ANSWERS TO BAR EXAMINATION IN MERCANTILE LAW FOR THE

YEARS 2016 AND 2017

Submitted by: Elaine L. Awacan

2016 Bar Examination

I
What does "doing business in the Philippines" under the Foreign Investments Act of 1991 mean?
(5%)
Under Section 3(d) of Foreign Investments Act of 1991, “doing business in the
Philippines” shall include soliciting orders, service contracts, opening offices, whether
called liaison office or branches; appointing representatives or distributors operating
under full control of the foreign corporation, domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totaling 180 days or more;
participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and any other act or acts that imply a continuity
of commercial dealings or arrangements, and contemplate to that extent the performance
of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business
organization.

II
Jason is the proud owner of a newly-built house worth PS million. As a protection against any
possible loss or damage to his house, Jason applied for a fire insurance policy thereon with Shure
Insurance Corporation (Shure) on October 11, 2016 and paid the premium in cash. It took the
company a week to approve Jason's application. On October 18, 2016, Shure mailed the
approved policy to Jason which the latter received five (5) days later. However, Jason's house
had been razed by fire which transpired a day before his receipt of the approved policy. Jason
filed a written claim with Shure under the insurance policy. Shure prays for the denial of the
claim on the ground that the theory of cognition applies to contracts of insurance.

Decide Jason's claim with reasons. (5%)

Jason’s claim must be denied.

Under the theory of cognition, the insurance contract is perfected only from the
time the applicant came to know of the acceptance of the offer by the insurer. There was

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 no perfected contract of insurance since the loss occurred before Jason came to know of
the acceptance of the offer by the Shure Insurance Corporation.

Hence, Jason cannot claim from Shure.

III
ABC Appliances Corporation (ABC) is a domestic corporation engaged in the production and
sale of televisions and other appliances. YYY Engineers, a Taiwanese company, is the
manufacturer of televisions and other appliances from whom ABC actually purchases appliances.
From 2000, when ABC started doing business with YYY, it has been using the mark "TTubes"
in the Philippines for the television units that were bought from YYY. In 2015, YYY filed a
trademark application for "TTubes." Later, ABC also filed its application. Both claim the right
over the trademark "TTubes" for television products. YYY relies on the principle of "first to file"
while ABC involves the "doctrine of prior use."

[a] Does the fact that YYY filed its application ahead of ABC mean that YYY has the prior right
over the trademark? Explain briefly. (2.5%)

No.

Registration of trademark, by itself, is not a mode of acquiring ownership. Just

because YYY applied for registration ahead of ABC does not mean that YYY has the
prior right over the trademark. YYY must own the trademark before it can register the
same. It is the ownership of a trademark that confers the right to register the same.

Hence, YYY cannot register the trademark “TTubes” for it does not own the
mark.

[b] Does the prior registration also mean a conclusive assumption that YYY Engineers is in fact
the owner of the trademark "TTubes?" Briefly explain your answer. (2.5%)

No. Prior registration does not mean conclusive ownership.

It is only prima a prima facie presumption of the validity of the registration of the
registrant’s ownership of the trademark and the exclusive right to the use thereof, which
presumption is rebuttable.

IV

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X's "MINI-ME" burgers are bestsellers in the country. Its "MINI-ME" logo, which bears the
color blue, is a registered mark and has been so since the year 2010. Y, a competitor of X, has
her own burger which she named "ME-TOO" and her logo thereon is printed in bluish-green.
When X sued Y for trademark infringement, the trial court ruled in favor of the plaintiff by
applying the Holistic Test. The court held that Y infringed on X's mark since the dissimilarities
between the two marks are too trifling and frivolous such that Y's "ME-TOO," when compared
to X's "MINI-ME," will likely cause confusion among consumers.

Is the application of the Holistic Test correct? (5%)

No. The application of the holistic test is not correct because it relies only on
visual comparison between the two trademarks.

What applies in this case is the dominancy test, which relies also on the aural and
connotative comparison and overall impressions between the trademarks. Applying the
dominancy test, MINI-ME is confusingly similar to ME-TOO.

V
MS Brewery Corporation (MS) is a manufacturer and distributor of the popular beer "MS Lite."
It faces stiff competition from BA Brewery Corporation (BA) whose sales of its own beer
product, "BA Lighter," has soared to new heights. Meanwhile, sales of the "MS Lite" decreased
considerably. The distribution and marketing personnel of MS later discovered that BA has
stored thousands of empty bottles of "MS Lite" manufactured by MS in one of its warehouses.
MS filed a suit for unfair competition against BA before the Regional Trial Court (RTC).
Finding a connection between the dwindling sales of MS and the increased sales of BA, the RTC
ruled that BA resorted to acts of unfair competition to the detriment of MS. Is the RTC correct?
Explain. (5%)

No, the RTC is not correct.

Hoarding, or the act of accumulating empty bottles to impede circulation of the

bottled products, does not amount to unfair competition. BA’s act of collecting empty
bottles of MS does not amount to unfair competition because it was not done to discredit
the goods, business or services of MS. It does not relate to any patent, trademark, trade
name or service name which was invaded.

There was also no passing off of its product as MS’s product as to lead others to
be confused that BA’s product is MS’s product.
VI

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Nautica Shipping Lines (Nautica) bought a second hand passenger ship from Japan. It modified
the design of the bulkhead of the deck of the ship to accommodate more passengers. The ship
sunk with its passengers in Tablas Strait due to heavy rains brought by the monsoon. The heirs of
the passengers sued Nautica for its liability as a common carrier based on the reconfiguration of
the bulkhead which may have compromised the stability of the ship. Nautica raised the defense
that the monsoon is a fortuitous event and, at most, its liability is prescribed by the Limited
Liability Rule. Decide with reasons. (5%)

A heavy rain brought by the monsoon was considered by the Supreme Court in a
case as force majeure.

In this case, the monsoon was the cause of the accident, the ship owner should not
the held liable. The reconfiguration of the bulk head to accommodate more passengers
per se does not amount to contributory negligence which will bar the ship owner to claim
the defense of force majeure provided that it exercised due diligence before, during and
after the incident to prevent loss or injury.

VII
A railroad track of the Philippine National Railway (PNR) is located near a busy intersection of
Puyat Avenue and Osmefia Highway. One afternoon, the intersection was heavily congested, as
usual. Juan, the driver of a public utility jeepney (PUJ), drove onto the railroad tracks but could
go no farther because of the heavy traffic at the intersection. After the jeepney stopped right on
the railroad track, it was hit and overturned by a PNR train, resulting in the death of Kim, a
passenger of the PUJ, and injuries to Juan and his other passengers. Juan, the injured passengers
and Kim's family sued the PNR for damages for its negligence. It was established that the steel
pole barrier before the track was broken, and that the PNR had the last clear chance of avoiding
the accident. On the other hand, the PNR raised the defense that the track is for the exclusive use
of the train and that motorists are aware that it is negligence per se to stop their vehicles on the
tracks. Decide the case and explain. (5%)

The PUJ should be solidary liable with PNR in case of death or injury to
passengers of the carrier.

