Bar Questions in Negotiable Instrument

Summary of Bar Examination Cases

GENERAL PRINCIPLES

A. THEORY

01. What are the requisites of a negotiable instruments? [1953, 1954, 1964, 1968, 1989, 1991, 1996, Bar Examinations].

02. What constitutes a holder in due course? [1996, Bar Examinations].

03. Can a bill of exchange or a promissory note qualify as a negotiable instrument if -

04. A promissory note reads as follows: “I promise to pay Gabriela Silangan P1,000.00 three years after the
unconditional withdrawal of the U.S. of its military bases in the Philippines.” Discuss the negotiability or non-
negotiability of the note above [1966 Bar Examinations].

05. Can the payee in a promissory note be a ‘holder in due course’ within the meaning of the Negotiable Instruments
Law? [2000 Bar Examinations].

06. How do you treat a negotiable instrument that is so ambiguous that there is a doubt whether it is a bill or a note?
[1999, Bar Examinations].
07. When a signature is so placed upon a negotiable instrument that it is not clear in what capacity the person making
the same intended to sign, what is his liability? [1946, Bar Examinations].
08. When a negotiable instrument contains the words “I promise to pay” and is signed by two or more persons, what is
their liability, joint or solidary? Explain [1946, Bar Examinations].

B. TESTS OF NEGOTIABILITY

09. MP bought a used cellphone from JR. JR preferred cash but MP is a friend so JR accepted MP’s promissory note for
P10,000.00. JR though of converting the note into cash by indorsing it to his brother KR. The promissory note is a piece
of paper with the following hand-printed notation: “MP WILL PAY JR P10,000.00 IN PAYMENT FOR HIS CELLPHONE ONE
WEEK FROM TODAY”. Below this notation is MP’s signature with “8/1/00 next to it, indicating the date of the promissory
note. When JR presented MP’s note to KR, the latter said it was not a negotiable instrument under the law and so could
not be a valid cash substitute. JR took the opposite view, insisting on the note’s negotiability. You are asked to referee .
Which of the opposing views is correct? Explain [2000 Bar Examinations]. 

10. Perla bought a motor car payable in installments from Automotic Company for P250,000.00 with a P50,000.00
downpayment. She executed a promissory note for the balance which reads:

For value received, I promise to pay Automotive Company or order at its office in Legaspi City, the sum of P200,000.00
with interest at 12% per annum, payable in equal installments of P20,000.00 for ten (10) months starting 21 October
2002.
SGD Perla
Manila, 21 September 2002 

Automotive Company subsequently indorsed the note to Reliable Finance Corporation which financed the purchase.
Perla defaulted in the payment of her installments. Is the above promissory note a negotiable instrument? Explain [1992
Bar Examinations].

11. Romeo had P100,000.00 in his current account at Matatag Banking Corporation. Romeo learned that his enemy had
hired a contract killer to liquidate him. Fearful of his life, he mailed to his fiance, Juliet, a check for his P100,000.00 in the
bank. The check was payable to Juliet or order and was accompanied by a letter stating that he was giving her his money
out of his great love for her and because something would happen to him anytime now. Juliet presented the check for
payment but the bank refused to honor it. Does Juliet have any right of action against the bank? Because of the
humiliation she suffered from the bank, Juliet broke off her engagement with Romeo. Does Romeo have a right of action
against the bank? Explain [1986 Bar Examination].

12. Explain whether or not the following instrument is negotiable.

P1,000.00 Manila, October 5, 1970

13. For value received, X executed a promissory note in favor of Y for P10,000.00 agreeing to pay interest thereon but
without specifying the rate thereof. Can Y collect interest on the note? Why? Explain [1964 Bar Examination].

DEFENSES

C. FAILURE/ABSENCE OF CONSIDERATION
14. In payment of canned goods he had purchased, Pedro Flores of Cabanatuan drew a check upon PNB for P1,000.00
payable to the order of Veraz and Co., the seller in Manila. He sent the check “without recourse” to Juan Santos. The
latter indorsed it in blank, for consideration, to Pablo Reyes, who, in turn, sold it for P800.00, by delivery to Antonio
Gomez. The canned goods were never forwarded to Flores. Gomez presented the check to the bank, but payment was
refused because Reyes had not put his name on it. Is the bank right in so refusing? Why? If Gomez gave due notice to
Veraz and Co., may he recover from the latter? May Gomez recover from Santos? Why? May he recover from Reyes?
Why? [1968 Bar Examination].

