2014 Bar — Commercial Law

On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Ilocos Bankers Life Insurance Corporation (Ilocos Life) designating Creencia Aban (Aban), her niece, as her beneficiary. Ilocos Life issued Policy No. 747, with a face value of P100,000.00, in Sotero's favor on August 30, 1993, after the requisite medical examination and payment of the premium. On April 10, 1996, Sotero died. Aban filed a claim for the insurance proceeds on July 9, 1996. Ilocos Life conducted an investigation into the claim and came out with the following findings: (1) Sotero did not personally apply for insurance coverage, as she was illiterate; (2) Sotero was sickly since 1990; (3) Sotero did not have the financial capability to pay the premium on the policy; (4) Sotero did not sign the application for insurance; (5) Aban was the one who filed the insurance application and designated herself as the beneficiary. For the above reasons and claiming fraud, Ilocos Life denied Aban's claim on April 16, 1997, but refunded the premium paid on the policy. (6%) (A) May Sotero validly designate her niece as beneficiary? (B) May the incontestability period set in even in cases of fraud as alleged in this case? (C) Is Aban entitled to claim the proceeds under the policy?

Paul George Pua (Pua) filed a complaint for a sum of money against the spouses Benito and Caroline James (Spouses James). In the complaint, Pua prayed that the defendants pay Pua the amount of P8,500,000.00, covered by a check. Pua asserts that defendants owed him a sum of money way back in 1988 for which the Spouses James gave him several checks. These checks, however, had all been dishonored and Pua has not been paid the amount of the loan plus the agreed interest. In 1996, the Spouses James approached Pua to get the computation of their liability including the 2% compounded interest. After bargaining to lower the amount of their liability, the Spouses James gave Pua a post-dated check bearing the discounted amount of P8,500,000.00. Like the 1988 checks, the drawee bank likewise dishonored this check. To prove his allegations, Pua submitted the original copies of the seventeen (17) checks issued by Caroline in 1988 and the check issued in 1996, Manilatrust Check No. 750. The Spouses James, on the other hand, completely denied the existence of the debt asserting that they had never approached Pua to borrow money in 1988 or 1996. They asserted, instead, that Pua is simply acting at the instance of his sister, Lilian, to file a false charge against them using a check left to fund a gambling business previously operated by Lilian and Caroline. Decide. (5%)

Carlo and Bianca met in the La Boracay festivities. Immediately, they fell in love with each other and got married soon after. They have been cohabiting blissfully as husband and wife, but they did not have any offspring. As the years passed by, Carlo decided to take out an insurance on Bianca's life for P1,000,000.00 with him (Carlo) as sole beneficiary, given that he did not have a steady source of income and he always depended on Bianca both emotionally and financially. During the term of the insurance, Bianca died of what appeared to be a mysterious cause so that Carlo immediately requested for an autopsy to be conducted. It was established that Bianca died of a natural cause. More than that, it was also established that Bianca was a transgender all along — a fact unknown to Carlo. Can Carlo claim the insurance benefit? (5%)

Bong bought 300 bags of rice from Ben for P300,000.00. As payment, Bong indorsed to Ben a Bank of the Philippine Islands (BPI) check issued by Baby in the amount of P300,000.00. Upon presentment for payment, the BPI check was dishonored because Baby's account from which it was drawn has been closed. To replace the dishonored check, Bong indorsed a crossed Development Bank of the Philippines (DBP) check issued also by Baby for P300,000.00. Again, the check was dishonored because of insufficient funds. Ben sued Bong and Baby on the dishonored BPI check. Bong interposed the defense that the BPI check was discharged by novation when Ben accepted the crossed DBP check as replacement for the BPI check. Bong cited Section 119 of the Negotiable Instruments Law which provides that a negotiable instrument is discharged "by any other act which will discharge a simple contract for the payment of money." Is Bong correct? (4%)