The PUJ was guilty of contributory negligence because it should not have stopped
in the middle of the track. The torfeasor and the common carrier are solidarily liable in
case of death or injury to the passengers of the carrier.

Hence, PNR cannot be held solely liable.

VIII

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In 2015, Total Bank (Total) proposed to sell to Royal Bank (Royal) its banking business for P 10
billion consisting of specified assets and liabilities. The parties reached an eventual agreement,
which they termed as "Purchase and Assumption (P & A) Agreement," in which Royal would
acquire Total's specified assets and liabilities, excluding contingent claims, with the further
stipulation that it should be approved by the Bangko Sentral ng Pilipinas (BSP). BSP imposed
the condition that Total should place in escrow Pl billion to cover for contingent claims against
it. Total complied. After securing the approval of the BSP, the two banks signed the agreement.
BSP thereafter issued a circular advising all bank and non-bank intermediaries that effective
January 1, 2016, "the banking activities of Total Bank and Royal Bank have been consolidated
and the latter has carried out their operations since then."

[a] Was there a merger and consolidation of the two banks in point of the Corporation Code?
Explain. (2.5%)

There was no merger or consolidation of the two banks because the requirements
and procedure for merger were not observed, and the certificate of merger was not yet
issued, which will mark when the consequences of merger take effect.

[b] What is meant by a de facto merger? Discuss. (2.5%)

De facto merger occurs when one corporation acquires all or substantially all of
the properties of another corporation in exchange of shares of stock of the acquiring
corporation. The acquiring corporation would end up with the business enterprise of the
target corporation, whereas the target corporation would end up with basically its only
remaining assets being the shares of stock of the acquiring corporation.

IX
X insured his life for P20 million. X, plays golf and regularly exercises everyday, hence is
considered in good health. He did not know, however, that his frequent headache is really caused
by his being hypertensive. In his application form for a life insurance for himself, he did not put
a check to the question if he is suffering from hypertension, believing that because of his active
lifestyle, being hypertensive is a remote possibility. While playing golf one day, X collapsed at
the fairway and was declared dead on arrival at the hospital. His death certificate stated that X
suffered a massive heart attack.

[a] Will the beneficiary of X be entitled to the proceeds of the life insurance under the
circumstances, despite the non-disclosure that he is hypertensive at the time of application?
(2.5%)

Yes. The beneficiary of X is entitled to the proceeds of the life insurance.

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 Concealment exists where the insured had knowledge of a fact material to the
risk, and honesty, good faith, and fair dealing requires that he should communicate it to
insurer, but he designedly and intentionally withholds the same.

The insured, X, was in good faith for he did not know that he had hypertension so
he had nothing to disclose.

[b] If X died in an accident instead of a heart attack, would the fact of X's failure to disclose that
he is hypertensive be considered as material information? (2.5%)

Yes. If X knew of his hypertension, his failure to disclose the same is material
information. It is settled that the insured cannot recover even though the material fact not
disclosed is not the cause of the loss.

Hence, his heirs cannot recover even if the material information is not the cause
of death of X.

X
After securing a Pl million loan from B, A drew in B's favor a bill of exchange with C as drawee.
The bill reads: "October 1, 2016. Pay to the order of B the sum of P1 million. To: C (drawee).
Signed, A." A then delivered the bill to B who, however, lost it. It turned out that it was stolen by
D, B's brother. D lost no time in forging B's signature and negotiated it to E who acquired it for
value and in good faith.

May E recover on the bill from C, the drawee? Explain. (5%)

E cannot recover from C, the drawee. The forged endorsement of B did not result
in transfer of title in favor of E.

Forged endorsement is wholly inoperative and no right to retain the instrument, or

to give a discharge therefor, or to enforce payment thereof against any party thereto, can
be acquired through or under such endorsement.

XI
Royal Links Golf Club obtained a loan from a bank which is secured by a mortgage on a titled
lot where holes 1, 2, 3 and 4 are located. The bank informed the Board of Directors (Board) that

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if the arrearages are not paid within thirty (30) days, it will extra-judicially foreclose the
mortgage. The Board decided to offer to the members 200 proprietary membership shares, which
are treasury shares, at the price of P175,000.00 per share even when the current market value is
P200,000.00.

In behalf and for the benefit of the corporation, Peter, a stockholder, filed a derivative suit
against the members of the Board for breach of trust for selling the shares at P25,000.00, lower
than its market value, and asked for the nullification of the sales and the removal of the board
members. Peter claims the Club incurred a loss of PS million. The Board presented the defense
that in its honest belief any delay in the payment of the arrearages will be prejudicial to the Club
as the mortgage on its assets will be foreclosed and the sale at a lower price is the best solution to
the problem. Decide the suit and explain. (5%)

The derivative suit will not prosper.

There was no allegation in the complaint of the presence of all elements of a

derivative suit, namely, a) the party bringing the suit is a stockholder; b) he tried to
exhaust intra-corporate remedies; and c) the cause of action devolves upon the
corporation. It can be added that the board decision was in good faith and was the better
option in its business judgment.

XII
X owns 10,000 shares in Z Telecoms Corp. As he is in immediate need of money, he offered to
sell all his shares to his friend, Y, at a bargain price. Upon receipt of the purchase price from Y,
X proceeded to indorse in blank the certificates of shares and delivered these to Y. The latter
then went to the corporate secretary of Z Telecoms Corp. and requested the transfer of the shares
in his name. The corporate secretary refused since X merely indorsed the certificates in blank to
Y. According to the corporate secretary, the certificates should have been specifically indorsed to
the purchaser, Y. Was the corporate secretary justified in declining Y's request? Discuss. (5%)

No, the Corporate Secretary is not justified in declining Y’s request.

The Corporation Code merely requires that the stock certificate be delivered and
endorsed by the owner or his attorney-in-fact or other person legally authorized to make
the transfer. No specific endorsement in favor of the purchaser is needed.

Hence, the act of the Corporate Secretary was not justified in declining Y’s
request.

