Silliman University College of Law - Vitug Commercial Law Practical Exercises BarOps 2 !

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4V " Vitug5 0egotia#le ,nstruments Law an' %llie' Laws V2& % c6ec* is issue' for an immoral or illegal cause& a5 Can it #e consi'ere' a negotia#le instrument7 #5 Can t6e payee 6ave a cause of action against t6e 'rawer in case of 'is6onor #y t6e 'rawee #an*7 c5 ,f t6e c6ec* was 8negotiate'9 to a person in goo' fait6 an' for value( may t6e 'rawer possi#ly #e 6el' lia#le secon'arily #y sai' new 6ol'er7 %nswer: a) Yes, the check would still be a negotiable instrument. In ascertaining the character of the instrument, the primordial and ONLY consideration is its compliance with Section of the Negotiable Instruments Law. Its intrinsic !alidit" ma" at times, indeed, determine the rights of a holder but NO# the $uestion of whether or not it is a negotiable instrument. b) No, the pa"ee has no cause of action against the drawer. #he pa"ee, being an immediate part" to the immoral or illegal cause, is sub%ect to contractual defenses, as well as personal or e$uitable defenses. #he drawer ma", accordingl", raise against said pa"ee the defenses of the immoralit" or illegalit" of the cause. c) Yes, the drawer can be held liable secondaril" b" a holder in due course to whom the check is later negotiated. #he immoralit" or illegalit" of the cause is in the nature of a mere personal defense that ma" be raised onl" against immediate parties or successors&in&interest who are not or who do not ha!e the rights of a holder in due course. V2& .6ic6 among t6e following( namely$ 1ra'e %cceptances( 0egotia#le Bon's( .are6ouse -eceipts( Letters of cre'it( 1rust receipts an' Postal +oney Or'ers( woul' you consi'er as 0O0-0E:O1,%BLE instruments an' w6y7 %nswer: Negotiable warehouse receipts, letters of credit, trust receipts and postal mone" orders are NO# negotiable instruments. #he reasons are as follows. ' negotiable warehouse receipt e!idences an obligation to deli!er (OO)S, instead of mone", to the order of a person named therein or to bearer. ' letter of credit is generall" pa"able to a S*+,I-I+) *+.SON sub%ect to certain ,ON)I#IONS, normall" the shipment of goods to the pa"ee. ' trust receipt acknowledges the commitment of the entrustee of the goods to remit the proceeds of his own sale thereof or to return the goods if unsold that thus makes the obligation ,ON)I#ION'L. ' postal mone" order is conditional in that it is sub%ect to .+S#.I,#IONS imposed b" !arious postal laws, rules and regulations. #rade acceptances and negotiable bonds are considered negotiable instruments since in!ariabl" the" would be in compliance with Sec. of the Negotiable Instruments Law. V!& ,n a series of negotiations #y special in'orsements of a negotia#le #ill of exc6ange paya#le to or'er( t6e following inci'ents occur& a5 One of t6e in'orsements was #y a forger; #5 One of t6e in'orsers was incapacitate'; c5 16e amount of t6e #ill was increase' #y one of t6e in'orsers& <aving learne' of t6ose inci'ents t6e 'rawee 'is6onore' t6e instruments&

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+ay a 6ol'er in 'ue course in w6ose 6an's t6e #ill was 'is6onore' #y t6e 'rawee 6ol' secon'arily lia#le all t6e in'orsers 46ol'ers previous to 6im57 ,f not all( w6o among suc6 in'orsers( if any( may #e so 6el' as secon'arily lia#le7 %nswer: No, not all the indorsers can be held secondaril" liable. /nder the law, indorsers after the forgery but before the material alteration ma" be sub%ect to secondar" liabilit" but onl" in accordance with the original tenor of the bill of e0change. #he indorsers after both the forger" and the material alteration are sub%ect to secondar" liabilit" under the bill of e0change as materiall" altered. #hus, among the !arious indorsers in the problem, the ones who ma" be held secondaril" liable are the -O.(+. himself and indorsers S/1S+2/+N# to him, +3,+*# the indorser who was incapacitated 4incapacit" being a real defense). V3& % c6ec* was 'rawn #y 8%9 in favor of 8B9 t6e payee& 8C9 succee'e' in intimi'ating 8B9 to negotiate t6e c6ec* to 6im 4C5& 8C9 t6en en'orse' t6e c6ec* to 8=9& 8=9 negotiate' t6e c6ec* to 8E9 w6o too* it for value an' in goo' fait6& 8E9 presente' it to t6e 'rawee #an* an' o#taine' payment& Can t6e 'rawee #an* go after %( B( C( = an'>or E7 %nswer: No. #he due pa"ment b" the drawee bank of the check discharged the instrument. 5ence, the secondar" liabilities that ma" ha!e arisen theretofore are likewise discharged. #he drawee bank, ma", howe!er, debit the account of the drawer. #he intimidation e0ercised b" , on 1 is go!erned b" their pri!it". /ndoubtedl", under the circumstances, 1 has a good cause of action against ,. V?& %n instrument paya#le to or'er was stolen from a 6ol'er in 'ue course& 16e t6ief promptly presente' t6e instrument for payment to t6e ma*er w6o 4t6e ma*er5( #elieving in goo' fait6 t6at t6e t6ief was t6e rig6tful 6ol'er( pai' t6e instrument& ,s t6e negotia#le instrument 'isc6arge' as against t6e sai' ma*er7 %nswer: No, the negotiable instrument is not discharged b" the pa"ment in good faith made to the thief. #he negotiable instrument being pa"able to order would re$uire the due indorsement of the holder before title could pass from him. In the instant case, the thief ma" not be considered a person in possession of the credit since the instrument, not being pa"able to bearer at the time of pa"ment, did not indicate, and could not ha!e sufficientl" indicated on its face that the possessor thereof is its rightful holder. V@& -olan'o( inten'ing to #uy a car( saw an ol' frien'( -oger( w6o is an agent to sell t6e car #elonging to %BC Clinic& %fter negotiation( -olan'o 'eci'e' to #uy sai' car& <e 'rew upon t6e reAuest of -oger a crosse' c6ec* for P@ & paya#le to %BC Clinic as evi'ence of 6is goo' fait6( #ut w6ic6 was suppose' to #e merely s6own to %BC Clinic #y -oger w6o receive' t6e c6ec*& 16e c6ec* woul' #e returne' w6en -oger #rings t6e car an' its registration certificate for -olan'oBs inspection& Cor failure of -oger to #ring t6e car an' its certificate of registration an' to return t6e c6ec*( -olan'o issue' a 8stop payment or'er&9 +eantime( -oger pai' t6e c6ec* to %BC Clinic for 6is wifeBs 6ospital #ill& %BC Clinic file' suit against -olan'o to recover t6e value of t6e c6ec*&

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+ay %BC Clinic #e consi'ere' a 6ol'er in 'ue course( 6ence( entitle' per6aps to recovery7 %nswer: No, '1, ,linic ma" not be considered a holder in due course, it being the pa"ee and an immediate part" to the irregularit". Since personal defenses would then be a!ailable against '1, ,linic, it cannot claim entitlement to a reco!er" thereof. VD& % E Co&( engage' in printing( agree' to pu#lis6 t6e wor* of B E Co& paya#le upon completion of t6e pu#lication& 1o finance itself( % E Co& succee'e' in o#taining a cre'it accommo'ation from C Ban*ing Corporation& =rawings on t6e financing were 'one #y a negotia#le #ill of exc6ange #y % E Co&( wit6 C Ban*ing Corporation as payee& .6en t6e #ills of exc6ange were su#mitte' to t6e payee( t6e latter permitte' t6e 'rawings an' t6ereafter presente' t6e instruments to Fuan 'ela CruG( t6e Presi'ent of B E Co& 16e latter accepte' t6e instruments as 'rawee& % E Co& faile' to ma*e goo' its payments on t6e cre'it accommo'ation( an' C Ban*ing Corporation turne' to Fuan 'ela CruG& 16e latter raise' t6e following 'efenses& a5 <e merely signe' as t6e Presi'ent of B E Co&( an' alt6oug6 6e 'i' not 'isclose 6is capacity as a mere agent on t6e instrument itself( suc6 fact was *nown to C Ban*ing Corporation& #5 C Ban*ing Corporation *new 6im to #e merely an accommo'ation party( an' t6at 6e personally 6as not receive' any valua#le consi'eration t6erefor& c5 16e #ill of exc6ange cannot #e consi'ere' negotia#le #ecause payment 6a' #een ma'e on t6e instrument #y C Ban*ing Corporation even #efore it was signe' #y 6im& -ule on t6e a#ove 'efenses& %nswer: #he defenses of 6uan dela ,ru7 are without merit. #he reasons are as follows. a) #he fact that , 1anking ,orporation had known 6uan dela ,ru7 as the *resident of 1 8 ,o. is INS/--I,I+N# to relie!e him from liabilit" under the bills of e0change. 'n agent must state his capacit" as a mere agent and disclose his principal before liabilit" thereunder ma" properl" be disclaimed b" him. b) #he allegation that , 1anking ,orporation knew 6uan dela ,ru7 as merel" an accommodation part" and that he has not recei!ed an" !aluable consideration therefor is without merit. 'n accommodation part" renders himself liable in the capacit" in which he signs or indorses the instrument regardless of an" due or !aluable consideration to him. c) In determining whether or not an instrument is a negotiable instrument all that is re$uired is a compliance 4shown on the fact of the document) with Sec. of the Negotiable Instruments Law. #he fact that pa"ment has been made on the instrument e!en before it was signed b" 6uan dela ,ru7 would be of no moment. #he instrument would onl" cease to be a negotiable instrument when it is either discharged or when it is restricti!el" indorsed so as to prohibit the further negotiation thereof. VH& % non-negotia#le instrument was issue' #y Fuan in favor of Pe'ro& a5 +ay Pe'ro transfer t6e instrument to Fose7