On February 21, 2013, Barrack entered into a contract of insurance with Matino Insurance Company (Matino) involving a motor vehicle. The policy obligates Matino to pay Barrack the amount of Six Hundred Thousand Pesos (P600,000.00) in case of loss or damage to said vehicle during the period covered, which is from February 26, 2013 to February 26, 2014. On April 16, 2013, at about 9:00 a.m., Barrack instructed his driver, JJ, to bring the motor vehicle to a nearby auto shop for tune-up. However, JJ no longer returned and despite diligent efforts to locate the said vehicle, the efforts proved futile. Resultantly, Barrack promptly notified Matino of the said loss and demanded payment of the insurance proceeds of P600,000.00. In a letter dated July 5, 2013, Matino denied the claim, reasoning as stated in the contract that "the company shall not be liable for any malicious damage caused by the insured, any member of his family or by a person in the insured's service." Is Matino correct in denying the claim? (4%)

Under the Financial Rehabilitation and Insolvency Act (FRIA), the filing of a petition for voluntary rehabilitation must be approved by: (1%) A) a majority vote of the Board of Directors and authorized by the vote of the stockholders representing at least a majority of the outstanding capital stock; B) a majority vote of the Board of Directors and authorized by the vote of the stockholders representing at least two-thirds of the outstanding capital stock; C) two-thirds vote of the Board of Directors and authorized by the vote of the stockholders representing at least a majority of the outstanding capital stock; D) two-thirds vote of the Board of Directors and authorized by the vote of the stockholders representing at least two-thirds of the outstanding capital stock.

DC is a unit owner of Medici Condominium located in Pasig City. On September 7, 2011, Medici Condominium Corp. (Medici) demanded from DC payment for alleged unpaid association dues and assessments amounting to P195,000.00. DC disputed the claim, saying that he paid all dues as shown by the fact that he was previously elected as Director and President of Medici. Medici, on the other hand, claimed that DC's obligation was a carry-over of his obligations to the condominium developer, Medici Construction Corporation. Consequently, DC was prevented from exercising his right to vote and be voted for during the 2011 election of Medici's Board of Directors. This prompted DC to file a complaint for damages before the Special Commercial Court of Pasig City. Medici filed a motion to dismiss on the ground that the court has no jurisdiction over the intra-corporate dispute which the Housing and Land Use Regulatory Board (HLURB) has exclusive jurisdiction over. Is Medici correct? (4%)

A corporation organized under the Corporation Code commences to have corporate existence and juridical personality and is deemed incorporated: (1%) A) from the date the application for incorporation is filed with the Securities and Exchange Commission (SEC); B) from the date the SEC issues a certificate of incorporation under its official seal; C) thirty (30) days after the date the application for incorporation is filed with the SEC; D) thirty (30) days after the date the SEC issues a certificate of incorporation under its official seal.

On May 26, 2014, Jess insured with Jack Insurance (Jack) his 2014 Toyota Corolla sedan under a comprehensive motor vehicle insurance policy for one year. On July 1, 2014, Jess' car was unlawfully taken. Hence, he immediately reported the theft to the Traffic Management Command (TMC) of the Philippine National Police (PNP), which made Jess accomplish a complaint sheet as part of its procedure. In the complaint sheet, Jess alleged that a certain Ric Silat (Silat) took possession of the subject vehicle to add accessories and improvements thereon. However, Silat failed to return the subject vehicle within the agreed 3-day period. As a result, Jess notified Jack of his claim for reimbursement of the value of the lost vehicle under the insurance policy. Jack refused to pay claiming that there is no theft as Jess gave Silat lawful possession of the car. Is Jack correct? (4%)

Jinggy went to Kluwer University (KU) in Germany for his doctorate degree (Ph.D.). He completed his degree with the highest honors in the shortest time. When he came back, he decided to set up his own graduate school in his hometown in Zamboanga. After seeking free legal advice from his high-flying lawyer-friends, he learned that the Philippines follows the territoriality principle in trademark law, i.e., trademark rights are acquired through valid registration in accordance with the law. Forthwith, Jinggy named his school the Kluwer Graduate School of Business of Mindanao and immediately secured registration with the Bureau of Trademarks. KU did not like the unauthorized use of its name by its top alumnus no less. KU sought your help. What advice can you give KU? (4%)

As a rule, an insurance contract is consensual and voluntary. The exception is in the case of: (1%) A) Inland Marine Insurance; B) Industrial Life Insurance; C) Motor Vehicle Liability Insurance; D) Life Insurance.

