BAR EXAMINATION 2008

MERCANTILE LAW
21 September 2008 8:00 A.M. - 12 Noon
INSTRUCTIONS

This questionnaire consists of fourteen (19) numbers contained in nine (9) pages. Read each
question very carefully. Answer legibly, clearly and concisely. Start each number on a separate
page; an answer to a subquestion under the same number may be written continuously on the same
page and on the immediately succeeding pages until completed. Do not repeat the question.

You will be given credit for your knowledge of legal doctrine and for the quality of your legal
reasoning. A mere "Yes" or "No" answer without any corresponding discussion will not be given any
credit.

HAND IN YOUR NOTEBOOK WITH THIS QUESTIONNAIRE

GOOD LUCK!!!

Signed DANTE O. TINGA

Chairperson
2008 Bar Examination Committee

PLEASE CHECK THE NUMBER OF PAGES IN THIS SET

WARNING: NOT FOR SALE OR UNAUTHORIZED USE

MERCANTILE LAW
I

X corporation entered into a contract with PT Contruction Corp. for the latter to construct and build a
sugar mill within six (6) months. They agreed that in case of delay, PT Construction Corp. will pay X
Corporation P100,000 for every day of delay. To ensure payment of the agreed amount of damages,
PT Construction Corp. secured from Atlantic Bank a confirmed and irrevocable letter of credit which
was accepted by X Corporation in due time. One week before the expiration of the six (6) month
period, PT Construction Corp. requested for an extension of time to deliver claiming that the delay
was due to the fault of X Corporation. A controversy as to the cause of the delay which involved the
workmanship of the building ensued. The controversy remained unresolved. Despite the
controversy, X Corporation presented a claim against Atlantic Bank by executing a draft against the
letter of credit.

a. Can Atlantic Bank refuse payment due to the unresolved controversy? Explain. (3%)
b. Can X Corporation claim directly from PT Construction Corp.? Explain. (3%)

II

Tom Cruz obtained a loan of P 1 Million from XYZ Bank to finance his purchase of 5,000 bags of
fertilizer. He executed a trust receipt in favor of XYZ Bank over the 5,000 bags of fertilizer. Tom Cruz
withdrew the 5,000 bags from the warehouse to be transported to Lucena City where his store was
located. On the way, armed robbers took from Tom Cruz the 5,000 bags of fertilizer. Tom Cruz now
claims that his obligation to pay the loan to XYZ Bank is extinguished because the loss was not due
to his fault. Is Tom Cruz correct? Explain. (4%)

III

a. As a rule under the Negotiable Instruments Law, a subsequent party may hold a prior party
liable but not vice-versa. Give two (2) instances where a prior party may hold a subsequent
party liable. (2%)
b. How does the "shelter principle" embodied in the Negotiable Instruments Law operate to
give the rights of a holder-in-due course to a holder who does not have the status of a
holder-in-due course? Briefly explain. (2%)

IV

AB Corporation drew a check for payment to XY Bank. The check was given to an officer of AB
Corporation who was instructed to deliver it to XY Bank. Instead, the officer, intending to defraud the
Corporation, filled up the check by making himself as the payee and delivered it to XY Bank for
deposit to his personal account. AB Corporation come to know of the officer's fraudulent act after he
absconded. AB Corporation asked XY Bank to recredits its amount. XY Bank refused.

a. If you were the judge, what issues would you consider relevant to resolve the case? Explain
(3%)
b. How would you decide the case? Explain. (2%)

Pancho drew a check to Bong and Gerard jointly. Bong indorsed the check and also forged Gerard's
endorsement. The payor bank paid the check and charged Pancho's account for the amount of the
check. Gerard received nothing from the payment.

a. Pancho asked the payor bank to recredit his account. Should the bank comply? Explain fully.
(3%)
b. Based on the facts, was Pancho as drawerdischarged on the instrument? Why?(2%)

VI

On January 1, 2000, Antonio Rivera secured a life insurance from SOS Insurance Corp. for P1
Million with Gemma Rivera, his adopted daughter, as the beneficiary. Antonio Rivera died on March
4, 2005 and in the police investigation, it was ascertained that Gemma Rivera participated as an
accessory in the killing of Antonio Rivera. Can SOS Insurance Corp. avoid liability by setting up as a
defense the participation of Gemma Rivera in the killing of Antonio Rivera? Discuss with reasons.
(4%)

VII

Terrazas de Patio Verde, a condominium building, has a value of P50 Million. The owner insured the
building against fire with three (3) insurance companies for the following amounts:

Northern Insurance Corp. - P20 Million

 Southern Insurance Corp. - P30 Million
Eastern Insurance Corp. - P50 Million
a. Is the owner's taking of insurance for the building with three (3) insurers valid? Discuss. (3%)
b. The building was totally razed by fire. If the owner decides to claim from Eastern Insurance
Corp. only P50 Million, will the claim prosper? Explain. (2%)

VIII

City Railways, Inc. (CRI) provides train services, for a fee, to commuters from Manila to Calamba,
Laguna. Commuters are required to purchase tickets and then proceed to designated loading ang
unloading facilities to board the train. Ricardo Santos purchased a ticket for Calamba and entered
the station. While waiting, he had an altercation with the security guard of CRI leading to a fistfight.
Ricardo Santos fell on the railway just as a train was entering the station. Ricardo Santos was run
over by the train. He died.