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#5 %ssuming t6at suc6 transfer was legally possi#le can personal or real 'efenses 4e&g&( payment of t6e instrument5 t6at Fuan coul' raise against Pe'ro #e li*ewise raise' against t6e transferee7 c5 %ssuming again( t6at suc6 transfer was legally possi#le( can Pe'ro #e 6el' lia#le #y Fose if it turns out later t6at Fuan 6as #ecome insolvent7 %nswer: a) Yes, *edro ma" effecti!el" transfer the instrument to 6ose. Non&negotiable instruments or credits e!idence rights that naturall" are assignable. Such rights, as long as the" do not carr" concomitant obligations co!enanted b" the holder are assignable e!en without the consent of the debtor. b) Yes, personal or real defenses that one could raise against *edro ma" likewise be raised against the transferee. In an assignment of non&negotiable credits, documents or instruments, the transferee merel" steps, so to speak, into the shoes of the transferor and thereb" ac$uires no right better than that of his predecessor&in&interest. c) No, *edro cannot be held liable b" the insol!enc" of 6uan. In non&negotiable credits, the assignor merel" warrants the legalit" of the credit and his right thereo!er but not the sol!enc" of the debtor. VI& 8%9 'eposite' wit6 a ware6ouseman two crates of goo's for w6ic6 6e receive' two ware6ouse receipts 4one for eac6 crate5 " one #eing a negotia#le ware6ouse receipt an' t6e ot6er a non-negotia#le ware6ouse receipt& 1itle to #ot6 ware6ouse receipt were transferre' on =ecem#er 2( 2IH to 8E9& 16e ware6ouseman was not notifie' of t6e transfer of t6e receipts& +eanw6ile( 8J9 a )u'gment cre'itor of 8%9 serves a notice of levy over t6e goo's on t6e ware6ouseman& Between 8E9 an' 8J9( w6o woul' 6ave preference over t6e goo's7 %nswer: +, the holder would be preferred o!er the goods co!ered b" the negotiable warehouse receipt. 5is rights are superior to those of the %udgment creditor. In the negotiation of a negotiable warehouse receipt, the transferee ac$uires the direct obligation of the warehouseman from the !er" moment of negotiation. 5owe!er, 3 would be preferred insofar as the goods co!ered b" the nonnegotiable warehouse receipt are concerned. #he direct obligation of the warehouseman in fa!or of the transferee starts onl" from the time the warehouseman is notified of the transfer. 'ccordingl", the preference o!er the goods would be in this case, in fa!or of the %udgment creditor who ser!ed an earlier notice of le!" o!er the goods on the warehouseman. 4See also 'rts. 9 :& 9 ;, ,i!il ,ode). V2 & Sometime in Fune( 2IH2( a 'omestic corporation o#taine' two loans from a local len'ing institution in t6e respective amounts of US K 2 ( an' P2 ( #ot6 to #e pai' in U&S& 'ollars in Fune 2II!& %ssuming t6at in Fune 2IH2 t6e rate of exc6ange was P2 & to US K 2& ( an' in Fune 2IH!( t6e prevailing rate of exc6ange was P22& to US K 2& ( in w6at currency( an' un'er w6at rates of exc6ange must t6e #orrower pay t6e two o#ligations7 %nswer: #he domestic corporation shall pa" the dollar loan of /.S. < =,=== in *hilippine currenc" measured at the time of pa"ment or the amount of * >=,===.

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#he other loan of * ==,===, stipulated to be pa"able in foreign currenc", shall be discharged in *hilippine currenc" at the rate pre!ailing when the obligation was incurred or the same amount of * ==,===. In a forbearance obtained b" a debtor in foreign currenc", pa"able in foreign currenc", the repa"ment shall be made in *hilippine currenc" at the rate of e0change pre!ailing at the time of payment. ?here a loan accommodation is obtained in *hilippine currenc", pa"able in foreign currenc", the obligation shall be discharged in *hilippine currenc" at the rate of e0change pre!ailing at the time of incurrence of t6e 'e#t& /nder .epublic 'ct No. @ @:, appro!ed on 6une AAB, which repealed .epublic 'ct No. 9>A, all monetar" obligations shall be settled in the *hilippine currenc" which is the legal tender in the *hilippines. #he parties, howe!er, ma" agree that the obligation on transaction shall be settled in an" other currenc" at the time of pa"ment. ,nsurance Co'e an' %llie' Laws V22& +ay a person insure " a5 t6e life of 6is marrie' c6il'ren7 #5 t6e life of 6is wife from w6om 6e is legally separate'7 c5 t6e life of 6is 6ouse6ol' 6elp7 '5 t6e life of 6is cre'itor7 e5 a piece of property un'er usufruct of w6ic6 6e is t6e usufructuary7 f5 a piece of property un'er usufruct of w6ic6 6e 6as t6e na*e' title7 g5 a piece of property 6e 6as mortgage' for a loan in an amount eAual to t6e value of t6e property7 65 a piece of property mortgage' to 6im7 %nswer: a) Yes, a person ma" insure the life of his married children. #he law, in pro!iding that a person has an insurable interest on the life of his children, did NO# make an" $ualification on whether such children are married or single or whether the" are still under parental authorit" or not. b) Yes, a person ma" insure the life of his wife from whom he is legall" separated. 5ere, again, the law did not make an" pro!isio in stating that a person has an insurable interest on the life of his or her spouse. Legal separation does not se!er the !inculum %uris. It should be noted, howe!er, that in insurance contracts utmost good faith is primordial. 'ccordingl", if circumstances should e0ist that ma" indicate some ad!erse ulterior moti!es on the part of the person obtaining the insurance co!erage, reco!er" thereunder ma" rightfull" be denied. c) No, a person ma" not insure the life of his household help. It is because there are no pecuniar" interests, arising from that relationship alone, on the life of said household help. Other than oneCs own life, spouse or children, a person would ha!e an insurable interest on the life of others onl" when the applicant therefor has a pecuniar" interest in!ol!ed in the life of the person to be insured. d) No, a person ma" not insure the life of his creditor, there being no pecuniar" interest that one normall" would ha!e on such life. One ma" insure, howe!er, the life of his debtor to the e0tent of his pecuniar" interest in said debtor.

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e) Yes, a person ma" insure the propert" of which he is the usufructuar", since he has an e0isting interest 4beneficial title) thereo!er but onl" to the e0tent of his usufructuar" interest. f) Yes, a person ma" insure his propert" under usufruct, he ha!ing an e0isting interest 4naked title) thereo!er, as well as an inchoate interest on the beneficial title 4coupled with his e0isting interest on the naked title). g) Yes, a person ma" insure the propert" that he has mortgaged e$ual to the !alue of the propert", since the mortgage does not depri!e him of either the naked or the beneficial title thereto. h) Yes, a person ma" insure a piece of propert" mortgaged to him because of his pecuniar" interest thereon e$ui!alent, but not more than, the !alue of the obligation thus secured. 4Note) #he answer to the foregoing $uestions relati!e to life insurance will not be in an" wa" different e!en where the beneficiaries therein designated are the persons whose li!es are insured, since the abilit" of a person to insure the life of others will depend on his own insurable interest in those li!es and not that of the beneficiar" designated b" him. V22& ,s t6e insure' o#ligate' to 'isclose " or ot6erwise #e consi'ere' guilty of concealment #y non-'isclosure of " a material fact acAuire' #y 6im after t6e policy 6a' #ecome effective7 .6y7 %nswer: No. ' non&disclosure of a material fact ac$uired after the polic" had alread" become effecti!e will not ad!ersel" affect the insurance contract. #he test on concealment is reckoned at an" time before the polic" becomes effecti!e and not thereafter. V2!& =oes a frau'ulent overstatement of t6e extent of t6e loss #y t6e insure' a'versely affect 6is rig6t to recover totally un'er t6e policy7 %nswer: Yes. ' fraudulent o!erstatement of the e0tent of the loss b" the insured will ad!ersel" affect his abilit" to reco!er under the polic". Insurance is characteri7ed b" utmost good faith, and this consideration must be e!er present and obser!ed b" the parties. V23& < too* a life insurance on t6e life of 6is wife 4.5( 'esignating 6imself as t6e #eneficiary& % few mont6s later( . succee'e' in 6aving t6eir marriage annulle'& % wee* after t6e annulment #ecame final( . 'ie' of a 6eart attac*& 16e insurance policy was for a one year perio' 'uring w6ic6 time all t6e a#ove inci'ents occurre'& Can < recover un'er t6e policy7 %nswer: Yes, 5 can reco!er under the life insurance polic". Insurable interest in life insurance needs to e0ist onl" at the time the insurance is taken. #hat interest need not e0ist at the time the loss occurs. V2?& 8%9 ta*es out a life insurance on 6is own life an' 'esignates a #rot6er to #e irrevoca#le #eneficiary& Premiums were pai'-out #y 8%9 using con)ugal fun's& 16e #rot6er in a fit of anger *ills 8%9& Can t6ere #e recovery un'er t6e insurance7 ,n t6e affirmative( to w6om s6all t6e insurance procee's go7