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 XIII
C Corp. is the direct holder of 10% of the shareholdings in U Corp., a non-listed (not public)
firm, which in turn owns 62% of the shareholdings in H Corp., a publicly listed company. The
other principal stockholder in H Corp. is C Corp. which owns 18% of its shares. Meanwhile, the
majority stocks in U Corp. are owned by B Corp. and V Corp. at 22% and 30%, respectively. B
Corp. and V Corp. later sold their respective shares in U Corp. to C Corp., thereby resulting in
the increase of C Corp.'s interest in U Corp., whether direct or indirect, to more than 50%.

[a] Explain the Tender Offer Rule under the Securities Regulation Code. (2.5%)

The tender offer rule requires any person or group of persons acting in concert
who intends to acquire at least 15% of any class of any equity security of a listed
corporation or of any class of any equity security of a corporation with assets of at least
100 shares each or who intends to acquire at least 30% of such equity over a 12 month
period to make a tender offer to stockholders by filling a declaration to that effect.

[b] Does the Tender Offer Rule apply in this case where there has been an indirect acquisition of
the shareholdings in H Corp. by C Corp.? Discuss. (2.5%)

Yes. The mandatory tender offer is still applicable even if the acquisition, direct
or indirect, is less than 35% when the purchase would result in direct or indirect
ownership of over 50% of the total outstanding equity securities of a public company.

XIV
X, a government official, has a number of bank accounts in T Bank containing millions of pesos.
He also opened several trust accounts in the same bank which specifically covered the placement
and/or investment of funds. X was later charged with graft and corruption before the
Sandiganbayan (SB) by the Ombudsman. The Special Prosecutor filed a motion praying for a
court order authorizing it to look into the savings and trust accounts of X in T Bank. X opposed
the motion arguing that the trust accounts are not "deposits" under the Law on Secrecy of Bank
Deposits (Rep. Act No. 1405). Is the contention of X correct? Explain. (5%)

The contention of X is not correct because trust accounts are included as deposits
which can be used as loans to third persons.

Deposits in the context of the Secrecy of Philippine currency deposits include

deposits of whatever nature and kind. They include funds deposited in the bank giving
rise to creditor-debtor relationship, as well as funds invested in the bank like trust
accounts.

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 XV
ABC Corp. is engaged in the pawnshop business involving cellphones, laptops and other gadgets
of value. In order to expand its business and attract investors, it offered to any person who
invests at least Pl 00,000.00 a "Promissory Note" where it obligated itself to pay the holder a
50% return on investment within one month. Due to the attractive offer, many individuals
invested in the company but not one of them was able to realize any profit after one month.

Has ABC Corp. violated any law with its scheme? Explain. (5%)

Yes, ABC Corporation violated the provisions of the Securities and Regulation
Code.

The law prohibits the sale of securities to the public, like promissory notes,
without a registration statement filed with and approved by the Securities and Regulation
Commission.

Here, ABC Corp. sold to the general public securities without the necessary
registration from the Securities and Regulation Commission.

XVI
Henry is a board director in XYZ Corporation. For being the "fiscalizer" in the Board, the
majority of the board directors want him removed and his shares sold at auction, so he can no
longer participate even in the stockholders' meetings. Henry approaches you for advice on
whether he can be removed as board director and stockholder even without cause. What is your
advice? Explain "amotion" and the procedure in removing a director. (5%)

I will tell Henry that he cannot be removed as a stockholder, whether with or

without cause. He ceases to be a stockholder only if he sells all his shares. His shares
cannot be sold at auction if he is not delinquent in his subscription. He cannot also be
removed as director except by the stockholders representing at least 2/3 of the
outstanding capital stock in a meeting called for that purpose after giving previous notice
to the stockholders, or in a special meeting called for that purpose by the Secretary on
order of the President or on written demand of majority of stockholders. Should the
Secretary fail or refuse to give notice, or if there is no Secretary, the call may be
addressed directly to the stockholders by any stockholder signing the demand, with notice
of the time and place of meeting, and the intention to propose such removal, given by
publication or by written notice prescribed in the Corporation Code. The removal may be
with or without cause but if without cause; the removal must not be used to deprive
minority stockholders of the right of representation.

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 Amotion refers to the premature ousting of a director or officer from his post in
the corporation prior to the end of his term.

XVII
PJ Corporation (PJ) obtained a loan from ABC Bank (ABC) in the amount of P10 million for the
purchase of 100 pieces of ecodoors. Thereafter, a Letter of Credit was obtained by PJ against
such loan. The beneficiary of the Letter of Credit is Scrap Metal Corp. (Scrap Metal) in Beijing,
China. Upon arrival of 100 pieces of ecodoors, PJ executed a Trust Receipt in favor of ABC to
cover for the value of the ecodoors for its release to PJ. The terms of the Trust Receipt is that any
proceeds from the sale of the ecodoors will be delivered to ABC as payment. After the ecodoors
were sold, PJ, instead of paying ABC, used the proceeds of the sale to order from Scrap Metal
another 100 pieces of ecodoors but using another bank to issue a new Letter of Credit fully
covered by such proceeds.

PJ refused to pay the proceeds of the sale of the first set of ecodoors to ABC, claiming that the
ecodoors that were delivered were defective. It then instructed ABC not to negotiate the Letter of
Credit that was issued in favor of Scrap Metal.

[a] Explain what is a "Letter of Credit" as a financial device and a "Trust Receipt" as a security
to the Letter of Credit. (2.5%)

A letter of credit is a financial device developed by merchants as a convenient and

relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable
interests of a seller, who refuses to part of his goods before he is paid, and a buyer, who
wants to have control of the goods before paying. To break the impasse, the buyer may be
required to contract a bank to issue a letter of credit in favor of the seller so that, by virtue
of the letter of credit, the issuing bank can authorize the seller to draw drafts and engage
to pay them upon their presentment simultaneously with the tender of documents required
by the letter of credit.

A trust receipt is an arrangement whereby the issuing bank/ entruster releases the
imported goods to the importer/ entrustee but the latter in case of sale must deliver the
proceeds thereof to the entruster up to the extent of the amount owing to the entruster or
to return the goods in case of non-sale

[b] As counsel of ABC, you are asked for advice on whether or not to grant the instruction of PJ.
What will be your advice? (2.5%)

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 I will advise ABC to honor the letter of credit in favor of Scrap Metal, and not to
honor the instruction of PJ.

Under the independence principle, the obligation of the bank to pay the Scrap
Metal Corporation is not dependent upon the fulfillment or non-fulfillment of the main
contract underlying the letter of credit but conditioned only on its submission of the
stipulated documents to ABC Bank.

XVIII
B Bank, a large universal bank, regularly extends revolving credit lines to business
establishments under what it terms as socially responsible banking and private business
partnership relations. All loans that are extended to clients have a common "Escalation Clause,"
to wit: "B Bank hereby reserves its right to make successive increases in interest rates in
accordance with the bank's adopted policies as approved by the Monetary Board; Provided that
each successive increase shall be with the written assent of the depositor."