A person is said to have an insurable interest in the subject matter insured where he has a relation or connection with, or concern in it that he will derive pecuniary benefit or advantage from its preservation. Which among the following subject matters is not considered insurable? (1%) A) A partner in a firm on its future profits; B) A general creditor on debtor's property; C) A judgment creditor on debtor's property; D) A mortgage creditor on debtor's mortgaged property.

PA Assurance (PA) was incorporated in 1980 to engage in the sale of pre-need educational plans. It sold open-ended educational plans which guaranteed the payment of tuition and other fees to planholders irrespective of the cost at the time of availment. It also engaged in the sale of fixed value plans which guaranteed the payment of a pre-determined amount to planholders. In 1982, PA was among the country's top corporations. However, it subsequently suffered financial difficulties. On September 8, 2005, PA filed a Petition for Corporate Rehabilitation before the Regional Trial Court (RTC) of Makati City. On October 17, 2005, ten (10) planholders filed an Opposition and Motion to Exclude Planholders from Stay Order on the ground that planholders are not creditors as they (planholders) have a trust relationship with PA. Are the planholders correct? (4%)

To constitute a quorum for the transaction of corporate business, only a majority of the number of Board of Directors is required: (1%) A) as fixed by the corporate by-laws; B) as fixed in the articles of incorporation; C) actually serving in the board; D) actually serving in the board but constituting a quorum.

Pursuant to its By-Laws, Soei Corporation's Board of Directors created an Executive Committee to manage the affairs of the corporation in between board meetings. The Board of Directors appointed the following members of the Executive Committee: the President, Sarah L; the Vice President, Jane L; and a third member from the board, Juan Riles. On December 1, 2013, the Executive Committee, with Sarah L and Jane L present, met and decided on the following matters: (1) purchase of a delivery van for use in the corporation's retail business; (2) declaration and approval of the 13th month bonus; (3) purchase of an office condominium unit at the Fort; and (4) declaration of P110.00 per share cash dividend. Are the actions of the Executive Committee valid? (4%)

On September 25, 2013, Danny Marcial (Danny) procured an insurance on his life with a face value of P5,000,000.00 from RN Insurance Company (RN), with his wife Tina Marcial (Tina) as sole beneficiary. On the same day, Danny issued an undated check to RN for the full amount of the premium. On October 1, 2013, RN issued the policy covering Danny's life insurance. On October 5, 2013, Danny met a tragic accident and died. Tina claimed the insurance benefit, but RN was quick to deny the claim because at the time of Danny's death, the check was not yet encashed and therefore the premium remained unpaid. Is RN correct? Will your answer be the same if the check is dated October 15, 2013? (4%)

On May 13, 1996, PAM, Inc. obtained a P15,000,000.00 fire insurance policy from Ilocano Insurance covering its machineries and equipment effective for one (1) year or until May 14, 1997. The policy expressly stated that the insured properties were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 and 6, Block 15, PEZA, Rosario, Cavite." Before its expiration, the policy was renewed on "as is" basis for another year or until May 13, 1998. The subject properties were later transferred to Pace Factory also in PEZA. On October 12, 1997, during the effectivity of the renewed policy, a fire broke out at the Pace Factory which totally burned the insured properties. The policy forbade the removal of the insured properties unless sanctioned by Ilocano. Condition 9(c) of the policy provides that "the insurance ceases to attach as regards the property affected unless the insured, before the occurrence of any loss or damage, obtains the sanction of the company signified by endorsement upon the policy x x x (c) if the property insured is removed to any building or place other than that which is herein stated to be insured." PAM claims that it has substantially complied with notifying Ilocano through its sister company, the RBC, which, in fact, referred PAM to Ilocano for the insurance coverage. Is Ilocano liable under the policy? (4%)