15. Eva issued to Imelda a check in the amount of P50,000.00 post-dated September 19, as security for a diamond ring
to be sold on commission. On September 15, Imelda negotiated the check to MT Investment which paid the amount of
P40,000.00 to her. Eva failed to sell the ring, so she returned it to Imelda on September 19. Unable to retrieve her check,
Eva withdrew her funds from the drawee bank. Thus, when MT Investment presented the check for payment, the
drawee bank dishonored it. Later on, when MT Investment sued her, Eva raised the defense of absence of consideration,
the check having been issued merely as security for the ring that she could not sell. Does Eva have a valid defense?
Explain [1996, Bar Examination].

16. A and B executed and delivered to C a promissory note which reads: “I promise to pay C or bearer the sum of
P2,000.00 with interest at 12% per annum on or before June 30, 1960. Manila, February 1, 1969. SGD A and B. Two
months later, for value received, C delivered to D the aforesaid note with the indorsement: “Pay to D”; and on April 15,
1969, the said note was indorsed in blank by D and delivered to X, without consideration. Upon A’s refusal to pay
despite demand, X filed an action to collect from A the total amount of the promissory note, with 12% interest per
annum from February 1, 1969, and the costs. A’s defenses are that the note is null and void because the same was
issued to pay a gambling debt and that in any event, his liability cannot exceed more than one-half of the amount due.
Are A’s defenses valid? Is X entitled to the whole amount of the note? Explain. [1969 Bar Examination].

17. For the purpose of lending his name without receiving value therefor, Pedro makes a note for P20,000.00 payable to
the order of X who in turn negotiates it to Y, the latter knowing that Pedro is not a party for value. May Y recover from
Pedro if the latter imterposes absence of consideration? Supposing under the same facts, Pedro pays the said
P20,000.00, may he recover the same amount from X? Explain [1998 Bar Examination].

18. Nora applied for a loan of P100,000.00 with BUR Bank. By way of accommodation, Nora’s sister, Vilma, executed a
promissory note in favor of BUR Bank. When Nora defaulted, BUR Bank sued Vilma, despite its knowledge that Vilma
received no part of the loan. May Vilma be held liable? Explain [1996 Bar Examination].

19. Santos purchased Vera’s car for P50,000.00. Not having enough cash on hand, Santos offered to pay in check. Vera
refused to accept the check unless it is indorsed by Reyes, their mutual friend. Reyes indorsed Santos’ check and Vera,
knowing that Reyes had not received any value for indorsing the check, accepted it. The next day, Vera presented the
check to the drawee bank for payment. Payment was refused for lack of funds. Vera gave notice of dishonor to Reyes,
but Reyes refused to pay, saying that he indorsed merely as a friend. Is Reyes liable to Vera? In the event Reyes
voluntarily pays Vera, does Reyes have the right to recover from Santos? Explain [1985 Bar Examination].

D. INCOMPLETE DELIVERED INSTRUMENT

20. Larry issued a negotiable promissory note to Evelyn and authorized the latter to fill up the amount in blank with his
loan account in the sum of P1,000.00. However, Evelyn inserted P5,000.00 in violation of the instruction. She negotiated
the note to Julie who had knowledge of the infirmity. Julie, in turn, negotiated said note to Devi for value and who had
no knowledge of the infirmity. Can Devi enforce the note against Larry, and if she can, for how much? Supposing Devi
indorses the note to Baby for value but who has knowledge of the infirmity, can the latter enforce the note against
Larry? Explain [1993 Bar Examination].
21. Maria issued a negotiable promissory note and authorized Pilar to fill-up the amount in blank up to P2,000.00.
However, Pilar filled it up to P4,000.00 and negotiated the note to Pepe. For what amounts are Maria and Pilar liable to
Pepe? Explain [1972 Bar Examinations].

E. INCOMPLETE UNDELIVERED INSTRUMENT

22. PN makes a promissory note for P5,000.00, but leaves the name of the payee in blank because he wanted to verify
its correct spelling first. He mindlessly left the note on top of his desk at the end of the workday. When he returned the
following morning, the note was missing. It turned up later when X presented it to PN for payment. Before X, T, who
turned out to have filched the note from PN’s office, had endorsed the note after inserting his own name in the blank
space as the payee. PN dishonored the note, contending that he did not authorize its completion and delivery. But X said
he had no participation in, or knowledge about, the pilferage and alteration of the note and therefore he enjoys the
rights of a holder in due course under the Negotiable Instruments Law. Who is correct and why? [2000 Bar Examination].