[a] X, a regular client of the bank, contends that the "Escalation Clause" is unfair,
unconscionable and contrary to law, morals, public policy and customs. Rule on the issue and
explain. (2.5%)

The Escalation Clause is valid because each successive increase shall be with the written
assent of the depositor. This stipulation does not violate the principle of mutuality of contracts.
The stipulation would have been void if the supposed consent is given prior to the increase in
interest rate.

[b] Suppose that the "Escalation Clause" instead reads: "B Bank hereby reserves the right to
make reasonable increases in interest rates in accordance with bank policies as approved by the
Monetary Board; Provided, there shall be corresponding reasonable decreases in interest rates as
approved by the Monetary Board." Would this be valid? Explain. (2.5%)

The Escalation Clause, with a de-escalation clause, is likewise valid provided that
the client’s consent is still secured prior to any increase in interest rate; otherwise, the
escalation clause is void.

XIX
In 2015, R Corp., a domestic company that is wholly owned by Filipinos, filed its opposition to
the applications for Mineral Production Sharing Agreements (MPSA) of O Corp., P Corp., and Q
Corp. which were pending before the Panel of Arbitrators (POA) of the Department of
Environment and Natural Resources (DENR). The three corporations wanted to undertake

11
exploration and mining activities in the province of Isabela. The oppositor alleged that at least
60% of the capital shareholdings of the applicants are owned by B Corp., a 100% Chinese
corporation, in violation of Sec. 2, Art. XII of the Constitution. The applicants countered that
they are qualified corporations as defined under the Philippine Mining Act of 1995 and the
Foreign Investments Act of 1991 since B Corp. holds only 40% of the capital stocks in each of
them and not 60% as alleged by R Corp.

The Summary of Significant Accounting Policies statement of B Corp. reveals that the joint
venture agreements of B Corp. with Sigma Corp. and Delta Corp. involve the 0 Corp., P Corp.,
and Q Corp. The ownership of the layered corporations and joint venture agreements show that B
Corp. practically exercises control over the 0, P and Q corporations. 0, P and Q corporations
contend that the control test should be applied and its MPSA applications granted. On the other
hand, R Corp. argues that the "grandfather rule" should be applied. Decide with reasons. (5%)

The argument of R Corp. is correct that the grandfather rule should apply.

Ordinarily, shares belonging to corporation at least 60% of the capital of which is

owned by Filipino citizens shall be considered as of Philippine Nationality based on the
control test. If the percentage of Filipino ownership is less than 60%, only the number of
shares corresponding to such percentage shall be Filipino Nationality based on
grandfather rule.

Based on the facts, B Corporation, a Chinese corporation, practically exercises

control over O, P, and Q Corporations. Such circumstances create a doubt as to where
control and beneficial ownership reside that warrants application of the grandfather rule.

XX
Company X issued a Bank A Check No. 12345 in the amount of P500,000.00 payable to the
Bureau of Internal Revenue (BIR) for the company's taxes for the third quarter of 1997. The
check was deposited with Bank B, the collecting bank with which the BIR has an account. The
check was subsequently cleared and the amount of P500,000.00 was deducted from the
company's balance. Thereafter, Company X was notified by the BIR of its non-payment of its
unpaid taxes despite the P500,000.00 debit from its account. This prompted the company to seek
assistance from the proper authorities to investigate on the matter.

The results of the investigation disclosed that unknown then to Company X, its chief accountant
Bonifacio Santos is part of a syndicate that devised a scheme to syphon its funds. It was
discovered that though deposited, the check was never paid to the BIR but was passed on by
Santos to Winston Reyes, Bank B's branch manager and Santos' co-conspirator. Instead of
bringing the check to the clearing house, Reyes replaced Check No. 12345 with a worthless
check bearing the same amount, and tampered documents to cover his tracks. No amount was

12
then credited to the BIR. Meanwhile, Check No. 12345 was subsequently cleared and the amount
therein credited into the accounts of fictitious persons, to be later withdrawn by Santos and
Reyes.

Company X then sued Bank B for the amount of P500,000.00 representing the amount deducted
from its account. Bank B interposed the defense that Company X was guilty of contributory
negligence since its confidential employee Santos was an integral part of the scheme to divert the
proceeds of Check No. 12345. Is Company X entitled to reimbursement from Bank B, the
collecting bank? Explain. (5%)

Yes. Company X is entitled to reimbursement from the drawee bank.

In a similar case, the Supreme Court ruled that the drawer could recover the
amount deducted from its account because it failed to ensure that the check be paid to the
designated payee while the collecting bank should share ½ of the loss because it branch
manager conspired in the fraud.

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 2017 Bar Examinations

I.
A.
Absolute Timber Co. (ATC) has been engaged in the logging business in lsabela. To secure one
of its shipments of logs to be transported by Andok Shipping Co., ATC purchased a marine
policy with an "all risks" provision. Because of a strong typhoon then hitting Northern Luzon,
the vessel sank and the shipment of logs was totally lost. ATC filed its claim, but the insurer
denied the claim on several grounds, namely: (1) the vessel had not been seaworthy; (2) the
vessel's crew had lacked sufficient training; (3) the improper loading of the logs on only one side
of the vessel had led to the tilting of the ship to that side during the stormy voyage; and (4) the
extremely bad weather had been a fortuitous event.

ATC now seeks your legal advice to know if its claim was sustainable. What is your advice?
Explain your answer. (3%)

I will advise ATC that his claim for losses is sustainable.

If the marine insurance is against all risks, it covers all losses during the voyage
whether arising from a marine peril or not, including pilferage losses during the war.
However, it does not cover loss through the willful and fraudulent act of the insured.

In this case, the several grounds that the insurer raised for the denial of the
insurance claim are not loss through the willful and fraudulent act of ATC.

Thus, the grounds for the denial of the insurance claim are not meritorious.

B.
The newly restored Ford Mustang muscle car was just released from the car restoration shop to
its owner, Seth, an avid sportsman. Given his passion for sailing, he needed to go to a round-the-
world voyage with his crew on his brand-new 180-meter yacht. Hearing about his coming
voyage, Sean, his bosom friend, asked Seth if he could borrow the car for his next roadshow.
Sean, who had been in the business of holding motor shows and promotions, proposed to display
the restored car of Seth in major cities of the country. Seth agreed and lent the Ford Mustang to
Sean. Seth further expressly allowed Sean to use the car even for his own purposes on special
occasions during his absence from the country. Seth and Sean then went together to Bayad Agad
Insurance Co. (BAIC) to get separate policies for the car in their respective names.
BAIC consults you as its lawyer on whether separate policies could be issued to Seth and Sean in
respect of the same car.