A, B, C, D, and E were members of the 2003-2004 Board of Directors of FLP Corporation. At the election for the 2004-2005 Board of Directors, not one of them was elected. They filed in court a derivative suit on behalf of FLP Corporation against the newly-elected members of the Board of Directors. They questioned the validity of the election as it was allegedly marred by lack of quorum, and prayed for the nullification of the said election. The 2004-2005 Board of Directors moved to dismiss the complaint because the derivative suit is not proper. Decide. (4%)

In intellectual property cases, fraudulent intent is not an element of the cause of action except in cases involving: (1%) A) trademark infringement; B) copyright infringement; C) patent infringement; D) unfair competition.

On December 1, 2010, Kore A Corporation shipped from South Korea to LT Corporation in Manila some 300,000 sheets of high-grade special steel. The shipment was insured against all risks by NA Insurance (NA). The carrying vessel arrived at the Port of Manila on January 10, 2011. When the shipment was discharged, it was noted that 25,000 sheets were damaged and in bad order. The entire shipment was turned over to the custody of ATI, the arrastre operator, on January 21, 2011 for storage and safekeeping, pending its withdrawal by the consignee's authorized customs broker, RVM. On January 26 and 29, 2011, the subject shipment was withdrawn by RVM from the custody of ATI. On January 29, 2011, prior to the withdrawal of the last batch of the shipment, a joint inspection of the cargo was conducted per the Request for Bad Order Survey (RBO) dated January 28, 2011. The examination report showed that 30,000 sheets of steel were damaged and in bad order. NA Insurance paid LT Corporation the amount of P30,000,000.00 for the 30,000 sheets that were damaged, as shown in the Subrogation Receipt dated January 13, 2013. Thereafter, NA Insurance demanded reparation against ATI for the goods damaged in its custody, in the amount of P5,000,000.00. ATI refused to pay claiming that the claim was already barred by the statute of limitations. ATI alleged that the Carriage of Goods by Sea Act (COGSA) applies in this case since the goods were shipped from a foreign port to the Philippines. NA Insurance claims that the COGSA does not apply, since ATI is not a shipper or carrier. Who is correct? (5%)

Skechers Corporation sued Inter-Pacific for trademark infringement, claiming that Inter-Pacific used Skechers' registered "S" logo mark on Inter-Pacific's shoe products without its consent. Skechers has registered the trademark "SKECHERS" and the trademark "S" (with an oval design) with the Intellectual Property Office (IPO). In its complaint, Skechers points out the following similarities: the color scheme of the blue, white and gray utilized by Skechers; even the design and "wave-like" pattern of the mid-sole and outer sole of Inter-Pacific's shoes are very similar to Skechers' shoes, if not exact patterns thereof; on the side of Inter-Pacific's shoes, near the upper part, appears the stylized "S" placed in the exact location as that of the stylized "S" on the Skechers shoes; on top of the "tongue" of both shoes appears the stylized "S" in practically the same location and size. In its defense, Inter-Pacific claims that under the Holistic Test, the following dissimilarities are present: the mark "S" found in Strong shoes is not enclosed in an "oval design"; the word "Strong" is conspicuously placed at the backside and insoles; the hang tags and labels attached to the shoes bear the word "Strong" for Inter-Pacific and "Skechers U.S.A." for Skechers; and Strong shoes are modestly priced compared to the costs of Skechers shoes. Under the foregoing circumstances, which is the proper test to be applied — Holistic or Dominancy Test? Decide. (4%)