In the action for damages filed by the heirs of Ricardo Santos, CRI interposed lack of cause of
action, contending that the mishap occurred before Ricardo Santos boarded the train and that it was
not guilty of negligence. Decide.(5%)

IX

On October 30, 2007, M/V Pacific, a Philippine registered vessel owned by Cebu Shipping Company
(CSC), sank on her voyage from Hong Kong to Manila. Empire Assurance Company (Empire) is the
insurer of the lost cargoes loaded on board the vessel which were consigned to Debenhams
Company. After it indemnified Debenhams, Empire as subrogee filed an action for damages against
CSC.

a. Assume that the vessel was seaworthy. Before departing, the vessel was advised by the
Japanese Meteorological Center that it was safe to travel to its destination. But while at sea,
the vessel received a report of a typhoon moving within its general path. To avoid the
typhoon, the vessel changed its course. However, it was still at the fringe of the typhoon
when it was repeatedly hit by huge waves, foundered and eventually sank. The captain and
the crew were saved except three (3) who perished. Is CSC liable to Empire? What principle
of maritime law is applicable? Explain. (3%)
b. Assume the vessel was not seaworthy as in fact its hull had leaked, causing flooding in the
vessel. Will your answer be the same? Explain. (2%)
c. Assume the facts in question (b). Can the heirs of the three (3) crew members who perished
recover from CSC? Explain fully. (3%)

Nelson owned and controlled Sonnel Construction Company. Acting for the company, Nelson
contracted the construction of a building. Without first installing a protective net atop the sidewalks
adjoining the construction site, the company proceeded with the construction work. One day a heavy
piece of lumber fell from the building. It smashed a taxicab which at that time had gone offroad and
onto the sidewalk in order to avoid the traffic. The taxicab passenger died as a result.

a. Assume that the company had no more account and property in its name. As counsel for the
heirs of the victim, whom will you sue for damages, and what theory will you adopt? (3%)
b. If you were the counsel for Sonnel Construction, how would you defend your client? What
 would be your theory? (2%)
c. Could the heirs hold the taxicab owner and driver liable? Explain. (2%)

XI

a. Since February 8, 1935, the legislature has not passed even a single law creating a private
corporation. What provision of the Constitution precludes the passage of such a law? (3%)
b. May the composition of the board of directors of the National Power Corporation (NPC) be
validly reduced to three (3)? explain your answer fully. (2%)

XII

Pedro owns 70% of the subscribed capital stock of a company which owns an office building. Paolo
and Juan own the remaining stock equally between them. Paolo also owns a security agency, a
janitorial company and a catering business. In behalf of the office building company, Paolo engaged
his companies to render their services to the office building. Are the service contracts valid? Explain.
(4%)

XIII

Grand Gas Corporation, a publicity listed company, discover after extensive drilling a rich deposit of
natural gas along the coast of Antique. For five (5) months, the company did not disclose the
discovery so that it could quitely and cheaply acquire neighboring land and secure mining
information to the Securities and Exchange Commission, all the directors and key officer of the
company bought shares went up. The directors and officer sold their shares at huge profits.

a. What provision of the Securities Regulation Code (SRC) did they violate, if any? Explain.
(4%)
b. Assuming that the employees of the establishment handling the printing work of Grand Gas
Corporation saw the exploration reports which were mistakenly sent to their establishment
together with other materials to be printed. They too bought shares in the company at low
prices and later sold them at huge profits. Will they be liable for violation of the SRC? Why?
(3%)

XIV

Ace Cruz subscribed to 100,000 shares of stock of JP Development Corporation, which has a par
value of P1 per share. He paid P25,000 and promised to pay the balance before December 31,
2008. JP Development Corporation declared a cash dividend on October 15, 2008, payable on
December 1, 2008.

a. For how many shares is Ace Cruz entitled to be paid cash dividends? Explain. (2%)
b. On December 1, 2008, can Ace Cruz compel JP Development Corporation to issue to him
the stock certificate corresponding to the P25,000 paid by him? (2%)

XV

Eloise, an accomplished writer, was hired by Petong to write a bimonthly newspaper column for
Diario de Manila, a newly-established newspaper of which Petong was the editor-in-chief. Eloise
was to be paid P1,000 for each column that was published. In the course of two months, Eloise
submitted three columns which, after some slight editing, were printed in the newspaper. However,
Diario de Manila proved unprofitable and closed only after two months. Due to the minimal amounts
involved, eloise chose not to pursue any claim for payment from the newspaper, which was owned
by New Media Enterprises.