(a) What is insurable interest? (2%)

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 Insurable interest is every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured.

(b) Do Seth and Sean have separate insurable interests? Explain Briefly your answer(3%)

Yes, Seth and Sean have separate insurable interest with respect to the car.

Anyone has an insurable interest in property that derives a benefit from its
existence or would suffer loss from its destruction.

As to Seth, he has insurable interest over the car being the owner thereof. On the
part of Sean, he has also an insurable interest over the car for he derives benefit thereof
for his motor shows and promotions, and its beneficial use while Seth is out of the
country. Both of them will suffer loss should the car be destroyed by the peril against
which it is insured.

Thus, BAIC can insure both Seth and Sean with respect to their separate insurable
interest over the said car.

II.
A.
Morgan, a lawyer, received a lot of diving and other water sports equipment as payment of his
professional fees by Dennis, his client in a child custody case. Dennis owned a diving and water
sports dealership in Anilao, Batangas. Morgan decided to name Dennis as entrustee because he
did not have any experience in selling such specialized sports equipment. They executed a trust
receipt agreement, with Morgan as entruster and Dennis as entrustee.

Before the sports equipment could be sold, a strong typhoon hit Batangas. Anilao and other parts
of Batangas experienced power outage. Taking advantage of the total darkness, unidentified
thieves destroyed the padlocks of the establishment of Dennis, and carted off the equipment
inside.

Morgan demanded that Dennis pay the value of the stolen equipment, but the latter refused on
the ground that he also had suffered from the effects of the typhoon, and insisted that the cause
of the loss was a fortuitous event or force majeure.

Is the justification of Dennis warranted? Explain your answer. (4%)

15
 No, the justification of Dennis is not warranted.

One among the obligations of the entrustee under the law on Trust Receipts is to
insure the goods for their total value against loss from fire, theft, pilferage, or other
casualties.

In the case at bar, Dennis reneged on his obligation to insure the sports equipment
before it could be sold, making him liable for the loss. Moreover, the justification of
Dennis that the cause of the loss was due to a fortuitous event or force majeure, making
him exempt from liability is devoid of merit. The immediate cause of the loss was due to
the burglary, which in this case is within the ambit of the obligation of Dennis as the
entrustee.

Thus, Dennis should pay the value of the stolen equipment to Morgan.

B.
Safe Warehouse, Inc. (Safe) issued on various dates negotiable warehouse receipts to Peter, Paul
and Mary covering certain goods deposited by the latter with the former. Peter, Paul and Mary
then negotiated and endorsed the warehouse receipts to Cyrus, Magnus and Charles upon
payment by the latter of valuable consideration for the warehouse receipts. Cyrus, Magnus and
Charles were not aware of, nor were they parties to any irregularity or infirmity affecting the title
or the face of the warehouse receipts.
On due dates of the warehouse receipts, Cyrus, Magnus and Charles demanded that Safe
surrender the goods to them. Safe refused because its warehouseman's claim must first be paid.
Cyrus, Magnus and Charles refused to pay, and insisted that such claim was the liability of Peter,
Paul and Mary.

(a) What is a warehouseman's claim? (3%)

Warehouseman’s claim refers to the security given to a warehouseman over the

goods deposited with him for the satisfaction of storage charges, money advanced or
other expenses to which a warehouseman is entitled.

(b) Is Safe's refusal to surrender the goods to Cyrus, Magnus and Charles legally justified?
Explain your answer. (3%)

Yes, Safe’s refusal to surrender the goods to Cyrus, Magnus and Charles is legally
justified.
A warehouseman may validly refuse to deliver the goods covered by the
negotiable warehouse receipt to any holder thereof when the storage fee stipulated therein
has not been paid.

16
 Here, it is the right of Safe not to deliver the goods to any holder of the negotiable
warehouse receipt, except only upon payment of the warehouseman’s claim either by
Cyrus, Magnus and Charles or by Paul, Peter or Mary.

III.
A.
Data Realty, Inc. (DRI) was engaged in realty development. The family of Matteo owned 100°/o
of the capital stock of ORI. Matteo was also the President and Chairman of the Board of
Directors. Other members of Matteo's family held the major positions in ORI. Because of a nasty
takeover fight with D&E Realty Co., Inc. (D&E), another realty developer, for the control of a
smaller realty company with vast landholdings, ORI and D&E engaged in an expensive litigation
that eventually led to a money judgment being rendered in favor of D&E.

Meantime, DRI, facing inability to pay its liabilities as they fall due but still holding substantial
assets, filed a petition for voluntary rehabilitation. Trying to beat the consequences of
rehabilitation proceedings, D&E moved in the trial court for the issuance of a writ of execution.
The trial court also happened to be the rehabilitation court. The writ of execution was issued.

Serving the writ of execution, Merto, the court sheriff who had just passed his Credit
Transactions subject in law school, garnished Matteo's bank accounts, and levied his real
properties, including his house and lot in Makati.

Are the garnishment and levy of Matteo's assets lawful and proper? Explain your answer. (4%)

No, the garnishment and levy of Matteo’s assets is not lawful and proper, even if
the issuance of the writ of execution is in place.

A corporation has a personality separate and distinct from that of its stockholders
or members composing it, and the directors, trustees and officers that represent it.

Here, Merto garnished Mateo’s bank accounts and levied his real properties,
while DRI still has substantial assets to pay its obligations. This is in violation of the
Doctrine of Separate Corporate Identity. Merto should have attached the assets of DRI
and not the separate and real properties of Matteo to secure the satisfaction of the
judgment.
Thus, the garnish and levy of Matte’s assets are null and void.

B.

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Sid used to be the majority stockholder and President of Excellent Corporation (Excellent).
When Meridian Co., Inc. (Meridian), a local conglomerate, took over control and ownership of
Excellent, it brought along its team of officers. Sid thus became a minority stockholder and a
minority member of the Board of Directors. Excellent, being the leading beverage manufacturer
in the country, became the monopoly when Meridian's own beverage business was merged with
Excellent's, thereby making Excellent virtually the only beverage manufacturer in the country.

Left out and ignored by the management, Sid became a fiscalizer of sorts, questioning during the
Board meetings the direction being pursued by Excellent's officers.
Ultimately, Sid demanded the inspection of the books and other corporate records of Excellent.
The management refused to comply, saying that his right as a minority stockholder has been
much reduced.