23. Jose makes a negotiable note payable to bearer with the amount in blank and delivers it to Karen for safekeeping.
Marina fills up the note for P20,000.00 and negotiates it to Adriano, a holder in due course. If you were Jose and Adriano
presented to you the note for payment, what defense or defenses are you going to interpose to negate liability on the
instrument? Explain [1981 Bar Examinations].
24. A entrusted to B, his secretary, a blank check drawn on X bank, signed by him, with instructions to fill up the check in
favor of D for the amount of P1,000.00 and to thereafter deliver the said check to D. In breach of trust, B filled up the
check by writing the name of E, and the amount of P2,000.00 on the check and delivered the same to E, who accepted it
in payment of certain goods sold by E to B. Before E could encash the check, A learned of the misdeed of B and issued a
stop-payment order to X bank as a result of which X bank refused to honor the check presented to it by E. Can E now
hold X bank and A liable? Reason [1971 Bar Examinations].

25. Jose Reyes signed a blank check, and in his hasted to attend a party, left the check on top of his executive desk in his
office. Later, Nazareno forced the door to Reyes’ office and stole the blank check. Nazareno immediately filled in the
amount of P50,000.00 and a fictitious name as payee on the said check. Nazareno then endorsed the check in the
payee’s name and passed it to Roldan. Thereafter, Roldan endorsed the check to Dantes. Can Dantes enforce the check
against Jose Reyes? If Dantes is a holder in due course, will your answer be the same? [1985 Bar Examinations].

26. A signed a blank check which he inadvertently left at his desk at his Escolta Office. The same was later stolen by B,
who filled in the amount of P22,300.00 and a fictitious name as payee. B then endorsed the check in the payee’s name
and passed the check to C; thereafter C passed it to D; then D to E; and E to F. Can F enforce the instrument against A?
Suppose that F is a holder in due course, what will be your answer? Can F enforce the instrument against B? Against C.
Give reasons [1978 Bar Examinations].

F. FORGERY
27. A delivers a bearer instrument to B. B then specially indorses it to C, and C later indorses it in blank to D. E steals the
instrument from D and, forging the signature of D, succeeds in “negotiating” it to F who acquires the instrument in good
faith and for value. If, for any reason, the drawee bank refuses to honor the check, can F enforce the instrument against
the drawer? In case of the dishonor of the check by both the drawee and the drawer, can F hold any of B, C and D liable
secondarily on the instrument? [1997 Bar Examinations].

28. Juan makes a promissory note payable to his order, signing Pedro’s name thereon as maker without Pedro’s
knowledge and consent. Juan then indorses the note to Jose, who, in turn, indorses it to Carlos under circumstances
which make Carlos a holder in due course. May Carlos enforce the note against Pedro? And if the note is dishonored by
Pedro, may Carlos hold Juan and Jose liable on their respective indorsements? Reason out your answers [1989 Bar
Examinations].

29. Juan makes a promissory note payable to the order of Pedro, who indorses it to Jose. Somehow, Roberto obtains
possession of the note and, forging the signature of Jose, indorses it to Amado. Amado then indorses the note to Nilo,
the holder. State the rights and liabilities of the parties [1984 Bar Examinations].
30. A makes a negotiable promissory note payable to B or bearer. A delivers the note to B. B indorses the note to C. C
places the note in his wallet, which was stolen by X, who, finding the note, indorses it to D by forcing C’s signature. D
indorses the note to E, who in turn, delivers the note to F, a holder in due course, without indorsement. What are the
liabilities of A, B and C to F. Explain briefly [1981 Bar Examinations].

31. Juan de la Cruz signs a promissory note payable to Pedro Lim or bearer, and delivers it personally to Pedro Lim. The
latter somehow misplaces the said note and Carlos Ros finds the note lying around the corridor of the building. Carlos
Ros endorses the promissory note to Juana Bond, for value, by forging the signature of Pedro Lim. May Juana Bond hold
Juan de la Cruz liable on the note? Explain [1980 Bar Examinations]. 

32. Fernando forged the name of Daniel, manager of a Trading Company, as the drawer of a check. The Bank of
Philippine Islands, the drawee bank, did not detect the forgery and paid the amount. May the bank charge the amount
paid against the account of the alleged drawer? Explain [1977 Bar Examinations].