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%nswer: Yes, there can be reco!er". ' beneficiar" in a life insurance who intentionall" or willfull" causes the death of the insured becomes dis$ualified from seeking the benefits thereunder. #he efficac" of the insurance itself, howe!er, is NO# affected and neither is the reco!er" from its co!erage. /nder the circumstances, the proceeds of the insurance will go to the nearest relati!es of the insured. Since the insuredCs estate is not the beneficiar", the source of premiums 4from con%ugal funds) would not be of an" moment. V2@& 1wo( #rot6ers( Fuan an' Pa#lo( maile' on ? Fanuary 2IH! t6eir respective applications for life insurance( enclosing t6erewit6 t6e premiums for one year& 16e insurance company after processing t6e applications maile' on 2? Ce#ruary 2IH! its acceptance( along wit6 t6e cover notes& 16e mail reac6e' t6e state' resi'ence of t6e two applicants on 2H Ce#ruary 2IH!& Exactly a wee* #efore( or on 22 Ce#ruary 2IH!( t6e two figure' in an acci'ent t6at instantly cause' t6e 'eat6 of Fuan an' t6e insanity of Pe'ro& Pe'ro 6imself later 'ie' on ? +arc6 2IH!& 16e 6eirs soug6t to recover un'er t6e life insurance contracts& 16e insurance company conteste' t6e claims& =eci'e wit6 reasons& %nswer: 6uan cannot reco!er but *edro can reco!er under the insurance contract. #he theory of cognition in the perfection of contract is applicable to insurance b" correspondence. Such insurance contracts are thus perfected from the moment the acceptance made b" the insurer would ha!e been known b" the applications therefor. #hus, in the case of 6uan, who died before he could learn of the acceptance, the contract in respect to him undoubtedl" was ne!er perfected, and reco!er" thereunder ma" not be sought for b" the heirs. Insofar as *edro is concerned, his mere incapacit" 4to act) would not ha!e, under strict general principles, pre!ented the insurance from becoming effecti!e 4although ha!ing been insane at the time of the receipt of the acceptance, the contract would ha!e been deemed a !oidable one). 1ut 'rticle :>: of the ,i!il ,ode, adopting the common law view, holds the offer to become Dineffecti!e upon the death, ci!il interdiction, INS'NI#Y or insol!enc" of either part" before acceptance is con!e"ed.E V2D& On =ecem#er 2D( 2IH!( a fire policy( insuring a #uil'ing an' its contents( was 'elivere' to t6e insure' company& By agreement( it was allowe' to pay t6e premium wit6in ! 'ays& On Fanuary H( 2IH3( it pai' t6e premium #y means of a c6ec* post'ate' Fanuary 2@( 2IH3& 16e c6ec* was 'eposite' #y t6e insurance company only on Ce#ruary 2 ( #ut t6e c6ec* #ounce'( alt6oug6 on Fanuary 2I( t6e insure' 6a' a sufficient #an* #alance& On Fanuary 2H( two 425 'ays after t6e premium #ecame 'ue( t6e insure' property was #urne' an' #ecame a total loss& Can t6e insurance company cancel t6e policy for non-payment of premium7 :ive reasons for your answers& %nswer: Yes, the insurance compan" can cancel the polic" for nonpa"ment of premium. It would appear that it was onl" on 6anuar" A when the insured had a sufficient bank balance to respond for the check, which was a da" later than the occurrence of the loss insured against.

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?hile pa"ment of check ma" be recogni7ed as a !alid means of pa"ment, the conditions to make it effecti!e, i.e., that it is encashed or impaired b" the fault of the creditor, did not occur, and could not ha!e occurred, until 6anuar" A at the earliest. V2H& Lou are a legal counsel of an insurance firm& ,n one of t6e claims su#mitte' #y an insure' w6ose property was covere' #y an insurance against fire( it woul' appear from t6e report su#mitte' #y investigators t6at " a5 t6e proximate cause of t6e loss was an explosion an' t6at 8fire9 was #ut t6e imme'iate cause of loss; t6ere was no excepte' peril un'er t6e policy; #5 t6e insure'( t6roug6 6is own negligence( 6a' cause' t6e explosion t6at triggere' t6e fire; c5 t6e premium was pai' #y means of a c6ec* w6ic6 at t6e time t6e fire occurre' 6a' not as yet #een encas6e' #y t6e insurer; an' '5 t6e insure' 6a' ma'e some c6anges on t6e con'ition of t6e property t6at increase' t6e ris*( wit6out notifying t6e insurance company& =iscuss t6e relevancy of eac6 of t6e a#ove fin'ings on t6e insurersB lia#ility& %nswer: a) .eco!er" under an insurance contract is allowed if the cause of the loss was either the pro0imate or the immediate cause as long as an e0cepted peril, if an", was not the pro0imate cause of the loss. b) Fere negligence on the part of the insured will NO# pre!ent reco!er" under the insurance. #he law merel" pre!ents reco!er" when the cause of the loss was the willful act of the insured, alone or in conni!ance with others. c) #he law does not re$uire that the premium be paid in cash. *a"ment b" an" other means so long as it is accepted b" the creditor would be !alid. *a"ment b" mercantile documents will produce its legal effects when the pertinent instruments is encashed or impaired because of the fault of the creditor, either of which e!ents will then retroact to the date of pa"ment 4or when it could ha!e been had). d) ,hanges or alterations on the condition of the propert" insured against fire will pre!ent reco!er" if and when four conditions concur, !i7: ) that the polic" prohibits such alterations or changesG >) that such alterations or changes increase the riskG :) that the alterations or changes are within the control of the insuredG and ;) that the changes or alterations are made without the consent of the insurer. V2I& % owns a 6ouse wort6 P ? ( & <e insure' it against fire for P2? ( for t6e perio' from Fanuary 2( 2IH! to Fanuary 2( 2IH3& %t t6e instance of B( w6o was a )u'gment cre'itor of %( t6e sai' 6ouse was levie' upon #y t6e s6eriff an' sol' at pu#lic auction on +arc6 2?( 2IH!& ,t was awar'e' to B for P2? ( at t6e auction sale& B insure' t6e 6ouse against fire for P2? ( for t6e perio' from +arc6 2@( 2IH! to +arc6 2@( 2IH3& 16e 6ouse was acci'entally #urne' on %pril 2( 2IH!& a5 +ay % recover un'er 6is policy7 :ive reasons& #5 +ay B recover un'er 6is policy7 :ive reasons& %nswer: a) Yes, ' ma" full" reco!er under the polic". #he reason being, at the time of the loss he still had the right of redemption. ,onsidering that the actual worth of the propert" was *9==,=== and the price brought in under the auction sale was onl" * 9=,===, ' could reco!er his insurance co!er for *:9=,===.