State under what conditions may Sid properly assert his right to inspect the books and other
corporate records of Excellent. Explain your answer. (3%)

Sid, being a minority stockholder and a minority member of the board of

directors, he may assert his right to inspect the books and other corporate records.

The corporate records of Excellent are open to the inspection of any director,
stockholder or member of a corporation at reasonable hours during any business day,
including the right to copy excerpts of the same. It may be refused if shown that a prior
right granted was improperly used, or that he has not acting in good faith or for a
legitimate purpose.

IV.
Procopio, a Director and the CEO of Parisian Hotel Co., Inc. (Parisian), was charged along with
other company officials with several counts of estafa in connection with the non-remittance of
SSS premiums the company had collected from its employees. During the pendency of the cases,
Parisian filed a petition for rehabilitation. The court, finding the petition to be sufficient in form
and substance, issued a commencement order together with a stay or suspension order.

Citing the commencement order, Procopio and the other officers facing the criminal charges
moved to suspend the proceedings in the estafa cases.

(a) What is a commencement order, and what is the effect of its issuance? Explain your answer.
(4%)

The law provides that from the filing of the petition for rehabilitation and after
finding that the petition is sufficient in for m and substance, shall issue a Stay Order

18
 appointing a Rehabilitation Receiver, suspending enforcement of all claims, prohibiting
transfers or encumbrance of debtor’s properties, prohibiting payment of outstanding
liabilities, and prohibiting the withholding of supply of goods and services from the
debtor. Any transfer of property or any other conveyance, sale, payment, or agreement
made in violation of the Stay Order or in violation of the Rules may be declared void by
the court upon proper motion or motu proprio. This is the so-called Commencement
Order.

(b) Suppose you are the trial judge, will you grant the motion to suspend of Procopio, et
al.? Explain your answer. (4%)

If I am the trial judge, I will deny the motion to suspend the proceedings in the
estafa case.

Upon the issuance of the commencement order, all actions for claims against the
corporation pending before any court, tribunal or board shall ipso jure be suspended in
whatever stage such actions may be found.

The rule stated above pertains only to all claims against the corporation and
excludes all claims against its directors, officers, members and stockholders. In this case,
the claims for the non-remittance of SSS contributions are not a claim against Parisian
but against its Director and CEO Procopio.

Thus, the estafa case against Procopio must proceed pending the rehabilitation
proceedings of Parisian.

V.
A.
Under the Nell Doctrine, so called because it was first pronounced by the Supreme Court in the
1965 ruling in Nell v. Pacific Farms, Inc. (15 SCRA 415), the general rule is that where one
corporation sells or otherwise transfers all of its assets to another corporation, the latter is not
liable for the debts and liabilities of the transferor.

State the exceptions to the Nell Doctrine. (4%)

The following are the exceptions to the Nell Doctrine, to wit:

a. Where the purchasing corporation expressly or impliedly agrees to assume the

debts;
b. Where the transaction amounts to a consolidation or merger of the corporations;

19
 c. Where the purchasing corporation is merely a continuation of the selling
corporation; and
d. Where the transaction is fraudulently entered into in order to escape liability for
those debts.

B.
Santorini Corporation (Santorini) was in dire straits. In order to firm up its financial standing, it
agreed to entertain the merger and takeover offer of Proficient Corporation (Proficient), the
leading company in their line of business. Erica, the major stockholder of Santorini, strongly
opposed the merger and takeover. The matter of the merger and takeover by Proficient was
included in the agenda of the next meeting of Santorini's Board of Directors. However, owing to
Erica's serious illness that required her to seek urgent medical treatment and care in Singapore,
she failed to attend the meeting and was consequently unable to cast her vote. The Board of
Directors approved the merger and takeover. At the time of the meeting, Santorini had been in
the red for a number of years owing to its recurring business losses and reverses.

Erica seeks your legal advice regarding her right as a stockholder opposed to the corporate
action. Explain your answer. (4%)

I will advise Erica to exercise her Right of Appraisal.

Appraisal Right pertains to the right of the stockholder to withdraw from the
corporation and demand payment of the fair value of his shares after dissenting from
certain corporate acts involving fundamental changes in the corporation.

In this case, merger is one among the instances where Erica may exercise her
right to withdraw from the corporation and demand payment of the fair value of her
shares after her strong opposition to the merger and takeover of Proficient Corporation.

C.
Samito is the President and a Director of Lucky Bank (Lucky}, a commercial bank holding its
main office in Makati. His brother, Othello, owned a big fishing business based in Malabon.
Othello applied for a loan of PSO Million with Lucky. Othello followed the ordinary banking
procedures in all the stages of the processing of his application. When required, he made the
necessary arrangements to guarantee the loan. Thus, in addition to the real estate mortgage,
Othello executed a joint and solidary suretyship, issued postdated checks, and submitted all other
requirements prescribed by Lucky.

When the loan application was about to be approved and the proceeds released, BG Company, a
keen competitor of Othello in the fishing industry, wrote to the Board of Directors and the

20
management of Lucky questioning the loan on the ground of conflict of interest due to Samito
and Othello being brothers, citing the legal restriction against bank exposure of directors,
officers, stockholders or their related interests (DOSRI).

(a) What are the three restrictions imposed by law on DOSRI transactions? (4%)

The following are the restrictions imposed by law on DOSRI transactions, to wit:

(a.1) No director or officer of any banking institution shall, either directly or

indirectly, for himself or as the representative or agent of others, borrow any of
the deposits of funds of such bank;

(a.2) Nor shall he become a guarantor, indorser, or surety for loans from such
banks to others; or

(a.3) In any manner be an obligor for moneys borrowed from the bank loaned by
it, except with the written approval of the majority of the directors of the bank,
excluding the director concerned.

(b) Is BG Company's opposition based on conflict of interest and violation of the restrictions on
DOSRI transactions legally and factually correct? Explain your answer. (4%)

No, BG Company’s opposition based on conflict of interest and violation of the

restrictions on DOSRI transactions is not legally and factually correct.

In this case, none of the restrictions imposed by law on DOSRI transactions were
violated by Samito as the president and director of Lucky. It was his brother Othello and
not him who was the one who loaned from the bank. Neither is Samito become a
guarantor, or surety of the loan from the said bank, nor he become an obligor for the
money borrowed.

Thus, the opposition to the loan bears no merit and should fail.

VI.
A.
Hortencio owned a modest grocery business in Laguna. Because of the economic downturn, he
incurred huge financial liabilities. He remained afloat only because of the properties inherited
from his parents who had both come from landed families in Laguna. His main creditor was
Puresilver Company (Puresilver), the principal supplier of the merchandise sold in his store. To

21
secure his credit with Puresilver, he executed a real estate mortgage with a dragnet clause
involving his family's assets worth several millions of pesos.