G. FRAUD

33. A succeeded in making B affix his signature on a check without B’s knowing that it was a check. At the time of
signing, the check was complete in all respects. A intended to cash the check the following morning, but that night, it
was stolen by C who succeeded in negotiating the same to D, a holder in due course. D cashed the check the following
morning. B refused to have the amount of the check deducted from his bank deposit. Who may properly be charged
with the amount of the check? Explain your answer [1961 Bar Examinations].

34. A induces B by fraud to make a promissory note payable on demand to the order of A in the sum of P5,000.00. Can A
file an action successfully against the maker B for the amount of the note? Reasons. Going further, A transfers the note
to C who pays P5,000.00 therefor and acquires the note under circumstances that make him (C) as holder in due course.
Can C file an action successfully against B, the maker of the note, for the amount of the note? What defense/defenses
can B interpose? Explain [1978 Bar Examinations].

H. MATERIAL ALTERATION
35. A check for P50,000.00 was drawn against drawee bank and made payable to XYZ Marketing or order. The check was
deposited with payee’s account at ABC Bank which then sent the check for clearing to drawee bank. Drawee bank
refused to honor the check on the ground that the serial number thereof had been altered. XYZ Marketing sued drawee
bank. Is it proper for the drawee bank to dishonor the check for the reason that it had been altered? In instant suit,
drawee bank contended that XYZ Marketing as payee could not sue the drawee bank as there was no privity between
them. Drawee theorized that there was no basis to make it liable for the check. Is this contention correct? Explain [1999
Bar Examinations].

36. William issued to Albert a check for P10,000.00 drawn on XM Bank. Albert altered the amount of the check to
P210,000.00 and deposited the check to his account with ND Bank. When ND Bank presented the check for payment
through the Clearing House, XM Bank honored it. Thereafter, Albert withdrew the amount of P210,000.00 and closed his
account. When the check was returned to him after a month, William discovered the alteration. XM Bank recredited
P210,000.00 to William’s current account and sought reimbursement from ND Bank. ND Bank refused, claiming that XM
Bank failed to return the altered check within the 24 hour clearing period. Who, as between XM Bank and ND Bank,
should bear the loss? Explain [1996 Bar Examinations].

37. In consideration of some goods he bought, A issued to B a personal check in the amount of P280.00 which B altered
to P2,800.00 without the knowledge of A. The alteration is not apparent to the naked eye. B then deposited the altered
check in his account with PNB, which released it for clearing. The BPI, the drawee bank, did not notice the alteration and
the check therefore cleared. B was able to withdraw the P2,800.00, after which, he closed his account. When A received
his bank statement and cancelled checks, he noticed the discrepancy in the amount when he compared the altered
check with his check stub. He immediately notified BPI and demanded a recredit. BPI, in turn, demanded recredit from
PNB which cannot now locate B. Can A compel BPI to recredit his account? If so, how much? Can PNB be compelled to
reimburse BPI of the amount the latter may have recredit to the account of A? Explain [1986 Bar Examinations].

38. Pedro writes out a check for P1,000.00 in favor of Jose or order against his current account with the Bank of America.
Juan steals the check, erases the name of Jose and superimposes his own name. Juan deposits the check at Citibank and
after clearing, Juan withdraws the amount and absconds. Upon discovery by Pedro of the material alteration, he lodged
a complaint at the Bank of America, who debited the amount to Pedro. Bank of America demands reimbursement for
Citibank which refuses on the ground that it only acted as an agent for collection. Who bears the loss? Why? [1977 Bar
Examinations].

39. Maria issued a negotiable promissory note and authorized Pilar to fill up the amount in blank up to P2,000.00 only.
However, Pilar filled it up to P4,000.00 and negotiated the note to Pepe. For what amount are Maria and Pilar liable to
Pepe? Explain [1972 Bar Examinations].

40. A executed a bill of exchange for P500.00 in favor of B, who altered the amount to P5,000.00 and presented the bill
to the drawee for acceptance. The drawee, not knowing of the alteration which was neatly done, accepted the bill.
Thereafter, N negotiated the bill to C, who now seeks to hold the drawee liable for P5,000.00. The drawee contends that
under the rule on alteration, he can only be liable up to P500.00. Is the drawee’s contention tenable? Can the drawee
debit the amount of A, and if so, to what extent? Reasons [1971 Bar Examinations].