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b) Yes, 1 ma" likewise reco!er under his own insurance. )uring the period of redemption, 1 had an insurable interest to the e0tent of * 9=,===, the price he bought the propert" for and the amount at which the right of redemption ma" be e0ercised b" '. V2 & ,n 2ID3( Fose constructe' a 6ouse wort6 P? ( ( w6ic6 6e insure' against fire for that amount& 16e insurance for t6e same amount was renewe' every year& ,n 2IH3( w6en t6e 6ouse was alrea'y wort6 P2 ( on account of inflationary prices( one-fift6 42>?5 of t6e 6ouse was 'estroye' #y fire& %ssuming t6at Fose was completely #lameless an' t6at t6ere was not6ing illegal a#out t6e contract( 6ow muc6( if any( can Fose successfully recover from t6e insurance company7 -eason& %nswer: Yes, 6ose can successfull" reco!er to the e0tent of * =,=== because of the co&insurance effect of the contract. #he co&insurance effect applies where a propert" in a 8value'9 insurance is insured for less than its full !alue. ' !aluation made of the propert" on the polic" becomes, in effect, conclusi!e on both the insurer and the insured. 'ssuming, instead, that the polic" was an Dopen9 policy, then the reco!er" would be *>=,===. In an open polic", full reco!er" of the partial loss is due as long as the total liabilit" of the insurer does not e0ceed the amount of the insurance 4which is *9=,=== in this particular case). V22& J owns an' operates several passenger )eepney in +etro +anila& <e entere' into a contract wit6 +a#u6ay ,nsurance E Surety Co&( insuring t6e operation of 6is )eepneys against acci'ents wit6 t6ir'-party lia#ility& =uring t6e effectivity of t6e insurance( one of 6is )eepney #umpe' B( w6o 6a' )ust alig6te' from anot6er passenger )eepney w6ose 'river unloa'e' passengers in t6e mi''le of t6e street& B suffere' #o'ily in)ury as a conseAuence an' file' a claim against t6e insurance company& 16e latter refuse' to pay on t6e groun' t6at t6e 'river of t6e )eepney from w6ic6 passenger B alig6te' was guilty of negligence in unloa'ing in t6e mi''le of t6e street( an' t6e 'river of t6e insure' operator was not at fault& ,s t6e position ta*en #y t6e insurance company correct7 %nswer: Yes. #he claim of 1 should be directed against the insurer of the offending !ehicle or the part" at fault. 1, howe!er, ma" opt for the no&fault insurance in which case he can bring the action against the insurer of the !ehicle where he was Driding, mounting or dismounting from.E 1ransportation an' %llie' Laws V22& % taxica# 6it a +eralco electric transmission post( in)uring a passenger an' a pe'estrian& Bot6 t6e passenger an' pe'estrian sue' t6e taxica# operator as well as t6e 'river for 'amages& a5 ,f t6e plaintiffs were una#le to su#mit proof of negligence on t6e part of t6e two 'efen'ants( can 'amages #e awar'e' to t6e plaintiffs an' against sai' 'efen'ants7 #5 ,f t6e 'riverBs negligence was esta#lis6e'( can t6e taxica# operator raise t6e 'efense of 'ue 'iligence in t6e selection an' supervision of t6e 'river in t6e claim for 'amages #y t6e two plaintiffs7

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%nswer: a) In the case of the in%ured passenger, damages can be awarded based on culpa contractual against the ta0icab operator. In culpa contractual, the mere breach of the contract of carriage raises the presumption of fault or negligence. In the case, howe!er, of the pedestrian whose action could onl" be predicated on culpa a$uiliana 4or, in a proper case, on culpa delictal), NO damages can legall" be awarded in the absence of a showing of fault or negligence on the part of the defendants. In culpa a$uiliana, fraud or negligence is NO# presumed but must be established. b) No, the ta0icab operator ma" not raise, against the in%ured passenger, the defense of due diligence in the selection and super!ision of the dri!er. #his defense is not a!ailable in culpa contractual, and liabilit" of the emplo"er in respect thereto for the conduct of the emplo"ee is absolute. Such is NO# the case in culpa a$uiliana. #he basis of the emplo"erCs liabilit" is his own negligence in the proper selection and super!ision of his emplo"ees 4pater familias rule). 'ccordingl", the defense of due diligence in the selection and super!ision of the dri!er ma" aptl" be raised against the claim for damages b" the in%ured pedestrian. V2!& % group of stu'ents c6artere' a passenger #us in one of t6eir fiel'-stu'y trips& ,s a written stipulation limiting t6e lia#ility of t6e carrier to simple negligence vali'7 %nswer: Yes, the stipulation limiting the liabilit" of the carrier to simple negligence is !alid. #he charter of a common carrier is in the nature of a lease of the carrier 4or an" space thereof) rather than a lease of ser!ices 4common carrier). 1" the charter contract, the common carrier has ceased to be a common carrier but, instead, assumed the character of a pri!ate carrier. NO#+: It has been suggested, howe!er, that the definition of common carrier under the ,i!il ,ode would seem not to consider of substance the form or t"pe of the contract that is entered into but the habitual undertaking of the carrier itself. /nder this !iew, for instance, a common carrier engaged in the carriage of passengers will NO# lose its character as such common carrier b" ha!ing it chartered but manned b" its own emplo"ees to Dpassenger.E It will, howe!er, ha!e the con!ersion if it were charged for the carriage of goods. #he re!erse situation would also be similarl" true. V23& ,n a plane tic*et stu#( unsigne' #y t6e passenger( t6ere appears a statement t6at t6e lia#ility 8for any loss or 'amage of c6ec*e' #aggage or for 'elay in t6e 'elivery t6ereof9 of t6e air carrier 8is limite' to its value an' unless t6e passenger 'eclares in a'vance a 6ig6er valuation an' pays an a''itional c6arge t6erefor( t6e value s6all #e conclusively 'eeme' not to excee' P2 for eac6 tic*et&9 % passenger w6ose #aggage was lost 'ue to t6e negligence of t6e carrierBs employees( use' for a 6ig6er amount( i&e&( P?( ( w6ic6 was 6is actual loss& -ule on t6e suit& %nswer: #he passenger would be bound b" the stipulation found on the plane ticket stub. #he law considers !alid a stipulation limiting the liabilit" of a common carrier to an amount fi0ed therein as long as it is fairl" and freel" agreed upon. 'lthough unsigned b" the passenger, the stipulation is deemed to ha!e been Dfreel"E assented to b" his acceptance thereof.

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#he clause in the stub, stating that Dunless the passenger declares a higher !alueE 4or its e$ui!alent), has gi!en the opportunit" to e0cept therefrom b" stating a higher !alue of his goods, if such were the case, and there being such an opportunit", the stipulation must be deemed to ha!e likewise been Dfairl"E agreed upon. #he fact that the negligence of the carrierCs emplo"ees was the cause of the loss would not change the abo!e results. -ault or negligence on the part of the carrier is, in fact, the promise upon which its liabilit" arises. 1eing thus liable, the e0tent thereof is controlled b" their !alid stipulation. V2?& J( a #usinessman #oar'e' a passenger #us #oun' for =agupan City w6ere 6e woul' meet L( to arrange a #usiness transaction& Somew6ere in San Cernan'o( Pampanga( M( t6e =eputy S6eriff of Pampanga( intercepte' an' seiGe' t6e #us at t6e instance of . w6o 6a' earlier o#taine' from t6e court a writ of attac6ment& %s a result of t6e seiGure #y t6e S6eriff( J faile' to reac6 =agupan City w6ere 6e was suppose' to transact #usiness& Ceeling aggrieve' #y t6e loss of an ot6erwise )uicy transaction( 6e file' an action for 'amages against t6e carrier for #reac6 of contract& =eci'e& %nswer: I decide to dismiss the suit. ' contract is breached when a contracting part" does not compl" with his undertaking for which he is responsible. ?hen, howe!er, the cause of such failure is be"ond his control, then that liabilit" does NO# attach 4unless, of course, the risk therefor is assumed as b" an insurer.) ' fortuitous e!en is one that a person ma" not be responsible for, as a rule. ?hile writ of attachment is a possibilit" that must be alwa"s reckoned with whene!er one is in!ol!ed in an action for a sum of mone" or damages, and ma" thus be foreseen, the law refers onl" to that which ma" onl" be reasonabl" foreseen. #he facts in the problem do not indicate such a situation. ,ertainl", where a business enterprise is engage in business, ci!il suits are not unusual and neither are writs of attachments. It would be $uite unreasonable for such enterprise to cease from operations on the possibilit" merel" that such pro!isional remedies ma" be obtained against it. 'rticle H:; of the ,i!il ,ode e0empting from liabilit" a common carrier for the acts of competent authorit" refers merel", it is true, to !igilance o!er the goods 4not passengers) but it might at least ser!e as a guideline on the $uestion of whether or not the carrier has had an" control in the occurrence of the cause of loss or damage. #he problem likewise referred to the Dloss of an otherwise %uic" transactionE b" the businessman. #here being no fraud or bad faith on the part of the common carrier, the latterCs liabilit", e!en assuming that it is guilt" of breach of contract, cannot e0tend to damages that were not foreseen or could not ha!e reasonabl" been foreseen. V2@& ,f a s6ipper( wit6out c6anging t6e place of 'elivery c6anges t6e consignment or consignee of t6e goo's 4after sai' goo's 6a' #een 'elivere' to t6e carrier5( un'er w6at con'ition will t6e carrier #e reAuire' to comply wit6 t6e new or'ers of t6e s6ipper7 %nswer: #he carrier ma" be re$uired to compl" with an order of the shipper changing the consignment or consignee of the goods ONLY if the bill of lading should be surrendered b" the shipper in e0change for a new one. V2D& State t6e lia#ility of t6e registere' owner an' t6e aut6oriGe' operator un'er t6e 8*a#it9 an' t6e 8#oun'ary9 systems&

