts and
omissions of its drivers and conductors. Will the circumstances relieve the common
carrier from exercising extra-ordinary diligence? (5 pts)
7.

Arturo secured a life insurance policy on himself for PHP 10,000,000.00, naming his
wife Alicia as his sole beneficiary. A few months after, Arturo became insane due to
the constant nagging he received from Alicia to improve their status in life. One day,
Arturo got hold of a pistol and shot himself to death. Is Alicia entitled to the
proceeds of the insurance? (5 pts)

8.

AAA Corporation has purchased the entire capital stock of ZZZ Corporation,
thereby acquiring all the assets and assuming all the liabilities of the latter
corporation. Is this a merger or a consolidation? (5 pts)
9.

Explain the prior operator rule. Distinguish it from the prior applicant rule. (4 pts)

10.

A bill of exchange reads: “Pay to the order of Lito PHP 10,000.00 and reimburse
yourself from my lottery winnings”. It is addressed to Victor as drawee and is signed
by Cesar. Is the bill of exchange a negotiable instrument? (3 pts)

11.

Under the Carriage of Goods by Sea Act, when must notice of damage be given? If
required, when must suit be brought? (3 pts) What is meant by arrival under stress?
(3 pts)

12.

In marine insurance, when is there an improper deviation? What are the

consequences of an improper deviation? When is deviation proper? (10 pts)

13.

XYZ Corporation had acquired the shares of Juan during a delinquency sale. The
shares were eventually sold by the corporation to Jose for less than its par value.
Do pre-emptive rights to the shares exist? Is the sale of the shares watered? (5 pts)

14.

Explain what is meant by the real and hypothecary nature of the liability of a ship
owner. What are its exceptions? (5 pts)

15.

What is meant by co-insurance? (2 pts) When does it apply? (2 pts)

16.

The corporate term of ABC Corporation expired on December 31, 2004. On March
1, 2005, an election was held to elect directors. Can the board so elected validly
exercise corporate functions? (5 pts)
17.

Who is a holder in due course? Will the defense of want of delivery of a complete
instrument as provided for under Section 15 of the Negotiable Instruments Law hold
against a holder in due course? (4 pts)

18.

X, as drawer, drew a bill of exchange on Y, as drawee, payable to the order of Z, as

payee. X issues the bill to Z for value. Z presents the bill to Y for acceptance but it
is dishonored by non-acceptance. No notice of dishonor by non-acceptance was
given to X. Subsequently, Z negotiated the bill to Juan, an indorsee, who had no
knowledge of prior dishonor. Y again dishonored the bill. Juan immediately gives
notice of dishonor to X, and subsequently sues him for collection. X contends that
he has been discharged from liability due to the failure of Z, a prior holder, to give
notice of dishonor? Is X correct? (3 pts)

19.

A secured a fire insurance policy covering his residential building, which likewise
houses his painting collection. Due to the fame that he acquired when displaying
his collection, other collectors began utilizing his services to maintain their paintings
in showroom condition. This activity caused A to convert part of his building as a
restoration area, where he also stored the necessary equipments and flammable
materials. A month after, a fire occurred causing extensive damages to the building.
It was determined that the fire was caused by the negligence of A while he was
preparing his meal. In addition, the insurer claims that A had altered the use of his
residential building thereby giving ground for the rescission of the insurance
contract. Hence, the claim for payment was subsequently denied. Is the insurer
correct in denying the claim? (6 pts)

20.

Bong makes a note payable to Manny or order. Manny indorses the note to Dino.
Tyrone finds the note and indorses the note to John by forging Dino’s signature.
Assuming John is a holder in due course. Discuss the liabilities of the parties on the
note. (4 pts)

PART II

TRUE OR FALSE

1.A stranger to the negotiable instrument cannot give notice of dishonor.

2.A stranger can become an insider.

3.A security issued by the bank is an exempt security.

4.An offer to purchase shares in a corporation must be made the subject of a tender
offer.

5.For payment to be considered as having been made in due course, it must only
be paid at the date of maturity of the instrument.

6.A negotiable instrument is dishonored by non-payment when presentment is

excused and it is overdue and unpaid.

7.Presentment for payment is not required in order to charge the drawer where he
has no right to expect or require that the drawee or acceptor will pay the instrument.

8.A person secondarily liable on the instrument is discharged by the discharge of a

prior party.

9.Notice of dishonor may not be required to be given to an indorser.

10.The Securities Regulation Act seeks to promote the development of the capital
market

PART III

1.How is a negotiable instrument discharged? (10 pts)

2.When is a securities transaction considered fraudulent (5 pts)

3.Why is the manipulation of security prices prohibited? (5 pts)

4.Bonus. (10 pts)