2017 Suggested Answers for Mercantile Law Mock Bar Examination

JURISTS BAR REVIEW CENTER

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SUGGESTED ANSWERS TO 2017 MERCANTILE LAW MOCK BAR EXAMINATION

I

As the lawyer of the AMLAC, I would make the following arguments arguments to counter the grounds raised by ML Bank. (a) The ground that there is no pending case against Tulak is without merit. Under the Anti-Money Laundering Act (AMLA), there is no requirement that there be a pending case in order that a bank inquiry inquiry order can be issued. What the law requires merely is probable cause that a bank deposit is related to money laundering or an unlawful activity. Here there was probable cause that Tulak’s dollar deposit contains proceeds from his drug dealing, an unlawful activity.

Hence the ground that there was no pending case is without merit. (b) The ground that the AMLAC should have obtained a court order from the Court of Appeals Appeals authorizing authorizing it to make make the bank bank inquiry is without merit. merit. Under the AMLA, there is no requirement of a court order in cases involving drug trafficking. (c) The ground that being a dollar deposit, the bank account of Tulak may be inquired into only upon Tulak’s written permission is without merit. Under the AMLA, the power of the AMLAC to inquire into bank deposits applies notwithstanding the provisions of the Foreign Currency Deposit Act.

II (a) The court should overrule the objection that the deposit slip is confidential under the Bank Secrecy Law. The Supreme Court has held that the Bank Secrecy Law is a rule only of confidentiality and not privilege and thus evidence obtained in violation thereof may still be offered and admitted in evidence. (b) The exceptions to the secrecy of bank deposits under the bank secrecy law are the following: [KEYWORD: PICUN GUAPO TH] 1. Written permission permission of the depositor/investor. depositor/investor. 2. In cases of impeachment. Suggested Answers to Jurists Mock Bar Examinations Examinations in Mercantile Law. All rights reserved 2017 by Jurists Review Center Inc. Unauthorized reproduction, reproduction, use, or dissemination dissemination is strictly prohibited and shall be prosecuted prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 1 of 10

3. Upon order of a competent court in cases involving (a) bribery or dereliction of duty of public officials; and (b) where the money deposited or invested is the subject matter of the litigation. 4. Prosecution for unexplained wealth under the Anti-Graft and Corrupt Practices Act. 5. Power of the Ombudsman to examine and have access to bank accounts and records under Sec. 15(8) of RA 7680. 6. Authority of the Commissioner of Internal Revenue to inquire into the bank deposits of a decedent for estate tax purposes or in case of a tax compromise under Sec. 6(f) of the NIRC or upon request for tax information by a foreign tax authority under an international convention or agreement. (See RA 10021 [2009]). 7. Incidental disclosure in garnishment or execution of bank deposits. 8. Incidental disclosure under the Unclaimed Balances Law. 9. Authority of the AMLAC to inquire into any particular deposit or investment with any banking institution upon order of CA based on an ex parte application upon probable cause that such deposit/investment is related to an unlawful activity or to money laundering pursuant to Section 11 of the Anti-Money Laundering Act of 2001 (R.A. 9160, as amended by R.A. 9194 and R.A. 10167). a) Reporting of covered or suspicious transactions pursuant to S9(c) of the AMLA. b) The BSP may, in the course of a periodic or special examination, check the compliance of a covered institution with the requirements of the AMLA and its implementing rules and regulations. (S11 AMLA). 10. Authorization by the Court of Appeals to law enforcement officers to examine bank accounts of (a) a person charged or suspected of terrorism, (b) a terrorist organization, or (c) a member of a terrorist organization. (S27 of the Human Security Act). 11. Authority of AMLAC to inquire into bank deposits and investments under the Terrorism Financing Prevention and Suppression Act of 2012. 12. PDIC/BSP may inquire into bank deposits if there is a finding of unsound or unsafe banking practice. (Sec. 8[8], PDIC Charter).

III No, Atty. De Guia did not have the power to revoke the agreement. The Supreme Court has held that the powers of a conservator to revoke the previous actions of the management or board of a bank does not extend to perfected contracts, otherwise the obligation of contracts would be impaired. Here the bank had already entered into an agreement with ServiceSure Corporation and thus there was already a perfected contract. Hence the agreement cannot be revoked by the conservator. [Producers Bank v. NLRC, 16 Nov 1998]

IV Yes the defense of separate corporate personality is appropriate. The Supreme Court has held that the veil of separate corporate personality will not be pierced even if two corporations have the same set of officers if it is not shown that one corporation completely dominates the finances, policies, and business practices of the other. Here, there is no showing that Y Corporation completely dominates the finances, policies, and business practices of X Corporation.