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%nswer: 1oth the registered owner and the authori7ed operator of a common carrier under the DkabitE s"stem are %ointl" and se!erall" 4solidaril") liable for an" death or in%ur" to passengers and loss or damage to the goods. /nder the Dboundar"E s"stem, the authori7ed operator of the common carrier is liable for the conduct of the dri!er, there being deemed to be an emplo"er&emplo"ee relationship between such operator and dri!er. V2H& Because of t6e unseawort6y con'ition of a vessel *nown to t6e s6ipowner( t6e s6ip in t6e course of its voyage san*& 16e passengers were luc*ily save'( alt6oug6 some of t6em were in)ure' #ut t6e entire cargo was lost toget6er wit6 t6e s6ip w6en it san* very close to t6e +in'anao 'eep& 16e in)ure' passengers( some of t6e crew an' t6e cargo s6ippers #roug6t suit for 'amages against t6e s6ipowner& a5 16e s6ipowner raises t6e 'octrine of limite' lia#ility( 'oes it apply7 #5 16e action was file' one year after t6e inci'ent occurre'( woul' t6e prescriptive perio' un'er t6e Carriage of :oo's #y Sea %ct apply7 c5 ,s t6e 'octrine of inscruta#le fault relevant to t6e case7 '5 %mong t6e issues raise' #y t6e s6ipowners is w6et6er or not t6e 'uty of utmost 'iligence to passengers coul' eAually apply to t6e crew of t6e common carrier( 'oes it7 %nswer: a) NO, the doctrine of limited liabilit" does not appl" in this case for two reasons: -irstl", the shipowner himself, not merel" the captain or the crew, was negligent. 'nd secondl", because it was not among the three cases when abandonment b" the shipowner would be proper in order to trigger the application of the doctrine. #hese three cases are: ) liabilit" for the conduct of the captain in the care of goodsG >) liabilit" arising from collisionG and :) liabilit" for wages in the case of shipwreck. b) Yes, the prescripti!e period under the ,arriage of (oods b" Sea 'ct would appl". #he one "ear period therein e0pressed, howe!er, shall onl" be counted from the time that the goods should ha!e been deli!ered, NO# on the da" the collision had occurred. c) NO, the doctrine of inscrutable fault is NO# rele!ant for two reasons: -irstl", there was no collision that took place. 'nd secondl", the fault has been identified to be that of the unseaworth" !essel. d) Yes, dut" of utmost diligence to passengers could e$uall" appl" to the crew of the common carrier. ?hile the pro!isions of law would appear to limit the dut" of utmost diligence to passengers 4ob!iousl" under a contract of carriage), the Supreme ,ourt 4perhaps on e$uitable or practicable considerations) has ruled that it is e$uall" applicable to the crew of the common carrier. NO#+: In point of strict law, it is 'rt. H > of the ,i!il ,ode which appears to be s$uarel" applicable. V2I& % vessel ran agroun'& 1o avoi' its sin*ing( t6e captain or'ere' t6e cargo on 'ec* to #e t6rown over#oar'& 16e vessel t6en procee'e' to t6e nearest port for repairs& Explain w6et6er t6e following averages are gross or particular$ a5 =amage to t6e vessel in running agroun'& #5 Loss of t6e cargo t6rown over#oar'; c5 Cost of repairs un'erta*en on t6e vessel&

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%nswer: a) *articular a!erage. #he damage to the !essel in running aground is a particular a!erage there being no deliberate sacrifice for common benefit. b) (eneral a!erage. #he loss of the cargo thrown o!erboard is a general a!erage. #here was a deliberate sacrifice for the common benefit of the !essel and its cargo. c) *articular a!erage. #he cost of repairs undertaken on the !essel is a particular a!erage being the result of an unintentional act 4running aground). V! & 1wo vessels( coming from opposite 'irections an' towar's eac6 ot6er( su''enly colli'e'( resulting in t6e sin*ing of one of t6e vessels toget6er wit6 all its cargoes( part of w6ic6 #elonge' to 1anya( a paying passenger( an' -afael( a s6ipper& 1anya an' -afael now #ring an action in court to recover t6eir losses an' 'amages arising from t6e collision& a5 .6ere t6ey un'er o#ligation to file a maritime protest for t6e successful maintenance of t6e action7 .6y7 #5 Explain a maritime protest& %nswer: a) ?ith respect to #an"a, "es, she is under obligation to file a maritime protest relati!e to the damage sustained b" her cargo. ?ith respect to .afael, no, he is not under obligation to file a maritime protest because he was not on board the !essel when the accident occurred. ' maritime protest is re$uired onl" on the part of one who is e0pected to know the circumstances of the collision which be would then be bound to state under oath. b) ' maritime protest is a sworn statement made within >; hours after a collision in which the circumstances thereof are declared or made known before a competent authorit". Such declaration shall be made at the point of the accident or the first port of arri!al if in the *hilippines or the *hilippine consul if in a foreign countr". V!2& J( t6e captain of t6e +V C6ristina( receive' a 'istress signal from t6e +V -osario( owne' #y L& %nswering t6e S&O&S call( J altere' t6e course of t6e vessel( w6ic6 was t6en sailing from =umaguete City( an' 6ea'e' instea' towar' 0egros ,slan'& J foun' +V -osario to #e in trou#le 'ue to engine failure an' loss of 6er propeller( for w6ic6 reason( it was 'rifting slowly sout6war' from 0egros ,slan' 'ue to mo'erate easterly win's& .it6 t6e consent an' *nowle'ge of t6e captain of +V -osario( J cause' t6e +V -osario to #e tie' to( an' connecte' wit6 t6e tow lines from( t6e +V C6ristina& 16e +V C6ristina 6a' t6e +V -osario in tow an' procee'e' to t6e nearest port& a5 .as t6e 'eviation of +V C6ristina lawful or not7 #5 =i' t6e service entere' #y J to L constitute 8salvage9 or 8towage97 c5 +ay J recover form L compensation for suc6 service7 %nswer: a) Yes, it was lawful. #he de!iation of FI ,hristina was lawful since it was made in order to sa!e a !essel in distress with its passengers and crew. b) #he ser!ice ga!e rise to a $uasi&contract of towage&

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#he ser!ice rendered b" 3 to Y did not constitute salvage since there was no marine peril. #he consent gi!en b" the captain is not the consent referred to in order to perfect a contract. c) Yes, 3 ma" reco!er from Y compensation for the ser!ice rendered. #he compensation shall be based on the $uasi&contract of towage based on the presumed will of the parties and to a!oid un%ust enrichment. V!2& J was grante' #y t6e Boar' of 1ransportation a certificate of pu#lic convenience to operate a num#er of provincial #uses( plying to an' from +anila& Because of traffic congestion #etween t6e 6ours of D an' I oBcloc* in t6e morning( an' 3 to H oBcloc* in t6e evening a municipal or'inance was passe' pro6i#iting provincial #uses from entering +anila on t6ose 6ours #ut allowing t6em to use one s6uttle #us for every ? provincial #uses& J c6allenge' t6e vali'ity of t6e or'inance( on t6e groun' t6at it infringes on 6is certificate of pu#lic convenience( an' t6at 6e 6a' acAuire' a veste' rig6t to enter +anila at any time of t6e 'ay& =eci'e wit6 reasons& %nswer: I decide to uphold the !alidit" of the ordinance. ' certificate of public con!enience is a mere pri!ilege or license that confers no proprietar" nor contractual rights e0clusi!e of public interest and welfare. #he certificate holder, therefore, did not ac$uire an" !ested right insofar as the state is concerned. #he rights conferred under the certificate of public con!enience and necessit", furthermore, are not designed to den" or supersede the go!ernmental regulator" powers of local go!ernment. V!!& %( a registere' owner of a truc* for 6ire( sol' t6e truc* to B an' possession was imme'iately 'elivere' to B w6o operate' t6e same& 16e truc*( 6owever( remaine' registere' in t6e name of %& .6ile operating t6e truc*( BBs 'river ran over a c6il' w6o 'ie' t6ereafter& 16e 6eirs of t6e c6il' sue' % for 'amages& %Bs 'efense is t6at 6e cannot #e 6el' lia#le as 6e 6a' alrea'y sol' t6e truc* to B an' it was BBs 'river w6o was responsi#le for t6e acci'ent& =eci'e wit6 reasons& %nswer: I decide that both the registered owner and operator of the !ehicle are solidaril" liable. It is well established that as far as the public is concerned, the latter ma" proceed against both an actual owner or operator and the registered owner or operator of a motor !ehicle. V!3& 1wo frien's( % an' B( #roug6t some pac*ages for s6ipment at t6e #us terminal& Seeing t6e #uses to #e in 'ilapi'ate' con'ition( % 'eci'e' not to s6ip 6is goo's #ut B too* t6e c6ance an' surren'ere' 6is merc6an'ise to t6e carrier& =ue to rainwater t6at lea*e' t6roug6 t6e roof of t6e #us( BBs goo's were 'amage'& Bot6 % an' B soug6t your legal a'vice on 6ow an' w6ere t6ey can lo'ge t6eir respective complaints& <ow woul' you state your views7 %nswer: One must distinguish between the public aspects of the common carrier and its pri!ate aspects. In the case of ', who did not ship his goods, no contractual tie has arisen between him and the common carrier, but being part of the public to be ser!ed, he ma" lodge his