Guetze and his wife have three (3) children: Neymar, 25, who is now based in Rio de Janeiro, Brazil; Muelter, 23, who has migrated to Munich, Germany; and James, 21, who resides in Bogota, Colombia. Neymar and Muelter have since renounced their Philippine citizenship in favor of their country of residence. Nearing 70 years old, Guetze decided to incorporate his business in Binondo, Manila. He asked his wife and three (3) children to act as incorporators with one (1) share of stock each, while he owned 999,996 shares of the 1,000,000 shares of the capital stock. (6%) (A) Assuming all other requirements are met, should the Securities and Exchange Commission (SEC) accept or reject the Articles of Incorporation? Why? (B) Being the control freak and micro-manager that he is, Guetze asked you — his astute legal adviser — if he can serve as Chairman of the Board of Directors, as President, and as General Manager of the corporation, all at the same time. Please advise Guetze. (C) Assuming the corporation has been properly registered, may the Articles of Incorporation now be amended to reduce the number of directors to two (2) — Guetze and his wife — to reflect the real owners of the shares of stock?

What vote is needed to consider every decision to be a valid corporate act? (1%) A) a majority of the directors present at the meeting; B) two-thirds of the directors present at the meeting; C) a majority of the directors present at the meeting at which there is a quorum; D) two-thirds of the directors present at the meeting at which there is a quorum.

A criminal complaint for violation of B.P. 22 was filed by Foton Motors (Foton), an entity engaged in the business of car dealership, against Pura Felipe (Pura) with the Office of the City Prosecutor of Quezon City. The Office found probable cause to indict Pura and filed an information before the Metropolitan Trial Court (MeTC) of Quezon City, for her issuance of a post-dated check in the amount of P1,020,000.00 which was subsequently dishonored upon presentment due to "Stop Payment." Pura issued the check because her son, Freddie, attracted by a huge discount of P220,000.00, purchased a Foton Blizzard 4x2 from Foton. The term of the transaction was Cash-on-Delivery and no down payment was required. The car was delivered on May 14, 1997, but Freddie failed to pay upon delivery. Despite non-payment, Freddie took possession of the vehicle. Pura was eventually acquitted of the charge of violating B.P. 22 but was found civilly liable for the amount of the check plus legal interest. Pura appealed the decision as regards the civil liability, claiming that there was no privity of contract between Foton and Pura. No civil liability could be adjudged against her because of her acquittal from the criminal charge. It was Freddie who was civilly liable to Foton, Pura claimed. Pura added that she could not be an accommodation party either because she only came in after Freddie failed to pay the purchase price, or six (6) months after the execution of the contract between Foton and Freddie. Her liability was limited to her act of issuing a worthless check, but by her acquittal in the criminal charge, there was no more basis for her to be held civilly liable to Foton. Pura's act of issuing the subject check did not, by itself, assume the obligation of Freddie to Foton or automatically make her a party to the contract. Is Pura liable? (5%)

In an action for collection of a sum of money, the Regional Trial Court (RTC) of Makati City issued a decision finding D-Securities, Inc. liable to Rehouse Corporation for P10,000,000.00. Subsequently, the writ of execution was issued but returned unsatisfied because D-Securities had no more assets to satisfy the judgment. Rehouse moved for an Alias Writ of Execution against Fairfield Bank (FB), the parent company of D-Securities. FB opposed the motion on the grounds that it is a separate entity and that it was never made a party to the case. The RTC granted the motion and issued the Alias Writ of Execution. In its Resolution, the RTC relied on the following facts: 499,995 out of the 500,000 outstanding shares of stocks of D-Securities are owned by FB; FB had actual knowledge of the subject matter of litigation as the lawyers who represented D-Securities are also the lawyers of FB. As an alter ego, there is no need for a finding of fraud or illegality before the doctrine of piercing the veil of corporate fiction can be applied. The RTC ratiocinated that being one and the same entity in the eyes of the law, the service of summons upon D-Securities has bestowed jurisdiction over both the parent and wholly-owned subsidiary. Is the RTC correct? (4%)