Suggested Answers to Jurists Mock Bar Examinations in Mercantile Law. All rights reserved 2017 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 2 of 10

Hence the defense of separate corporate personality is appropriate.

V Based on the Corporation Code, the formula for determining the total number of shares required to vote for a desired number of directors is as follows: (Total outstanding shares) x (desired number of directors to be voted) (Total number of directors to be voted) + 1 Or

20,000 x 5 9+1

+1

+1

= 10,001

Hence Xerxes needs to control 10,001 shares in order to elect five directors.

VI Yes, the complaining stockholders may compel Petronius Inc. to declare dividends. Under the Corporation Code, stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital and may be compelled to declare such excess profits as dividends. Here the surplus profits of Petronius Inc, which are P900 million are clearly in excess of 100% of its paid-in capital of P100 million. Hence the corporation may be compelled to declare dividends.

VII (a) No, there was no crime committed by Mr. Dineros. In order to be liable for insider trading, the insider must trade securities while in possession of material non-public information regarding the securities or the issuer. Here there is no showing that Mr. Dineros was in possession of material non-public information regarding the issuer Philex Mining or its securities or shares. Hence Mr. Dineros is not liable for insider trading. (b) Yes, Philex Mining Corporation may recover the P10 million profit from Mr. Dineros. Under the Securities Regulation Code, any profit obtained by a director from selling a security within a 6-month period from the purchase of the security of a corporation of which he is a director shall be recoverable by the issuer. Such a profit is called a short-swing profit. Suggested Answers to Jurists Mock Bar Examinations in Mercantile Law. All rights reserved 2017 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 3 of 10

Here Mr. Dineros, a director of the issuer Philex Mining Corporation sold the Philex Mining shares within a period of 6 months from his purchase thereof and obtained a P10 million profit. Hence Mr. Dineros obtained a short-swing profit and thus Philex Mining may recover the same.

VIII My opinion would be that AppsLex Inc. should register the promissory notes before issuing them. Under the Securities Regulation Code, securities shall not be issued or sold without registering them first with the SEC. Here the promissory notes issued by AppsLex Inc are considered as securities and the transaction is not exempt as it was issued to more than 19 persons. Hence AppsLex Inc. should register the promissory notes with the SEC before issuing or selling them.

IX Yes, Atty. James Hurt is liable for infringement of copyright and for damages. Under the Intellectual Property Code, a person who publishes the work of an author without his consent is liable for infringement and for damages. Here Atty. Hurt published the work of Prof. Queensfield without his consent by uploading it to a website where it became freely available to the public. Registration and deposit of the work with the National Library is no longer required for the author to sue for infringement and for damages. Hence Atty. James Hurt is liable for copyright infringement and for damages.

X No, the denial of the trademark application on the ground that “Jurists” is a generic or descriptive term was not proper.

The Supreme Court has held that a generic term is one which tells the buyer what the product or service is and that a descriptive term is one which is used to describe the product or service adequately. Suggestive terms, which only give a hint as to the nature of the product or service, are registrable. Here the word “Jurists” is not generic since it does not tell the buyer what Jurists’ product or service is nor is it descriptive of bar review services. At the most it only suggests or gives a hint as to what Jurists offers.


Hence it is registrable and thus the denial of the trademark application was not proper.

XI (a) Yes, the gas-saving device is patentable. Under the Law on Patents, a patentable invention refers to any technical solution of a problem in any field of human activity which is new, involves an inventive step, and is industrially applicable. Here the gas-saving device is new, involves an inventive step, and is industrially applicable. Hence it is patentable. (b) Assuming that it is patentable, it is Cezar who is entitled to the patent. Under the Intellectual Property Code, it is the inventor who is entitled to the patent. Here it is Cezar who invented the gas-saving device, not Francis who cannot claim that his work was new or novel. Hence it is Cezar who is entitled to the patent. Nevertheless under the “first to file rule” Francis’ application would have to be given priority. Under the Intellectual Property Code, the remedy of the Cezar would be to cancel the registration of Francis within 3 months from the decision or to file an action to prove his priority to the invention within one year from the publication.