I. MINORITY

41. X makes a promissory note for P10,000.00 payable to A, a minor, to help him to buy school books. A endorses the
note to B for value, who in turn endorses the note to C. C knows A is a minor. If C sues X on the note, can X set up the
defenses of minority and lack of consideration? Explain [1998 Bar Examinations].

42. X, without receiving consideration therefor, makes a promissory note for P500.00 payable to A, a minor, to help him
buy school books. A indorses the note to B, who, in turn, indorses the note to C. C knows A’s minority. If C presents the
note to X for payment, what are the possible defenses to be interposed by X? If C sues X on the note, can X set up the
defense of minority and lack of consideration? Explain [1989 Bar Examinations].

WARRANTIES/LIABILITIES

J. ACCEPTOR

43. X draws a check against his current account with Ortigas Branch of Bonifacio Bank in favor of B. Although X does not
have sufficient funds, the bank honors the check when it was presented to payment. Apparently, X has conspired with
the bank’s bookkeeper so that his ledger card would show that he still has sufficient funds. The bank files an action for
recovery of the amount paid to B because the check presented has no sufficient funds. Decide the case [1998 Bar
Examinations].

K. NEGOTIATOR BY DELIVERY

44. Anna makes a promissory note payable to bearer and delivers it to Bing. In turn, Bing negotiates it by mere delivery
to Carmen, who indorses it specially to Dong. Dong negotiates it by special indorsement to Emma, who negotiates it to
Fe by mere delivery. Anna did not pay. To whom are Bing and Carmen liable? To whom are Dong and Emma liable?
Explain [1988 Bar Examinations].

L. INDORSERS

45. Alex issued a negotiable promissory note (PN) payable to Benito or order in payment of certain goods. Benito
indorsed the PN to Celso in payment of an existing obligation. Later, Alex found the goods to be defective. While in
Celso’s possession, the PN was stolen by Dennis who forged Celso’s signature and discounted it with Edgar, a money
lender who did not make inquiries about the PN. Edgar indorsed the PN to Felix, a holder in due course. When Felix
demanded payment of the PN from Alex, the latter refused to pay. Dennis could no longer be located. What are the
rights of Felix, if any, against Alex, Benito, Celso and Edgar? Explain. Does Celso have any right of action against Alex,
Benito and Felix? Explain [1995 Bar Examinations].
46. A drew a check for P1,000.00 on B, the Bank payable to the order of C and delivered the check to the latter for value.
C indorsed the check in blank and negotiated it to D, who lost it. At D’s request, A ordered payment stopped by notifying
B. The stop payment order was overlooked and the check was paid to E, who had taken the check, without actual
knowledge of the loss, in payment of merchandise sold to a stranger whom he thought owned the check. D now sues
the bank. Decide the case with brief reasons [1979 Bar Examinations].

INCIDENTS
M. NEGOTIATION

47. Richard Clinton makes a promissory note payable to bearer and deliverrs the same to Autora Page. The latter,
however, endorses it to X in this manner: “Payable to X, Signed: Aurora Page”. Later, X, without endorsing the
promissory note, transfers and delivers the same to Napoleon. The note is subsequently dishonored by Richard Clinton.
May Napoleon proceed against Richard Clinton for the note? [1998 Bar Examinations].

48. On November 3, as payment for goods received, A gave to B his check drawn on PNB, Manila. B thereafter
negotiated the check to C. On November 10, C could not encash the check because the Bangko Sentral had forbidden
PNB to do business on grounds of insolvency. Can C hold A liable on the uncashed check? Can C hold B liable instead on
the uncashed check? Explain. If you were B, how would you negotiate the check to negate future liability thereon?
Explain [1987 Bar Examinations].

N. DISHONOR

49. When is notice of dishonor not required to be given to the drawer? [1996, Bar Examinations].

50. A issued a promissory note to B dated January 1, 2002, in the following tenor: “I promise to pay to the order of B
P1,000.00 sixty days after date. (Sgd.) A”. The note was subsequently negotiated with proper indorsement by B to C, C to
D, and D to E, the holder. When E presented the note for payment to A, the latter refused to pay. E then gave a notice of
dishonor to C only. May E immediately proceed against B, C or D? What should C do to protect his rights, if any, against
A, B and D? Explain [1984 Bar Examinations].