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complaint with the go!ernmental agenc" 4L#-.1, in this case) tasked with the enforcement of the *ublic Ser!ice 'ct. In the case of 1, howe!er, he can file suit with the ordinar" courts because of the damage that he sustained on his contract with the common carrier. 5is cause of action would be one of culpa contractual. Corporation Co'e an' %llie' Laws V!?& .6ile t6e incorporation papers of JLM( ,nc& were pen'ing #efore t6e Securities an' Exc6ange Commission for approval( %( t6e 'esignate' treasurer in t6e %rticles of ,ncorporation( 6el' real estate property wort6 P2 ( w6ic6 B turne' over for s6ares 6e 4B5 purc6ase' in JLM( ,nc& Before t6e certificate of incorporation for JLM( ,nc& coul' #e issue'( C( w6o claims to #e t6e owner of sai' real estate property( file' an action against JLM( ,nc& for recovery of t6e possession t6ereof& .ill CBs suit prosper7 %nswer: No, the action filed b" , against 3YJ, Inc., will not prosper. /ntil the certificate of registration is issued, the corporation is not a legal entit". Neither, prior to such registration is it the owner 4but a mere trustee) of the propert" that it recei!ed in pa"ment for the subscription. V!@& +ay a corporation #e accuse' in court for a felony un'er t6e -evise' Penal Co'e7 %nswer: No, the corporation ma" not be accused in court for a felon" under the .e!ised *enal ,ode. #he ,ode re$uires criminal intent for its offenses and in!ariabl" prescribes the penalt" of imprisonment, matters that corporations, as persons b" mere fiction of law are incapable of. In appropriate cases, such as mala prohibita, the criminal liabilit" ma", howe!er, be directed b" law against the directors, trustees, or officers or an"one who ma" ha!e been responsible therefor. V!D& %( a stoc*6ol'er of J Corporation( assigns 6is s6ares of stoc* to B for a valua#le consi'eration& 16e certificate of stoc* was t6ereupon 'elivere' to B& % few 'ays later( % 'ie'& 16e 6eirs of %( in a =ee' of Extra)u'icial Partition a')u'icate' t6e s6ares of stoc* to %Bs son( C& ,n t6e meantime( J Corporation 'eclare' cas6 'ivi'en's an' sent t6e correspon'ing notice to %Bs a''ress( %( #eing t6e registere' owner of t6e s6ares of stoc* in t6e #oo*s of t6e corporation& C receive' t6e notice an' #y virtue of t6e aforestate' 'ee' of partition claime' payment of t6e 'ivi'en's& B li*ewise claime' payment asserting owners6ip of t6e s6ares #y virtue of t6e assignment ma'e #y %& .6o 6as t6e #etter rig6t7 %nswer: 1, the assignee, has the better right to the di!idend than , who is a mere successor&in&interest of '. #he assignment of shares for a !aluable consideration was binding at least between the parties thereto and , being a mere successor&in&interest of the assignor thereof is bound b" the transfer, although the assignment is not as "et recorded in the books of the corporation. Insofar as 3 corporation is concerned, it is not bound b" the transfer until its recording in the Stock and #ransfer 1ook of the ,orporation is effected.

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V!H& +ay su#scription rig6ts #e assigne'7 %nswer: Yes, subscription rights ma" be assigned #ut the assignment will onl" be binding between the parties thereto. /nder the Trust Fund Doctrine, the assignment of subscription rights will not relie!e the assignor from the unpaid subscription unless perhaps when the creditors to whom the #rust -und is owing wai!e their rights thereto. #he corporation would not likewise be bound b" the assignment since onl" shares e!idenced b" certificates of stock ma" be recorded in the books of the corporation and, unless thus recorded, the transfer will not bind the corporation. V!I& 16e Boar' of =irectors of C Corporation( engage' in t6e manufacture an' sale of foo' pro'ucts( acting on a stan'ing aut6ority of t6e stoc*6ol'ers to amen' t6e By-Laws( amen'e' its By-Laws so as to 'isAualify any stoc*6ol'er( w6o is also a stoc*6ol'er an' 'irector of a competitor( from #eing electe' to its Boar' of =irectors& S( a stoc*6ol'er 6ol'ing sufficient s6ares to assure 6im a seat in t6e Boar'( file' a petition wit6 t6e Securities an' Exc6ange Commission for a 'eclaration of nullity of t6e amen'e' By-Laws an' cancellation of t6e Certificate of Ciling of %men'e' By-Laws& <e allege'( among ot6er t6ings( t6at as a stoc*6ol'er( 6e 6a' acAuire' rig6ts in6erent in stoc* owners6ip( suc6 as t6e rig6t to vote an' #e vote' upon in t6e election of 'irectors& =iscuss t6e merits of t6e stoc*6ol'erBs petition& %nswer: #he stockholderCs petition will NO# prosper. #he ,orporation ,ode permits the 1"&Laws of a corporation to pro!ide, among other things, additional $ualifications for the directors of the corporation. Such pro!isions would be !alid as long as the" are reasonable and do not unduly deprive proper representation b" the stockholders in the board. ' pro!ision in the 1"&Laws dis$ualif"ing a stockholder from being a director, if he, likewise, is a stockholder and director of a competitor, would NO# at all be unreasonable. V3 & +ay 'irectors #e ma'e lia#le personally #y t6e :overnment for tax evasion #y t6e corporation7 %nswer: Yes, directors ma" under certain circumstances, be held personall" liable b" the go!ernment for ta0 e!asion b" the corporation. #he ,orporation ,ode imposes soli'ary liabilit" on directors, trustees, and officers of a corporation who might ha!e been guilt", in the discharge of their duties, of bad faith or gross negligence. 'ccordingl", directors, trustees and officers who ma" ha!e been guilt" of such misconduct that ga!e rise to ta0 e!asion b" the corporation can be held accountable therefor. V32& 16e Corporation Co'e provi'es t6at t6e corporate powers s6all #e exercise' #y t6e #oar' of 'irectors& 16e same Co'e( 6owever( aut6oriGes a corporation to conclu'e management contracts wit6 anot6er corporation to manage t6e #usiness of t6e former& ,s t6ere an inconsistency7 %nswer: NO. #here is no serious inconsistenc" between the two pro!isions.

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#he e0ercise of corporate management power lies with the 1oard of )irectors which it ma" undertake itself or delegate to some e0tent. #hus, polic" decisions and those which the ,orporation ,ode re$uires e0plicitl" to be considered and !oted upon b" the board ma" not be delegated b" it and an abdication thereof would be in!alid. #he management contracts referred to in the ,ode ob!iousl" relate onl" to da"&to& da" business operations that, in fact, are corporate affairs ne!er in practice, directl" done b" the board but b" its officers. In the same wa", that the board ma" delegate such powers to its officers, so also it ma" gi!e it to others under management contracts. V32& % non-investment corporation( t6roug6 its Boar' of =irectors( investe' in anot6er corporation( wit6out any approval of t6e stoc*6ol'ers of t6e investing corporation& 16e investee corporation is engage' in a very profita#le venture an' for some years( t6e investor corporation continually receive' 'ivi'en's& 16e investment was Auestione' as ultra vires act& =eci'e& %nswer: #he act was ultra !ires on the part of the 1oard of )irectors but not on the corporation. In!esting in another corporation b" a non&in!estment corporation clearl" would re$uire the appro!al of the stockholders. 5a!ing failed to obtain that appro!al, the in!estment was an ultra !ires act, NO# of the corporation, but of the 1oard of )irectors. #he action taken b" the board should be considered F+.+LY IOI)'1L+ 4and not !oid) which is the rule in cases of corporate ultra vires acts& 1eing !oidable, the act was susceptible to ratification, e0pressl" or impliedl", b" the shareholders. #he latterCs failure to take e0ceptions from the act of the 1oard for a num#er of years, during which time benefits were recei!ed out of the in!estment, should be considered at least a case of implie' ratification. V3!& 16ree 4!5 years after a corporation was 'issolve'( t6ere #eing neit6er a trustee nor a receiver expressly 'esignate'( a 'efen'ant to a civil action 4file' #y t6e corporation wit6in sai' !-year perio' #ut still pen'ing5 soug6t to 'ismiss t6e case& 16e lawyer w6o( wit6out #eing appointe' eit6er as trustee or receiver( continue' to appear for t6e corporation( o#)ecte' vigorously to t6e motion to 'ismiss& -ule on t6e matter& %nswer: I will den" the plea for dismissal. *rescinding from the rule that substantial %ustice subordinates strict technicalities, the law"er, who was taking charge of the litigation for the dissol!ed corporation, can be considered as a trustee at least insofar as that litigation is concerned. V33& =uring t6e a#ove t6ree 4!5 year perio'( may t6e corporate life #e exten'e' #y an amen'ment of its %rticles of ,ncorporation7 %nswer: NO, during the :&"ear period, after the dissolution of a corporation, its corporate life ma" NO longer be e0tended b" an amendment of its 'rticles of Incorporation. 'n" e0tension of such life ma" onl" be effected if taken b" the corporation #efore the e0pir" date of its life or term e0pressed in the charter. #he :&"ear period of continued e0istence of the corporation is solel" for purposes of winding up the corporate affairs.