(c) No, Joab’s claim will not prevail over those of his employees.

Under the Intellectual Property Code, an invention belongs to the employee if the invention is not part of his regular duties. Here the making of the inventions is not part of Cezar’s and Francis’ regular duties as an employee. Hence Joab’s claim will not prevail.

XII (a) The conditions under which a holder must have taken a negotiable instrument in order to be considered a holder in due course are the following: [CROGVID]


1. That it is complete and regular upon its face. 2. That he became the holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact. 3. That he took it in good faith and for value. 4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

(b) Yes, Charles can enforce the note against Mario. Under the Negotiable Instruments Law, a holder who derives his title from a holder in due course acquires the rights of such holder, including the right to enforce the instrument free from personal defenses. [Sec. 58 NIL] Here although Charles was a holder not in due course since he took the instrument when it was overdue, he nonetheless derived his title to the note from Bart, a holder in due course. Hence Charles acquired the rights of a holder in due course and can enforce the note against Mario free from the personal defense of simple fraud.

(c) Yes, Charles can enforce the note against Bart. Under the Negotiable Instruments Law, an indorser is secondarily liable to the holder in case the instrument is not paid upon due presentment and notice of dishonor. Here the holder Charles gave notice of dishonor to the indorser Bart and there was due presentment even if made after the maturity date because Bart indorsed the note when it was overdue and thus as to him the note is considered as a demand instrument. [§7 NIL] Hence, Charles can enforce the note against Bart.

XIII (a) Yes, Bethany may enforce the note against Mickey for P200,000. Under the Negotiable Instruments Law, where an incomplete and delivered instrument had been filled up by the holder and later negotiated to a holder in due course, the latter may enforce it as if it had been filled up in accordance with the authority given. Here the note was incomplete when it was delivered to the then holder Pilita who filled it up for P200,000 and it was indorsed or negotiated to Bethany, who is presumed to be a holder in due course pursuant to the Negotiable Instruments Law.


Hence the note is deemed to have been filled up in accordance with the authority given and thus Bethany may enforce the note for P200,000.

(b) No, Cathy may not enforce the note against Mickey. Under the Negotiable Instruments Law, a holder not in due course may not enforce an incomplete and delivered instrument if it had not been filled up strictly in accordance with the authority given. Here the note, which is an incomplete and delivered instrument, was not filled up in accordance with the authority given by Mickey since it was filled up for P200,000 not P100,000. Cathy is a holder not in due course since she knows of the infirmity in the instrument, that is, the breach of trust committed by Pilita. Hence Cathy may not enforce the note against Mickey. Note: Cathy cannot avail of §58 since no showing that Bethany was a holder in due course. Due-course holding presumption in §59 will not apply to Bethany since she is no longer a holder. (Fossum v. Fernandez, 44 Phil. 713).

XIV (a) Yes, Cindy may enforce payment of the check as against Nilda. Under the Negotiable Instruments Law, a holder in due course may enforce the instrument free from personal defenses. Here, Cindy is a holder, as she is in possession of a bearer instrument payable to “Cash,” and she is presumed to be a holder in due course. Thus she may enforce the check free from the defense of theft, which is a personal defense. (b) No, my answer would not be the same if the check was delivered by Beth to Cindy on 2 August 2008. Under the Negotiable Instruments Law, where an instrument payable on demand is negotiated an unreasonable length of time after its issue, the holder is a holder not in due course. [Sec. 53, NIL] Here the instrument was negotiated to Cindy on 2 August 2008 which is more than 6 months or an unreasonable length of time after its issue on 2 January 2008. Hence the holder Cindy is a holder not in due course and thus the personal defense of theft may be raised against her.


XV Yes, Robin Sun may hold Andy Lim liable on the note. Under the Negotiable Instruments Law, a holder in due course may enforce the note free from personal defenses. Here, Robin Sun is deemed to be a holder in due course under the Negotiable Instruments Law and the lack of delivery of the note is merely a personal defense. Hence Robin Sun may enforce the note and hold Andy liable thereon. Andy Lim cannot raise the defense of forgery. Under the Negotiable Instruments Law, the rule is that once a bearer instrument always a bearer instrument. Here the note is a bearer instrument since it is payable to a specified person or bearer. Hence the forgery is not necessary for Robin Sun’s title since the note is a bearer instrument which is negotiable by mere delivery.