51. X draws a bill of exchange against Y in favor of W for P1,000.00, requesting the drawee to pay on December 24,
1962. W indorses the instrument to P on September 1 and on September 15 presents it for acceptance. The bill is
dishonored. P promptly sues W for payment. Will the case prosper? Give reasons for your answer [1963 Bar
Examinations].

2005 BAR EXAMS QUESTIONS IN MERCANTILE LAW

-I-

(1.) What is a negotiable instrument? Give the characteristics of a negotiable instrument. (2%)

(2.) Distinguish a negotiable document from a negotiable instrument. (2%)

(3.) State and explain whether the following are negotiable instruments under the Negotiable Instruments Law:

(i) Postal Money Order;

(ii) A certificate of time deposit which states “This is to certify that bearer has deposited in this bank the sum of FOUR
THOUSAND PESOS (P4,000.00) only, repayable to the depositor 200 days after date.”

(iii) Letters of credit;

(iv) Warehouse receipts;

(v) Treasury warrants payable from a specific fund. (5%)

(1.) Dagul has a business arrangement with Facundo. The latter would lend money to another, through Dagul, whose
name would appear in the promissory note as the lender. Dagul would then immediately indorse the note to Facundo.

Is Dagul an accommodation party? Explain. (2%)

(2.) a) What is a crossed check?

What are the effects of crossing a check? Explain.

b) Distinguish an irregular indorser from a general indorser. (3%)

(3.) Brad was in desperate need of money to pay his debt to Pete, a loan shark. Pete threatened to take Brad’s life if he
failed to pay. Brad and Pete went to see Señorita Isobel, Brad’s rich cousin, and asked her if she could sign a promissory
note in his favor in the amount of P10,000.00 to pay Pete. Fearing that Pete would kill Brad, Señorita Isobel acceded to
the request. She affixed her signature on a piece of paper with the assurance of Brad that he will just fill it up later. Brad
then filled up the blank paper, making a promissory note for the amount of P100,000.00. He then indorsed and
delivered the same to Pete, who accepted the note as payment of the debt.

What defense or defenses can Señorita Isobel set up against Pete? Explain. (3%)

- III -

(1.) Under what conditions may a stock corporation acquire its own shares? (2%)

(2.) Janice rendered some consultancy work for XYZ Corporation. Her compensation included shares of stock therein.

Can XYZ Corporation issue shares of stock to pay for the services of Janice as its consultant?

Discuss your answer. (2%)

- IV -

Divine Corporation is engaged in the manufacture of garments for export. In the course of its business, it was able to
obtain loans from individuals and financing institutions. However, due to the drop in the demand for garments in the
international market, Divine Corporation could not meet its obligations. It decided to sell all its equipment such as
sewing machines, perma-press machines, high speed sewers, cutting tables, ironing tables, etc., as well as its supplies
and materials to Top Grade Fashion Corporation, its competitor.

a) How would you classify the transaction?

b) Can Divine Corporation sell the aforesaid items to its competitor, Top Grade Fashion Corporation?

What are the requirements to validly sell the items? Explain.

c) How would you protect the interests of the creditors of Divine Corporation?

d) In case Divine Corporation violated the law, what remedies are available to Top Grade Fashion Corporation against
Divine Corporation? (5%)

-V-

(1.) a) Under what circumstances may a corporation declare dividends? (2%)

c) From what funds are cash and stock dividends sourced? Explain why. (2%)

(2.) A Korean national joined a corporation which is engaged in the furniture manufacturing business. He was elected to
the Board of Directors. To complement its furniture manufacturing business, the corporation also engaged in the logging
business.

With the additional logging activity, can the Korean national still be a member of the Board of Directors? Explain. (3%)

- VI -

Jojo deposited several cartons of goods with SN Warehouse Corporation. The corresponding warehouse receipt was
issued to the order of Jojo. He endorsed the warehouse receipt to EJ who paid the value of the goods deposited. Before
EJ could withdraw the goods, Melchor informed SN Warehouse Corporation that the goods belonged to him and were
taken by Jojo without his consent. Melchor wants to get the goods, but EJ also wants to withdraw the same.

a) Who has a better right to the goods? Why?

b) If SN Warehouse Corporation is uncertain as to who is entitled to the property, what is the proper recourse of the
corporation? Explain. (5%)

- VII -

(1.) Briefly discuss the doctrine of corporate opportunity. (2%)