Three years later, Eloise was planning to publish an anthology of her works, and wanted to include
the three columns that appeared in the Diario de Manila in her anthology. She asks for your legal
advice:

a. Does Eloise have to secure authorization from New Media Enterprises to be able to publish
her Diario de Manila columns in her own anthology? Explain fully. (4%)
b. Assume that New Media Enterprises plans to publish Eloise's columns in its own anthology
entitled, "The Best of Diaro de Manila:. Eloise wants to prevent the publication of her
columns in that anthology since she was never paid by the newspaper. Name one irrefutable
legal arguments Eloise could cite to enjoin New Media Enterprises from including her
columns in its anthology. (2%)

XVI

In 1999, Mocha Warm, an American musician, had a hit rap single called Warm Warm Honey which
he himself composed and performed. The single was produced by a California record company,
Galactic Records. Many noticed that some passages from Warm Warm Honey sounded eerily
similar to parts Unde Hassle, a 1978 hit song by the British rock band Majesty. A copyright
infringement suit was filed in the United States against Mocha Warm by Majesty. It was later settled
out of court, with Majesty receiving attribution as co-author of Warm Warm Honey as well as a share
in the royalties.

By 2002, Mocha Warm was nearing bankruptcy and he sold his economic rights over Warm Warm
Honey to Galactic Records for $10,000

In 2008, Planet Films a Filipino movie producing company, commissioned DJ Chef Jean, a Filipino
musician, to produce an original re-mix of Warm Warm Honey for use in one of its latest films, Astig!.
DJ Chef Jean remixed Warm Warm Honey with salsa beat and interspersed as well a recital of a
poetic stanza by John Blake, a 17th century Scottish poet. DJ Chef Jean died shortly after
submitting the remixed Warm Warm Honey to Planet Films.

Prior to the release of Astig!, Mocha Warm learns of the remixed Warm Warm Honey and demands
that he be publicity identified as the author of the remixed song in all the CD covers and publicity
releases of Planet Films.

a. Who are the parties or entities entitled to be credited as author of the remixed Warm Warm
Honey? Reason out your answer. (3%)
b. Who are the particular parties or entities who exercise copyright over the remixed Warm
Warm Honey? Explain. (3%)

XVII

On January 1, 2008, Al obtained a loan of P10,000 from Bob to be paid on January 30,2008,
secured by a chattel mortgage on a Toyota motor car. On February 1, 2008, Al obtained another
loan of P10,000 from Bob to be paid on February 15, 2008. he secured this by executing a chattel
mortgage on a Honda motorcycle. On the due date of the first loan Al failed to pay. Bob foreclosed
the chattel mortgage but the car was bidded for P6,000 only. Al also failed to pay the second loan
due on February 15, 2008. Bob filed an action for collection of sum money. Al filed a motion to
dismiss claiming that Bob should first cforeclosed the mortgage on the Honda motorcycle before he
can file the action for sum of money. Decide with reasons. (4%)

XVIII

a. Can a distressed corporation file a petition for corporate rehabilitation after the dismissal of
its earlier petition for insolvency? Why? (2%)
b. Can the corporation file a petition for rehabilitation first, and after it is dismissed file a petition
for insolvency? Why? (2%)
c. Explain the key phrase "equality is equity" in corporate rehabilitation proceedings. (2%)

XIX

Industry Bank, which has a net worth of P1 Billion, extended a loan to Celestial Properties Inc.
amounting to P270 Million. The loan was secured by a mortgage over a vast commercial lot in the
Fort Bonifacio Global City, appraised at P350 Million. After audit, the Bangko Sentral ng Pilipinas
gave notice that the loan to Celestial Properties exceeded the single borrower's limit of 25% of the
bank's net worth under a recent BSP Circular. In light of other previous similar violations of the credit
limit requirement, the BSP advised Industry Bank to reduce the amount of the loan to Celestial
Properties under pain of severe sanctions. When Industry Bank informed Celestial Properties that it
intended to reduce the loan by P50 Million, Celestial Properties countered that the bank should first
release a part of the collateral worth P50 Million. Industry Bank rejected the counter-proposal, and
reffered the matter to you as counsel. How would you advise Industry Bank to proceed, with its best
interest in mind? (5%)

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