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(Note: In the next three uestions! ta"e note of the amendments in the #ecurities $egulation %ct&
V3?& J file' a complaint wit6 t6e Securities an' Exc6ange Commission 4SEC5 alleging t6at %BC Corporation 6a' violate' t6e provisions of t6e Corporation Co'e& 16e SEC see*s to inspect t6e #oo*s of t6e Corporation& %BC Corporation o#)ecte' to t6e inspection of its #oo*s #y t6e SEC on t6e groun' t6at J( t6e complainant( is not a stoc*6ol'er of t6e corporation& =eci'e& %nswer: #he Securities and +0change ,ommission has absolute regulator" %urisdiction, control and super!ision o!er corporations, partnerships and associations. #he ,ommission ma" lawfull" e0ercise these regulator" powers at its own instance and independentl" of an" complaint filed with the ,ommission. #he latter ma" conduct, incidental to such powers, an inspection of the books of the corporation. 'ccordingl", the contention that the ,ommission ma" not do so, as the complainant is not a stockholder, will not hold water. V3@& +ay t6e SEC awar' 'amages7

%nswer: Yes, the Securities and +0change ,ommission ma" award damages which can be considered conse$uential in the e0ercise of its ad%udicati!e powers. It is well&known rule that incidental issues to a case that appropriatel" fall within the cogni7ance of a tribunal ma" likewise be considered in order to a!oid multiplicit" of suits. 5ence, in an intra&corporate affair between or among the corporation, its directors, trustees, officers andKor shareholders, the matter of conse$uential damages ma" well be taken up and ad%udicated b" the ,ommission. V3D& % group of stoc*6ol'ers of a corporation file' a court suit against t6e mem#ers of t6e Boar' of =irectors to ma*e goo' to t6e s6are6ol'ers( in proportion to t6eir s6are6ol'ings( t6e losses incurre' #y t6e corporation #ecause of t6e 'efen'antsB mismanagement& .ill t6e action prosper7 %nswer: #he suit will not prosper for two reasons: a) #he should ha!e been filed in the name of the corporation. #he sum sought to be reco!ered because of the defendantsC mismanagement belongs to the corporation, the shareholdersC proprietar" rights being limited onl" to their rights to di!idends either out of unrestricted earnings or b" !irtue of li$uidation after satisfaction of corporate debts. 'lthough intra&corporate remedies might be e0cused because of the likel" futilit" of such a remed", the suit, nonetheless, must be filed for and in behalf of the corporation wit6 such group of stockholders as mere nominal parties thereto. b) 1eing an intra&corporate matter, the %urisdiction o!er the case lies not with the courts but with the Securities and +0change ,ommission. 4now .#,s assigned to handle intra&corporate matters) V3H& +ay rural #an*s grant loans on t6e security of lan's wit6out 1orrens titles an' w6ic6 are neit6er 6omestea' nor free patent lan's7 %nswer: Yes. #he .ural 1anks 'ct allows loans to be secured, in addition to titled lands, b" Land #ransfer ,ertificates, as well as untitled lands where the ownership can

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show at least fi!e 49) "ears of peaceful, continuous and uninterrupted possession in the concept of an owner. Foreo!er, portions of friar lands estates or other lands administered b" the 1ureau of Lands that are co!ered b" sales contracts and the purchasers ha!e paid at least fi!e "ears installments thereon. 'lso, portions of other estates under the administration of the )epartment of 'grarian .eform or other go!ernment agenc" which are likewise co!ered b" sales contracts and the purchasers ha!e paid at least fi!e "ears installments thereonG and homestead or free patent lands pending the issuance of titles but alread" appro!ed. V3I& %re #an*s( ot6er t6an commercial #an*s( aut6oriGe' to accept 'eman' 'eposits7 %nswer: No. 1anks, other than commercial banks, ma" onl" accept or create demand deposits or checking accounts upon prior appro!al of the Fonetar" 1oard and sub%ect to pertinent rules and regulations of the 1angko Sentral. It ma" be pointed out, howe!er, that non&stock sa!ings and loan associations ma" NO# accept or create such demand deposits. V? & % #oug6t some goo's from a 'epartment store an' pai' wit6 6is personal c6ec*& .6en t6e 'epartment store 'eposite' t6e c6ec* of %( t6e #an* 'is6onore' it& 0ot *nowing w6o % was( t6e store manager inAuire' from t6e c6ec*Bs 'rawee #an* t6e name of t6e 'rawer of t6e 'is6onore' c6ec*& 16e 'rawee excepte' in view of -% 23 ? w6ic6 governs t6e secrecy of #an* 'eposits& .as t6e #an* )ustifie' in not 'ivulging t6e name of t6e 'rawer to t6e store manager7 %nswer: No, the bank is not %ustified in refusing to di!ulge the name of the drawer on the basis of .epublic 'ct ;=9. #he prohibition under that law 4also known as the Secrec" of 1ank )eposits 'ct) is merel" against disclosure of information relati!e to the funds or propert" in the custod" of the bank. V?2& .6at is t6e 8Unclaime' Balances Law97

%nswer: #he /nclaimed 1alances Law regulates the escheat, and the procedure therefor, of bank deposits which ha!e been dormant for = "ears or more. /nder the law, the unclaimed balances shall be deposited with the treasurer of the *hilippines to the credit of the .epublic to be used in the manner that ,ongress ma" direct. V?2& ,s it lawful for a corporation engage' in an activity nationaliGe' to t6e extent of fifty-one percent 4?2N5 to employ an alien as one of its )anitors7 %nswer: Yes, it is lawful for a corporation engaged in an acti!it" nationali7ed to the e0tent of fift"&one percent 49 L) to emplo" an alien %anitor. #he 'nti&)umm" Law penali7es the e!asion of nationali7ation laws and prohibits alien emplo"ment where the e0tent of nationali7ation b" law is at least si0t" percent 4B=L). Since, in the problem gi!en, the nationali7ation re$uirement is onl" to the e0tent of fift" one percent 49 L), the 'nti&)umm" Law in respect to its prohibition against alien emplo"ment would thus be inapplicable.

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V?!& ,n t6e a#ove case( coul' a non-national #e electe' #y t6e Boar' of =irectors to #e its Presi'ent7 %nswer: -or similar reasons stated abo!e, there would be NO prohibition for the 1oard of )irectors of the corporation to elect among its members a corporate *resident who is a non&national. 5ad the e0tent of the nationali7ation re$uirement been at least si0t" percent 4B=L), the emplo"ment of an alien would ha!e been unlawful. Ot6er significant commercial laws V?3& J wrote an' pu#lis6e' a story similar to an unpu#lis6e' copyrig6te' story of %& % sues J for infringement of copyrig6t& ,t was( 6owever( conclusively proven t6at J was not aware t6at t6e story of % was protecte' #y a copyrig6t& ,s J lia#le7 %nswer: Yes, 3 is liable for infringement. 5is lack of knowledge that the stor" he duplicated was protected b" a cop"right would not free him from that liabilit". Neither an honest intention nor an absence of fraudulent intent is a defense in action for infringement of a cop"right. V??& +ay you cause Jerox copies to #e ma'e of t6e #oo* of Fustice =esi'erio Fura'o wit6out violating t6e Copyrig6t Law7 %nswer: Yes, I can cause 0ero0 copies to be made of some pages of the book of 6ustice 6urado as long as it is solel" for m" personal and pri!ate use. Otherwise, I can be held liable for infringement. V?@& % invente' a certain 'evice w6ic6 w6en attac6e' to t6e engine of a motor ve6icle woul' cut t6e consumption of gasoline #y fifty percent 4? N5& .it6out securing a patent t6erefor( 6e starte' manufacturing t6e ga'get in large Auantities an' promote' its sales& %n ingenious B #oug6t one ga'get( 'ismantle' an' stu'ie' it an' in 'ue time was 6imself manufacturing an i'entical 'evice& Before offering it for sale( B secure' a patent for 6is 'evice& % learns of t6e patent an' 'esires to secure 6is own patent #ut fearing t6at 6e mig6t #e sue' for infringement of patent( see*s your legal a'vice& <ow woul' you counsel %7 %nswer: I would counsel ' to petition for the cancellation of the registration of patent obtained b" 1 with the *atent Office on the ground that the in!ention that was registered was not new and that the registrant was guilt" of fraud in securing its registration. ' might then file his own application for patent. 'nother possible remed" that I could ad!ise ' would be a court action for damages, with a pra"er for in%unction, because of the fraud that was committed b" 1. V?D& : Corporation( organiGe' un'er P6ilippine Laws( is t6e registrant of t6e tra'e-mar* 8Fum#o(9 un'er a registry certificate issue' on Ce#ruary 2?( 2IDI #y t6e P6ilippine Patent Office( for assorte' *itc6en wares& On Fune 2 ( 2IH ( t6e Fum#o Coo*ware Corporation( organiGe' an' existing un'er U&S& Laws( file' a petition wit6 t6e P6ilippine Patent Office for t6e cancellation of t6e tra'e-mar* 8Fum#o9 registere' in t6e name of : Corporation(