DMP Corporation (DMP) obtained a loan of P20 million from National Bank (NB) secured by a real estate mortgage over a 63,380 sq. m. land situated in Cabanatuan City. Due to the Asian Economic Crisis, DMP experienced liquidity problems disenabling it from paying its loan on time. For that reason, NB sought the extrajudicial foreclosure of the said mortgage by filing a petition for sale on June 30, 2003. On September 4, 2003, the mortgaged property was sold at public auction, which was eventually awarded to NB as the highest bidder. That same day, the Sheriff executed a Certificate of Sale in favor of NB. On October 21, 2003, DMP filed a Petition for Rehabilitation before the Regional Trial Court (RTC). Pursuant to this, a Stay Order was issued by the RTC on October 27, 2003. On the other hand, NB caused the recording of the Sheriff's Certificate of Sale on December 3, 2003 with the Register of Deeds of Cabanatuan City. NB executed an Affidavit of Consolidation of Ownership and had the same annotated on the title of DMP. Consequently, the Register of Deeds cancelled DMP's title and issued a new title in the name of NB on December 10, 2003. NB also filed on March 17, 2004 an Ex-Parte Petition for Issuance of Writ of Possession before the RTC of Cabanatuan City. After hearing, the RTC issued on September 6, 2004 an Order directing the Issuance of the Writ of Possession, which was issued on October 4, 2004. DMP claims that all subsequent actions pertaining to the Cabanatuan property should have been held in abeyance after the Stay Order was issued by the rehabilitation court. Is DMP correct? (4%)

ELP Insurance, Inc. issued Marine Policy No. 888 in favor of FCL Corp. to insure the shipment of 132 bundles of electric copper cathodes against all risks. Subsequently, the cargoes were shipped on board the vessel "M/V Menchu" from Leyte to Pier 10, North Harbor, Manila. Upon arrival, FCL Corp. engaged the services of CGM, Inc. for the release and withdrawal of the cargoes from the pier and the subsequent delivery to its warehouses/plants in Valenzuela City. The goods were loaded on board twelve (12) trucks owned by CGM, Inc., driven by its employed drivers and accompanied by its employed truck helpers. Of the twelve (12) trucks en route to Valenzuela City, only eleven (11) reached the destination. One (1) truck, loaded with eleven (11) bundles of copper cathodes, failed to deliver its cargo. Because of this incident, FCL Corp. filed with ELP Insurance, Inc. a claim for insurance indemnity in the amount of P1,500,000.00. After the requisite investigation and adjustment, ELP Insurance, Inc. paid FCL Corp. the amount of P1,350,000.00 as insurance indemnity. ELP Insurance, Inc., thereafter, filed a complaint for damages against CGM, Inc. before the Regional Trial Court (RTC), seeking reimbursement of the amount it had paid to FCL Corp. for the loss of the subject cargo. CGM, Inc. denied the claim on the basis that it is not privy to the contract entered into by and between FCL Corp. and ELP Insurance, Inc., and hence, it is not liable therefor. If you are the judge, how will you decide the case? (4%)

Which of the following instruments is negotiable if all the other requirements of negotiability are met? (1%) A) A promissory note with promise to pay out of the U.S. Dollar account of the maker in XYZ Bank; B) A promissory note which designates the U.S. Dollar currency in which payment is to be made; C) A promissory note which contains in addition a promise to paint the portrait of the bearer; D) A promissory note made payable to the order of Jose Cruz or Josefa Cruz.

KK is from Bangkok, Thailand. She studies medicine in the Pontifical University of Santo Tomas (UST). She learned that the same foreign books prescribed in UST are 40-50% cheaper in Bangkok. So she ordered 50 copies of each book for herself and her classmates and sold the books at 20% less than the price in the Philippines. XX, the exclusive licensed publisher of the books in the Philippines, sued KK for copyright infringement. Decide. (4%)