(2.) Malyn, Schiera and Jaz are the directors of Patio Investments, a close corporation formed to run the Patio Café, an al
fresco coffee shop in Makati City. In 2000, Patio Café began experiencing financial reverses, consequently, some of the
checks it issued to its beverage distributors and employees bounced. In October 2003, Schiera informed Malyn that she
found a location for a second café in Taguig City. Malyn objected because of the dire financial condition of the
corporation. Sometime in April 2004, Malyn learned about Fort Patio Café located in Taguig City and that its
development was undertaken by a new corporation known as Fort Patio, Inc., where both Schiera and Jaz are directors.
Malyn also found that Schiera and Jaz, on behalf of Patio Investments, had obtained a loan of P500,000.00, from PBCom
Bank, for the purpose of opening Fort Patio Café. This loan was secured by the assets of Patio Investments and
personally guaranteed by Schiera and Jaz. Malyn then filed a corporate derivative action before the Regional Trial Court
of Makati City against Schiera and Jaz, alleging that the two directors had breached their fiduciary duties by
misappropriating money and assets of Patio Investments in the operation of Fort Patio Café.

a) Did Schiera and Jaz violate the principle of corporate opportunity? Explain.

b) Was it proper for Malyn to file a derivative suit with a prayer for injunctive relief? Explain.

c) Assuming that a derivative suit is proper, may the action continue if the corporation is dissolved during the pendency
of the suit? Explain. (5%)

- VIII -

Aaron, a well-known architect, is suffering from financial reverses. He has four creditors with a total claim of P26 Million.
Despite his intention to pay these obligations, his current assets are insufficient to cover all of them. His creditors are
about to sue him. Consequently, he was constrained to file a petition for insolvency.
a) Since Aaron was merely forced by circumstances to petition the court to declare him insolvent, can the judge properly
treat the petition as one for involuntary insolvency? Explain.

b) If Aaron is declared an insolvent by the court, what would be the effect, if any, of such declaration on his creditors?
Explain.

c) Assuming that Aaron has guarantors for his debts, are the guarantors released from their obligations once Aaron is
discharged from his debts? Explain.

d) What remedies are available to the guarantors in case they are made to pay the creditors? Explain. (5%)

- IX -

(1.) What are the effects of an irrevocable designation of a beneficiary under the Insurance Code? Explain. (2%)

(2.) Jacob obtained a life insurance policy for P1 Million designating irrevocably Diwata, a friend, as his beneficiary.
Jacob, however, changed his mind and wants Yob and Jojo, his other friends, to be included as beneficiaries considering
that the proceeds of the policy are sufficient for the three friends.

Can Jacob still add Yob and Jojo as his beneficiaries? Explain. (2%)

-X-

(1.) M/V Pearly Shells, a passenger and cargo vessel, was insured for P40,000,000.00 against “constructive total loss.”
Due to a typhoon, it sank near Palawan. Luckily, there were no casualties, only injured passengers. The shipowner sent a
notice of abandonment of his interest over the vessel to the insurance company which then hired professionals to afloat
the vessel for P900,000.00. When re-floated, the vessel needed repairs estimated at P2,000,000.00. The insurance
company refused to pay the claim of the shipowner, stating that there was “no constructive total loss.”

a) Was there “constructive total loss” to entitle the shipowner to recover from the insurance company? Explain.

b) Was it proper for the shipowner to send a notice of abandonment to the insurance company? Explain. (5%)

(2.) a) When does double insurance exist? (2%)

b) What is the nature of the liability of the several insurers in double insurance? Explain. (2%)

- XI -

Ricardo mortgaged his fishpond to AC Bank to secure a P1 Million loan. In a separate transaction, he opened a letter of
credit with the same bank for $500,000.00 in favor of HS Bank, a foreign bank, to purchase outboard motors. Likewise,
Ricardo executed a Surety Agreement in favor of AC Bank. The outboard motors arrived and were delivered to Ricardo,
but he was not able to pay the purchase price thereof.

a) Can AC Bank take possession of the outboard motors? Why?

b) Can AC Bank also foreclose the mortgage over the fishpond? Explain. (5%)