Nonetheless, Hortencio, while generally in the black, now faces a situation where he is unable to
pay his liabilities as they fall due in the ordinary course of business. What will you advise him to
do to resolve his dire financial condition? Explain your answer. (5%)

I will advise Hortencio to file for a Petition for Rehabilitation.

Rehabilitation contemplates a continuance of corporate life and activities in an

effort to restore and reinstate the corporation to its former position of successful
operation and solvency.

If Hortencio’s Petition for Rehabilitation will be found to be in sufficient form

and substance, the rehabilitation Court shall issue a Stay Order appointing a
Rehabilitation Receiver, suspending enforcement of all claims, prohibiting payment of
outstanding liabilities and prohibiting the withholding of supply and goods and services
of the debtor.

In effect, Hortencio’s grocery business operations will continue avoiding the

impending foreclosure proceedings over his real properties he inherited from his parents.

B.
Wyatt, an internet entrepreneur, engaged in a sideline business of creating computer programs
for selected clients on a per project basis and for servicing basic computer problems of his
friends and family members. His main job was being an IT consultant at Futurex Co., a local
computer company.

Because of his ill-advised investments in the stock market and the fraud perpetrated against him
by his trusted confidante, Wyatt was already drowning in debt, that is, he had far more liabilities
than his entire assets.

What legal recourse remained available to Wyatt? Explain your answer. (5%)

The remaining legal recourse available to Wyatt is liquidation.

Liquidation means the winding up of the affairs of the corporation by getting in

the assets, settling with creditors and debtors and apportioning the amount of profit and
loss. It is the process of reducing assets to cash, discharging liabilities and dividing
surplus or loss.

22
 In the case at bar, there is no contemplation of continuance of corporate life and
activities in an effort to restore and reinstate the corporation to its former position of
successful operation and solvency, hence winding-up is proper.

VII.
A.
Virtucio was a composer of llocano songs who has been quite popular in the llocos Region.
Pascuala is a professor of music in a local university with special focus on indigenous music.
When she heard the musical works of Virtucio, she purchased a CD of his works. She copied the
CD and sent the second copy to her Music instructions for the class to listen to the CD and
analyze the works of Virtucio.

Did Pascuala thereby infringe Virtucio's copyright? Explain your answer. (4%)

No, Pascuala did not infringe Virtucio’s copyright because of the Doctrine of Fair
Use.

The fair use of a copyrighted work for criticism, comment, news reporting,
teaching including multiple copies for classroom use, scholarship, research, and similar
purposes is not an infringement of copyright.

In this case, the CD for the works of Virtucio was copied by Pascala , and the said
copy was sent and used for her music instructions for her class to listen and to analyze.
This is clearly within the ambit of the Doctrine of Fair Use.

Thus, copyright infringement is not present in this case.

B.
Super Biology Corporation (Super Biology) invented and patented a miracle medicine for the
cure of AIDS. Being the sole manufacturer, Super Biology sold the medicine at an exorbitant
price. Because of the sudden prevalence of AIDS cases in Metro Manila and other urban areas,
the Department of Health (DOH) asked Super Biology for a license to produce and sell the AIDS
medicine to the public at a substantially lower price. Super Biology, citing the huge costs and
expenses incurred for research and development, refused.

Assuming you are asked your opinion as the legal consultant of the DOH, discuss how you will
resolve the matter. (4%)

As the legal consultant of the DOH, I will advise that there is no need for a license
for them to produce and to sell the miracle medicine for the cure of AIDS.

23
 One among the several exclusions from the patent protection is the methods for
treatment of the human or animal body by surgery or therapy and diagnostic methods
practiced on the human or animal body.

The new discovery of the miracle medicine for the cure of AIDS is considered
methods for treatment of the human or animal body by surgery or therapy and diagnostic
methods practiced on the human or animal body, thus, the same cannot be protected
under our intellectual property laws for they are expressly excluded by law.

VIII.
A.
Flora, a frequent traveller, found a purse concealed between the cushions of a large sofa inside
the VIP lounge in NAIA while she was waiting for her flight to be called. Inside the purse was a
very valuable diamond-studded necklace. She decided not to turn over the purse to the airport
management, and instead to keep it. On her return from her travels, she had a dependable
jeweller appraise the necklace, and the latter told her that the necklace was easily worth at least
₱5,000,000.00 in the open market. To test the appraisal, she pawned the necklace for
₱2,000,000.00. She then deposited the entire amount in her checking account with Metro Bank.
Promptly, Metro Bank reported the transaction to the Anti-Money Laundering Council (AMLC).

Given that her appropriation of the necklace was theft, may Flora be successfully prosecuted for
money laundering? Explain briefly your answer. (4%)

No, Flora may not be successfully prosecuted for money laundering.

Money laundering is a crime whereby the proceeds of an unlawful activity are

transacted, thereby making them to appear to have originated from legitimate sources.
Furthermore, the law does not include the offense of Theft as an unlawful activity, but
only limited to robbery and extortion, qualified theft, swindling, graft and corrupt
practices, plunder, and the like, but not theft.
The proceeds of the diamond necklace, being sourced out from the offense of
theft, which is not included in the definition of the law as unlawful activity, is not money
laundering.

B.
Prosperous Bank is a domestic bank with head office in Makati. It handles the banking
requirements of thousands of clients.

24
The AMLC initiated a discreet investigation of the financial transactions of Lorenzo, a suspected
drug trafficker based in Naga City. The intelligence group of the AMLC, in coordination with
the counterpart group from the PDEA and the NBI, gathered ample evidence establishing
Lorenzo's unlawful drug activities. The AMLC had probable cause that his deposits and
investments in various banks, including Prosperous Bank, were related to money laundering.

Accordingly, the AMLC now transmits to Prosperous Bank a formal demand to allow its agents
to examine the banking transactions of Lorenzo, but Prosperous Bank refuses the demand.

Is Prosperous Bank's refusal justified? Explain your answer. (4%)

No, Prosperous Bank’s refusal is not justified.

The AMLC may inquire into or examine the any particular deposit or investment
with any banking institution or non-bank financial institution upon order of any
competent court in cases of violation of the Anti-Money Laundering Act, when it has
been established that there is probable cause that the deposit or investments are related to
an unlawful activity or a money laundering offense, except that no court order shall be
required in cases involving unlawful activities.

Here, drug trafficking is a violation of the Comprehensive Dangerous Drugs Act

of 2002, which is an unlawful activity, thus no court order is required for the AMLC to
inquire into or to examine the banking transactions of Lorenzo.

Thus, Prosperous Bank should allow the AMLC to examine the banking
transactions of Lorenzo.