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alleging owners6ip an' prior use in t6e P6ilippines since 2I3I of sai' tra'e-mar* on t6e same *in' of goo's( w6ic6 use it 6a' not a#an'one'& : Corporation move' to 'ismiss t6e petition alleging t6e Fum#o Coo*ware Corporation #eing a foreign entity( w6ic6 is not license' to 'o an' is not 'oing #usiness in t6e P6ilippines( 6as no personality un'er P6ilippine laws to maintain suc6 petition& a5 ,s : CorporationBs contention meritorious7 #5 .6o is entitle' to t6e use of t6e tra'e-mar* 8Fum#o97 %nswer: a) No, the contention of ( ,orporation that 6umbo ,ookware ,orporation has no personalit" is not meritorious. Sub%ect to the rules on reciprocit", a foreign corporation need not obtain a license in order to permit it to sue administrati!el" in the *hilippines if it were not, like in gi!en problem, doing business in the countr". It might b" noteworth" to point out that under the ,orporation ,ode, the inabilit" to sue in the *hilippines without the corresponding license therefor, unlike before, now applies to cases before administrati!e agencies. #he amendator" pro!isions, upon the other hand, to the #rade&mark Law permitting foreign corporations to sue, whether licensed to do business or not, applies onl" to infringement of trade&marks and unfair competition under which the instant case does not fall. b) ' trade&mark of foreign origin, whether registered or not in the *hilippines, is !ested b" law their ownership rights and entitled to protection when there is actual use thereof in the *hilippines or when it is protected b" treat". #o confirm administrati!el" that right, the owner ma" ask for its registration. In the instant case, there being no abandonment of that right, 6umbo ,ookware ,orporation would ha!e the better entitlement thereto. V?H& ,n an action for unfair competition( t6e 'efen'ant conten's t6at w6ile t6e plaintiffBs tra'e-mar* is *nown worl'wi'e for many years( its goo's( 6owever( were not #eing sol' locally& %ssuming 'efen'antBs assertion to #e true( can it serve as a 'efense against a c6arge for unfair competition7 %nswer: No. #he modern !iew has e0panded the legal remedies in unfair competition to conform to ethical practice, and the element of strict competition in itself has ceased to be the determinati!e factor. #his ma" well be the case because the legal protection is, indeed, for the welfare and the interest of the consuming public. /nlike in the case of infringement of a tra'e-mar*, where use in the *hilippines is re$uired in order to permit its registration and which ma" thereafter be the basis for an infringement thereof b" a subse$uent user, in unfair competent, howe!er, no such registration is re$uired. ?hene!er, howe!er, the plaintiff in an action for unfair competition is a foreign corporation, the law, sub%ect to treat" pro!isions, re$uires before it ma" sue that it be the registrant or the assignee of the tra'emar* registered with the *hilippine *atent Office. No such re$uirement is imposed in the case of indi!iduals or in the case of non& foreign corporations. V?I& a5 State t6e ma)or 'istinctions #etween 8infringement of tra'e-mar*9 an' 8unfair competition&9 #5 .6ic6 court or agency can ta*e cogniGance over cases involving t6e a#ove violations7

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%nswer: a) #he ma%or distinctions between an infringement or a trademark 4I#F) and unfair competition 4/,) ma" be stated, as follows: ) I#F is an unauthori7ed use of trade&markG whereas, /, is the passing off of oneCs goods for those of anotherG >) -raudulent intent is unnecessar" in I#FG whereas, it is essential in /,G :) *rior registration is re$uired in an I#FG no such re$uirement is essential for /, to prosperG and ;) In I#F, the goods in!ol!ed must be of a similar classG whereas, such similarit" is not re$uired in /,. b) In both cases 4I#F and /,), the ordinar" courts ha!e %urisdiction, not the *atent Office which onl" takes cogni7ance o!er applications for, or petitions to cancel, the registration of trade&marks. V@ & On +ay 2?( 2IH ( % o#taine' a final )u'gment from t6e Court of %ppeals or'ering B to pay 6im t6e sum of P?( as overtime compensation& 16e case was reman'e' to t6e lower court so t6at B coul' present evi'ence of overtime compensation alrea'y pai' to %& =uring t6e pen'ency of t6e case( B file' a petition for voluntary insolvency in anot6er court( su#mitting a sc6e'ule of cre'itors( w6ic6 'i' not inclu'e %& % learne' of t6e petition an' in 'ue time file' a motion to 'ismiss t6e insolvency procee'ings& B conten'e' t6at as %Bs claim is merely inc6oate( t6e same not #eing finally 'eci'e'( it cannot #e so inclu'e' in t6e sc6e'ule of cre'itors an' lia#ilities& ,s BBs contention tena#le& %nswer: No, 1Cs contention is not tenable. #he claim of ' should ha!e been included in the schedule of creditors and liabilities. #he ma%orit" !iew is to treat obligations, although merel" contingent or not due, to be pro!able obligations as long as the" ha!e been incurred prior to the declaration of insol!enc". In this case, furthermore, a final %udgment had alread" been made and all that was to be done was to fi0 the amount of o!ertime compensation alread" paid so that it can be deducted from the amount awarded b" the court. Nonetheless, the failure to include the claim of ' in the schedule of creditors and liabilities does not warrant a dismissal of the proceedingsG such an omission ma", howe!er, pre!ent a discharge in fa!or of the insol!ent. V@2& % #roug6t an action against B for a sum of money& Su#seAuently( B was 'eclare' insolvent in an insolvency procee'ing& Lou are a cre'itor of B& .6at s6oul' you 'o in connection wit6 t6e action #roug6t #y % against B to protect your interests7 %nswer: I would take steps to suspend the action brought b" ' against 1. Once a declaration of insol!enc" is made, all pending suits are suspended e0cept to fi0 the amount thereof. #hus, the claim of ' ma" be presented to the assignee in insol!enc". V@2& .6om 'oes t6e assignee in insolvency represent " t6e 'e#tor( t6e cre'itors( or t6e court7 %nswer: #he assignee in insol!enc" represents the mutual interests of the debtor and creditors. #he assignee does not represent the court. 5e is instead responsible for it.

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V@!& % execute' a real estate mortgage in t6e amount of P? ( to secure payment of t6e in'e#te'ness of JLM 1ransit Co& for t6e purc6ase of two truc*s wit6 a total value of P2?2( & JLM 1ransit Co& pai' B+C +otors Co&( t6e seller of t6e truc*s( t6e sum of PI2( ( t6us leaving t6e #alance of P@ ( & 16e o#ligation is furt6er secure' #y a 'ee' of c6attel mortgage on t6e truc*s execute' #y JLM 1ransit Co& in favor of B+C +otors Co& 1o collect t6e #alance of P@ ( ( B+C +otors later file' an action against JLM 1ransit Co& to foreclose t6e c6attel mortgage& 16e suit resulte' in t6e sale of t6e truc*s at pu#lic auction in t6e amount of P? ( & %( t6e real estate mortgagor( file' an action for t6e cancellation of t6e real estate mortgage& .ill t6e action prosper7 %nswer: No, the action will not prosper. #he sale with chattel mortgage on the two trucks did not fall under 'rticle ;@; of the ,i!il ,ode, the same not ha!ing been on installments. In order that 'rticle ;@; might appl", so as to preclude a demand for deficienc" in case of foreclosure of the chattel sold and mortgaged, there should be at least two unpaid installments. 'ccordingl", the creditor ma" still call on the real estate mortgage. V@3& % #uyer on installments of personal property constitute' a c6attel mortgage t6ereon in favor of t6e seller to secure t6e payment of t6e unpai' installments& ,n a''ition( t6e seller reAuire' t6e #uyer( w6o acce'e' to furnis6 a #an* guaranty& 16e #uyer 'efaulte' an' t6e seller soug6t foreclosure& Before t6e property coul' #e auctione' off( t6e ware6ouse w6ere it was store' was #urne'( toget6er wit6 all t6e goo's in it& +ay t6e seller go after t6e #an* guaranty7 %nswer: Yes, the seller ma" to after the bank guarant" but sub%ect to the benefit of e0cussion and the pertinent rules of procedure. ?hile it is true that the options under 'rticle ;@; 4.ecto Law) of the ,i!il ,ode are alternati!e remedies and a choice of one ma" preclude an a!ailment of the other remedies, when, howe!er, the alternati!e opted for could not be effected because of no fault on the part of the mortgagee, the other options ma" still be open for e0ercise. 5ad there been a foreclosure, the right to an" deficienc" would ha!e been lost. #hat situation, howe!er, did not occur in this case. V@?& State t6e purpose an' sc6eme of t6e Bul* Sales Law&

%nswer: #he purpose of the 1ulk Sales Law is to protect and safeguard the interest of creditors against possible fraudulent con!e"ances in bulk b" a seller. #o achie!e this aim, the law re$uires: a) sales or mortgages of stocks in bulk, sub%ect to certain e0ceptions, to be accompanied b" a sworn statement of the !endor or mortgagor listing the names and addresses of, and amounts owing to, creditorsG and b) the seller to prepare an in!entor" of the stock to be sold and to notif" the creditors of the pro%ected sale at least ten 4 =) da"s before such sale. ?here the re$uirements are not complied with, the sale is rendered !oid as to the creditors and the purchaser of the goods becomes a trustee in fa!or of said creditors.

Silliman University College of Law - Vitug Commercial Law Practical Exercises BarOps 2 ! " #y$ %ttys& 'en( ')*tt( rta +,--O- .EE/ 0O1ES page 23 of 23

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