- XII -

Hi Yielding Corporation filed a complaint against five of its officers for violation of Section 31 of the Corporation Code.
The corporation claimed that the said officers were guilty of advancing their personal interests to the prejudice of the
corporation, and that they were grossly negligent in handling its affairs. Aside from documents and contracts, the
corporation also submitted in evidence records of the officers’ U.S. Dollar deposits in several banks overseas – Boston
Bank, Bank of Switzerland, and Bank of New York. For their part, the officers filed a criminal complaint against the
directors of Hi Yielding Corporation for violation of Republic Act No. 6426, otherwise known as the Foreign Currency
Deposit Act of the Philippines. The officers alleged that their bank deposits were illegally disclosed for want of a court
order, and that such deposits were not even the subject of the case against them.

a) Will the complaint filed against the directors of Hi Yielding Corporation prosper? Explain.

b) Was there a violation of the Secrecy of Bank Deposits Law (Republic Act No. 1405)? Explain. (5%)

- XIII -

(1.) Discuss the “kabit system” in land transportation and its legal consequences. (2%)

(2.) Procopio purchased an Isuzu passenger jeepney from Enteng, a holder of a certificate of public convenience for the
operation of public utility vehicle plying the Calamba-Los Baños route. While Procopio continued offering the jeepney for
public transport services, he did not have the registration of the vehicle transferred in his name. Neither did he secure
for himself a certificate of public convenience for its operation. Thus, per the records of the Land Transportation
Franchising and Regulatory Board, Enteng remained its registered owner and operator. One day, while the jeepney was
traveling southbound, it collided with a ten-wheeler truck owned by Emmanuel. The driver of the truck admitted
responsibility for the accident, explaining that the truck lost its brakes.

Procopio sued Emmanuel for damages, but the latter moved to dismiss the case on the ground that Procopio is not the
real party in interest since he is not the registered owner of the jeepney. Resolve the motion with reasons. (3%)

(3.) Baldo is a driver of Yellow Cab Company under the boundary system. While cruising along the South Expressway,
Baldo’s cab figured in a collision, killing his passenger, Pietro. The heirs of Pietro sued Yellow Cab Company for damages,
but the latter refused to pay the heirs, insisting that it is not liable because Baldo is not its employee.

Resolve with reasons. (2%)

- XIV -

(1.) On a clear weather, M/V Sundo, carrying insured cargo, left the port of Manila bound for Cebu. While at sea, the
vessel encountered a strong typhoon forcing the captain to steer the vessel to the nearest island where it stayed for
seven days. The vessel ran out of provisions for its passengers. Consequently, the vessel proceeded to Leyte to replenish
its supplies.

a) Assuming that the cargo was damaged because of such deviation, who between the insurance company and the
owner of the cargo bears the loss? Explain.

b) Under what circumstances can a vessel properly proceed to a port other than its port of destination? Explain. (4%)

(2.) Star Shipping Lines accepted 100 cartons of sardines from Master to be delivered to 555 Company in Manila. Only 88
cartons were delivered, however, these were in bad condition. 555 Company claimed from Star Shipping Lines the value
of the missing goods, as well as the damaged goods. Star Shipping Lines refused because the former failed to present a
bill of lading.

Resolve with reasons the claim of 555 Company. (4%)

- XV -
(1.) S Development Corporation sued Shangrila Corporation for using the “S” logo and the tradename “Shangrila”. The
former claims that it was the first to register the logo and the tradename in the Philippines and that it had been using
the same in its restaurant business. Shangrila Corporation counters that it is an affiliate of an international organization
which has been using such logo and tradename “Shangrila” for over 20 years. However, Shangrila Corporation registered
the tradename and logo in the Philippines only after the suit was filed.

a) Which of the two corporations has a better right to use the logo and the tradename? Explain.

b) How does the international affiliation of Shangrila Corporation affect the outcome of the dispute? Explain. (5%)

(2.) Cezar works in a car manufacturing company owned by Joab. Cezar is quite innovative and loves to tinker with
things. With the materials and parts of the car, he was able to invent a gas-saving device that will enable cars to
consume less gas. Francis, a co-worker, saw how Cezar created the device and likewise, came up with a similar gadget,
also using scrap materials and spare parts of the company. Thereafter, Francis filed an application for registration of his
device with the Bureau of Patents. Eighteen months later, Cezar filed his application for the registration of his device
with the Bureau of Patents.

a) Is the gas-saving device patentable? Explain. b) Assuming that it is patentable, who is entitled to the patent?

What, if any, is the remedy of the losing party?

c) Supposing Joab got wind of the inventions of his employees and also laid claim to the patents, asserting that Cezar
and Francis were using his materials and company time in making the devices, will his claim prevail over those of his
employees? Explain. (5%)