San Beda College

College of Law
Mid-Term Examination

(1) Paolo Co can pursue Lilet, and Becky as their endorsement is unqualified/general and Jun Ting as
drawer. As such endorsers, they guaranteed to pay the instrument in case of dishonor and so with Jun
Ting provided that notice of dishonor is served to them. (See Sec 61 and 66, second par of NIL). Paolo
cannot pursue Rene because as qualified indorser, he has no undertaking to pay the instrument in case
of its dishonor (see Sec. 65 NIL)
(2) If there is no consideration for the bill, Jun Ting can raise this as a defense against Paolo if he is
not a holder in due course. Under the NIL, want of consideration is a personal defense and therefore this
can be set up against holders not in due course.
(3) Becky and Lilet, as general indorsers, warrant that the instrument is valid and subsisting and
therefore, whether they are aware or not of the absence of consideration (of course, Becky is aware
being privy to it), their warranty covers such deficiency hence, they are liable for breach of this warranty
to the holder.
As for Rene, he warrants that he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless. Rene will be liable to Paolo for breach of this warranty (lack of
consideration) only if he is AWARE of the absence of consideration for the bill.

II

Yes, Sing kit can recover from either Manny or Chinny. As indorsers, they warrant to the holder that all
parties prior to them have capacity to contract. This covers capacity of the supposed maker, the minor,
Cindy. Having breached the same, they are then liable to the holder.

III

No. As long as Tendon is a buyer/transferee in good faith, he would acquire the shares free from the
security interest of Porki Bank. The Trust Receipts Law provides:

Section 11. Rights of purchaser for value and in good faith. Any purchaser of goods from an entrustee
with right to sell, or of documents or instruments through their customary form of transfer, who buys
the goods, documents, or instruments for value and in good faith from the entrustee, acquires said
goods, documents or instruments free from the entruster's security interest.

IV

In Colinares v. CA (G.R. No. 90828, September 5, 2000, 339 SCRA 609), the Court declared that there are
two possible situations in a trust receipt transaction. The first is covered by the provision which refers to
money received under the obligation involving the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision which refers to merchandise received under
the obligation to return it (devolvera) to the owner.

The concept of guarantee vis-à-vis the concept of an irrevocable letter of credit are inconsistent with
each other. The guarantee theory destroys the independence of the bank’s responsibility from the
contract upon which it was opened and the nature of both contracts is mutually in conflict with each
other. In contracts of guarantee, the guarantor’s obligation is merely collateral and it arises only upon
the default of the person primarily liable. On the other hand, in an irrevocable letter of credit, the bank

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undertakes a primary obligation. Moreover, a letter of credit is defined as an engagement by a bank or
other person made at the request of a customer that the issuer shall honor drafts or other demands of
payment upon compliance with the conditions specified in the credit. (MWSS v. Daway, G.R. No.
160732, June 21, 2004, 432 SCRA 559)

V
(1) (a) Under the liberal rule or the control test, shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine
nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be counted as of Philippine
nationality. (Narra Nickel Mining and Development Corporation v. Redmont Consolidated Mines
Corporation, G.R. No. 195580, April 21, 2014)

(b) Under the strict rule or grandfather rule proper, if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality. Thus, the combined totals in the investing
corporation and the investee corporation must be traced, i.e., "grandfathered", to determine the total
percentage of Filipino ownership. The ultimate Filipino ownership of the shares must first be traced to
the level of the investing corporation and added to the shares directly owned in the investee
corporation)

(2) The Grandfather Rule is only resorted to when there exist a “doubt” in the 60-40 equity
ownership in the corporation. “Doubt” refers to various indicia that the “beneficial ownership” and
“control” of the corporation do not in fact reside in Filipino shareholders but in foreign stakeholders.
Significant indicators of the dummy status are the following: (1) that the foreign investors provide
practically all the funds for the joint investment undertaken by these Filipino businessmen and their
foreign partner; (2) that the foreign investors undertake to provide practically all the technological
support for the joint venture; and (3) that the foreign investors, while being minority stockholders,
manage the company and prepare all economic viability studies. (Narra Nickel Mining and
Development Corporation v. Redmont Consolidated Mines Corporation, G.R. No. 195580, April 21,
2014) Thus, non-payment by some subscribers of their shares in the partly nationalized company creates
serious doubt as to the true extent of control and ownership by Filipinos over the corporation. (ibid)

VI
The foregoing resolutions are not in order – (a) removal of a director (Jo Cla here) requires 2/3 votes of
the outstanding shares; (b) there is no vacancy to be filled, hence it was improper for the board to
delegate it to the execom. And, even assuming that there is a vacancy, filling up of such board vacancy
cannot be delegated to the executive committee.

VII

(a) Sale of Yang to Ramen -

Section 40 of the Corp Code requires the sale of substantially all of the properties of the company to be
approved by majority of the board members and shareholders representing at least 2/3 of its
outstanding capital stock (ELIZA – ALTERNATIVE WORDS HERE ARE 2/3 OF THE SHARES, 2/3 OF THE
OUTSTANDING SHARES OR 2/3 OF THE CAPITAL BUT NOT 2/3 OF THE STOCKHOLDERS) – if both
approvals (board and st concur in their answer – 5 pts, if 1 correct requirement then 3 pts lang)

(b) Sale of Yang to Dumpling (director of Yang)

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Since this is a sale of Yang Co to its director, Dumpling – Sec 32 on self-dealing contracts will also apply
aside from the general requirements of Sec 40 – the sale to be valid require: 1. That the presence of
such director or trustee in the board meeting in which the contract was approved was not necessary to
constitute a quorum for such meeting;
2. That the vote of such director or trustee was nor necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officerqz, the contract has been previously authorized by the board of directors.

(c) The sale does not require SEC approval. There is no such legal requirement under the law.

(d) In both cases, Dumpling is not disqualified from voting. However, in the second case (Sale from Yang
to Dumpling), if Dumpling’s attendance or vote is indispensable, then status of the contract will be
affected as it will be regarded as voidable (unless ratified by the shareholders representing 2/3 of the
outstanding shares)

VIII

(a) The Allegation that directors waived rental income in favor of a law firm without consideration
and that they failed to take action when the law firm refused to turn over the rental to the company –
these are wrongs that pertain to the company. Where the acts complained of constitute a wrong to the
corporation itself, the cause of action belongs to the corporation and not to the individual stockholder
or member. Hence, derivative suit would be proper.

(b) NO – absent showing such waiver will amount to dissipation or waste of corporate
money/assets

IX

(a) The resignation of Tamago is a material and significant information and therefore, Atty. Chow
can be charged with insider trading under the SRC - Unlawful for any insider (inc. spouse, relative by
affinity or consanguinity within the 2nd degree, legitimate or common-law) to purchase or sell security
while in possession of material non-public information. Atty Chow took advantage of his access to
material information while it is not yet disclosed to the public.

(b) It would not matter if there was no material price change in the shares – what the law penalizes
is the breach and undue taking advantage of his first hand access to material info while the same is not
yet officially disclosed/absorbed by the market.