XVI No, the insurer may not be made to answer for the damage caused to the cargo and the ship. Under the Law on Insurance, perils of the ship is not considered as perils of the sea and thus not covered by marine insurance. Perils of the ship are losses arising from the ordinary wear and tear of the ship. Here the loss was due to oil leakage arising from the extensive mileage or from ordinary wear and tear of the ship and thus due to perils of the ship and not perils of the sea. Hence the loss was not covered by the marine insurance and thus the insurer may not be made to answer for the damage.

XVII (a) Yes, CIP is a common carrier. Under the Civil Code provisions on Common Carriers, a common carrier is one who is engaged in the business of transporting or carrying passengers or goods for compensation, offering their services to the public. Here CIP, as a freight forwarder, undertakes to transport the goods of Likha and others to various destinations for a compensation or fee. Hence CIP is a common carrier.


(b) Yes, the court may hold CIP liable for damages by way of lost profit for the nondelivery of the goods to the Hamburg Trade Fair. The Supreme Court has held that the mere proof of delivery of goods to the common carrier and their non-delivery would make out a prima facie case against the common carrier and that the burden of proof is on the common carrier to prove that it exercised extraordinary diligence. Here the goods were delivered to CIP but they did not reach Hamburg, their destination. Nor did CIP introduce any evidence that it exercised extraordinary diligence. Hence CIP may be held liable in damages.

XVIII No, AXLE Fabric’s contention that the correspondent should have checked whether the documents tally with the merchandise loaded is untenable.

The Supreme Court has held that under the independence principle in letters of credit, the bank deals only with the documents and not with the goods to which they relate and thus the bank has no duty to inspect the goods covered by the documents. Here, the issuing bank and the correspondent bank inspected the documents which they found genuine and authentic. They had no duty to inspect the goods and see to it that they tally with the documents. Hence, AXLE Fabric’s contention is untenable.

XIX Yes, the insurer’s refusal to pay the proceeds of the policy is justified.

The ground that Sisa committed suicide is not justified. Under the Insurance Code, the life insurer shall be liable in case of suicide which was committed after the policy has been in force for 2 years. [§183, IC] Here when Sisa committed suicide on 10 May 2005, the policy had been in force for more than two years from its issue in 3 May 2003. Hence the insurer’s refusal to pay the proceeds on the ground t hat Sisa committed suicide is not justified. However, the insurer’s refusal to pay the proceeds on the ground that Sisa never underwent a medical check-up is justified.

Under the Insurance Code, the breach of a material warranty entitles the insurer to rescind the policy and to refuse to pay the proceeds thereon. [§74, IC]. Here Sisa breached her warranty that she would undergo a quarterly medical checkup. The warranty is material as it would affect Peninsular’s assessment of the risk and the Suggested Answers to Jurists Mock Bar Examinations in Mercantile Law. All rights reserved 2017 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 9 of 10

premium payable. The incontestability clause is inapplicable since it bars only the defenses of fraudulent concealment or misrepresentation and not the defense of breach of warranty . Hence there was a breach of material warranty by Sisa and thus the insurer’s r efusal to pay the proceeds of the policy is justified.

XX (a) Yes, Bansa can claim from the insurer. Under the Law on Marine Insurance, a concealment by the insured with respect to the liability of the thing insured to capture and detention will not free the insurer from liability if there is no causal connection between the fact concealed and the cause of the loss. [§112(b) IC] Here the fact concealed by Bansa is the Iranian registry of the vessel insured, which makes it liable to capture and detention by U.S. naval forces. The cause of the loss however was a heavy storm which had no causal connection to the vessel’s Iranian registry. Hence Peninsular Insurance is not freed from liability and Bansa may claim from the insurer. (b) If there was a question in the application form on the nationality of the ship and Bansa answered in the negative, Bansa cannot claim from the insurer. Under the Law on Marine Insurance, the insurer may rescind the policy if the insured made an intentional misrepresentation regarding a material fact. [§113, IC]. Here the insured Bansa made an intentional misrepresentation that the vessel was of Nigerian registry. The vessel’s Iranian registry was material for it increased the risk since the vessel would be liable to capture and detention by U.S. naval forces. Hence Malayan Insurance may rescind the policy and thus Bansa cannot claim from the insurer. -oOo-


2017 Suggested Answers for Mercantile Law Mock Bar Examination

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