IX.
A.
Alfred issued a check for ₱1,000.00 to Benjamin, his friend, as payment for an electronic gadget.
The check was drawn against Alfred's account with Good Bank. Benjamin then indorsed the
check specially in favor of Cesar. However, Cesar misplaced the check. Dexter, a dormmate of
Cesar, found the check, altered its amount to ₱91,000.00, and forged Cesar's indorsement by way
of a blank indorsement in favor of Felix, a known jeweler. Felix then caused the deposit of the
check in his account with Solar Bank. As collecting bank, Solar Bank stamped "all previous
indorsements guaranteed" on the check. Seeing such stamp of the collecting bank, Good Bank
paid the amount of ₱91,000.00 on the check.

May Good Bank claim reimbursement from Alfred? Explain your answer. (4%)

25
 No, Good Bank cannot claim reimbursement from Alfred.

The collecting which indorses a check bearing a forged endorsement and presents
it to the drawee bank guarantees all prior indorsements, including the forged indorsement
itself, and ultimately should be held liable therefore.

In the case at bar, when Solar Bank stamped “all previous indorsements
guaranteed” on the check and thereafter presented the same for clearance, made him the
last indorser and liable for the amount indicated in the negotiable instrument even of the
previous indorsement was forged.

Thus, Good Bank should claim reimbursement from Solar Bank and not from
Alfred.
B.
In 2006, Donald, an American temporarily residing in Cebu City, issued to Rhodora a check for
$50,000.00 drawn against Wells Fargo Bank with offices in San Francisco, California. Rhodora
negotiated the check and delivered it to Yaasmin, a Filipina socialite who frequently travelled
locally and internationally. Because of her frequent travels, Yaasmin misplaced the check. It was
only 11 years later on, in 2017, when she found the check inside a diary kept in her vault in her
Hollywood, California house.

Discuss and explain the rights of Yaasmin on the check. (4%)

Yaasmin’s right to the check with regard to Donald is already discharged for the
check already became stale.

A stale check is one which is not presented for payment within a reasonable
period to time after its issue. When the check is not presented within a reasonable period
of time after its issue, the drawer is discharged but only as to the extent of the loss caused
by the delay. By current banking practice a check becomes stale after more than six (6)
months or 180 days.
As to Yaasmin’s right on the check with regard to Rhodora, the check is a written
acknowledgment of an obligation to pay the face value of the check. This is true even if
the check became stale. Yaasmin’s obligation to pay lapses is only upon the expiration of
the ordinary prescriptive period governing written obligations.

In this case, the check was only found after 11 years, Yaasmin’s obligation to pay
has already prescribed.

X.

26
Wisconsin Transportation Co., Inc. (WTC) owned and operated an inter-island de luxe bus
service plying the Manila-Batangas-Mindoro route. Three friends, namely: Aurelio, Jerome and
Florencio rode on the same WTC bus from Manila bound for Mindoro. Aurelio purchased a
ticket for himself. Jerome, being a boyhood friend of the bus driver, was allowed a free ride by
agreeing to sit during the trip on a stool placed in the aisle. Florencio, already penniless after
spending all of his money on beer the night before, just stole a ride in the bus by hiding in the on-
board toilet of the bus.

During the trip, the bus collided with another bus coming from the opposite direction. The three
friends all suffered serious physical injuries.

What are WTC's liabilities, if any, in favor of Aurelio, Jerome and Florencio? Explain your
answer. (4%)

WTC, being a common carrier is liable for the injuries that sustained by Aurelio
and Jerome.

As to Aurelio, WTC is presumed to be liable for the injury or damage he suffered

for violation of diligence required which is extra-ordinary diligence especially that a
ticket was issued to him, which in the eyes of law is the evidence of their contract to
carry. This is also true with respect of Jerome, who was allowed to board the bus for free,
because he being a boyhood friend of the bus driver. The condition that he will be
allowed a free ride by agreeing to sit during the trip on a stool placed in the aisle does not
refute the fact that he is a passenger. Thus WTC is also liable for the injuries sustained by
the Jerome.

However, Florencio is not a passenger of WTC. His contract of carriage with

WTC is not present. As a matter of fact, he boarded clandestinely which makes him not a
passenger. He cannot therefore claim for damages for the serious physical injuries he
sustained.
XI.
TRUE or FALSE - Explain briefly your answer.
(a) A conviction under the Trust Receipts Law shall bar a prosecution for estafa under
the Revised Penal Code. (2%)

False. Trust Receipts Law is a malum prohibitum, and is a separate and distinct
offense from estafa. Thus, a conviction for estafa does not prohibit another
conviction for violation of Trust Receipts Law for the same act complained of.

27
 (b) The term capital in relation to public utilities under Sec. 11, Art. XII of the 1987
Constitution refers to the total outstanding capital stock comprising both common and
non-voting preferred shares. (2%)

False. The term capital in relation to public utilities under Sec. 11, Art. XII of the
1987 Constitution refers only to the common and voting shares of the total
outstanding capital stock.

(c) Forgery is a real defense but may only be raised against a holder not in due course.
(2%)

False. A real defense is available against all holders, whether in due course or not.

(d) News reports are not copyrightable. (2%)

False. News of the day and other facts having the character of mere items of press
information are not copyrightable.

(e) The law on life insurance prohibits double insurance. (2%)

False. Double Insurance is not prohibited on life insurance provided that it

involves the same interest.
XII.
Onassis Shipping, Inc. (Onassis) operated passenger vessels and cargo trucks, and offered its
services to the general public. In line with its vision and mission to protect the environment, Go-
Green Asia (Go-Green), an NGO affiliated with Greenpeace, entered into a contract with Onassis
whereby Go-Green would operate with its own crew the MN Dolphin, an ocean-going passenger
vessel of Onassis.

While on its way to Palawan carrying Go-Green's invited guests who were international and local
observers desirous of checking certain environmental concerns in the area, the MN Dolphin
encountered high waves and strong winds caused by a typhoon in the West Philippine Sea. The
rough seas led to serious physical injuries to some of the guests.

Discuss the liabilities of Onassis and Go-Green to the passengers of the M/V Dolphin. Explain
briefly your answer. (3%)

It is Go-Green who is liable to the physical injuries suffered by some of the

guests.

28
 Onassis, being the ship owner may be held liable for injuries to passengers
notwithstanding the exclusively real and hypothecary nature of maritime law if fault can
be attributed to the shipowner.

Go-Green, the charterer should bear the injuries sustained by its passengers
because the transaction is a bareboat charter, wherein there is an entire surrender by
Onassis of the operation and management of MV dolphin.

29