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A check, drawn against Pigue and payable to the order of Yang and Chow was
deposited to Porki Bank (collecting bank) with the lone indorsement of Yang. Yang was
able to get the proceeds of the check after it was cleared by Pigue Bank. Was the check
properly endorsed?

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Answer: No. Where an instrument is payable to the order of two or more payees or
indorsees who are not partners, all must indorse unless the one indorsing has authority to
indorse for the others.

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The payment of an instrument over a missing indorsement is the equivalent of payment on

a forged indorsement or an unauthorized indorsement in itself in the case of joint payees.

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A collecting bank, where a check is deposited and which indorses the check upon
presentment with the drawee bank, is an indorser. This is because in indorsing a check to
the drawee bank, a collecting bank stamps the back of the check with the phrase "all prior
endorsements and/or lack of endorsement guaranteed" and, for all intents and purposes,
treats the check as a negotiable instrument, hence, assumes the warranty of an indorser.
Without the collecting banks warranty, the drawee bank would not have paid the value of
the subject check.

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The collecting bank or last indorser, generally suffers the loss because it has the duty to
ascertain the genuineness of all prior indorsements considering that the act of presenting
the check for payment to the drawee is an assertion that the party making the presentment
has done its duty to ascertain the genuineness of prior indorsements. (METROBANK vs. BA
FINANCE CORPORATION, G.R. No. 179952, 4 December 2009)

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II

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Congee, entrustee under a trust receipt, returned the goods to the entruster as she was
not able to sell the goods. Congee now claims that her obligation to the entrusted has
been extinguished. Is this correct

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Answer: NO. A trust receipt is a security agreement, pursuant to which a bank acquires a
security interest in the goods. xxx The initial repossession by the bank of the goods
subject of the trust receipt did not result in the full satisfaction of the loan obligation. A
claim for deficiency would thus be in order. (LANDL & COMPANY INC. , VS. METROPOLITAN
BANK & TRUST COMPANY G.R. No. 159622, 30 July 2004)

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III

Wasabi was issued a policy which reads: The insurance of any eligible Lot Purchaser
shall be effective on the date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the Company. It would
appear that at the time of loss, a loan has been contracted by Wasabi with the Assured
but it is not clear whether the Insurer has approved the insurance application.
Determine if the policy is already effective.

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Answer: While one provision appears to state that the insurance coverage of the clients of
Assured already became effective upon contracting a loan with the Assured, another
appears to require the Insurer to approve the insurance contract before the same can
become effective.

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It must be remembered that an insurance contract is a contract of adhesion which must be

construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latters interest. Thus, the vague contractual provision must be construed in
favor of the insured and in favor of the effectivity of the insurance contract.

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The seemingly conflicting provisions must be harmonized to mean that upon a partys
purchase of a memorial lot on installment from the Assured, an insurance contract covering
the lot purchaser is created and the same is effective, valid, and binding until terminated by
the Insurer by disapproving the insurance application. The second sentence is in the nature
of a resolutory condition which would lead to the cessation of the insurance contract.
Moreover, the mere inaction of the insurer on the insurance application must not work to
prejudice the insured; it cannot be interpreted as a termination of the insurance contract.
The termination of the insurance contract by the insurer must be explicit and
unambiguous. (ETERNAL GARDENS MEMORIAL PARK vs. PHILAMLIFE, G.R. No. 166245, 09
April 2008)

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IV

Kingdao operates a taxicab unit under boundary system. For the use of the taxicab,
Kingdao would regular pay a certain amount to the franchise holder. Kingdao
eventually encountered an accident wherein he was being charged as common carrier.
Kingdao denies being a common carrier and insists that he is merely leasing the
taxicab. Is the charge against Kingdao correct? Why?

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Answer: YES. Indeed, to exempt from liability the owner of a public vehicle who operates it
under the boundary system on the ground that he is a mere lessor would be not only to
abet flagrant violations of the Public Service Law, but also to place the riding public at the
mercy of reckless and irresponsible drivers reckless because the measure of their
earnings depends largely upon the number of trips they make and, hence, the speed at
which they drive; and irresponsible because most if not all of them are in no position to pay
the damages they might cause. (SPOUSES HERNANDEZ et al. vs. SPOUSES DOLOR et al, G.R.
No. 160286; 30 July 2004)

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What are the requisites for filing a derivative suit?

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Answer: The requisites for filing a derivative suit are as follows:

a) The party bringing suit should be a shareholder as of the time of the act or
transaction complained of, the number of his shares not being material;

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b) The party has tried to exhaust intra-corporate remedies, i.e. , he has made a
demand on the board of directors for the appropriate relief but the latter has failed
or refused to heed his plea;

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c) The cause of action actually devolves on the corporation, the wrongdoing or

harm having been, or being caused to the corporation and not to the particular
stockholder bringing the suit. (FILIPINAS PORT SERVICES, INC. , et al. vs. Go, et al. ,
G.R. No. 161886, March 16, 2007);

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d) No appraisal rights are available for the act/s complained of; and

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e) The suit is not a nuisance or harassment suit (Sec.1, Rule 8, Interim Rules of
Procedure for Intra-Corporate Controversies)

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VI

Yaki is engaged in the importation and exportation of lace products. On several

occasions, Soba purchased lace products from Yaki with the instruction to deliver the
purchased goods to a Hong Kong based company. Upon receipt of the goods in Hong
Kong, the products were considered sold. The Hong Kong based company, in turn, had
the obligation to deliver the lace products to the Philippines. Determine whether Yaki
is doing business in the Philippines.

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Answer: It is not doing business in the Philippines. To be doing or transacting business in

the Philippines, the foreign corporation must actually transact business in the Philippines,
that is, perform specific business transactions within the Philippine territory on a
continuing basis in its own name and for its own account. Actual transaction of business
within the Philippine territory is an essential requisite for the Philippines to acquire
jurisdiction over a foreign corporation and thus require the foreign corporation to secure a
Philippine business license. If a foreign corporation does not transact such kind of business
in the Philippines, even if it exports its products to the Philippines, the Philippines has no
jurisdiction to require such foreign corporation to secure a Philippine business license. (B.
VAN ZUIDEN BROS. LTD. vs. GTVL MANUFACTURING INDUSTRIES, INC. , G.R. No. 147905, May
28, 2007)

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VII

Under what conditions may the SEC issue a cease and desist order?

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Answer: There are two essential requirements that must be complied with by the SEC
before it may issue a cease and desist order: First, it must conduct proper investigation or
verification; and Second, there must be a finding that the act or practice, unless restrained,
will operate as a fraud on investors or is otherwise likely to cause grave or irreparable
injury or prejudice to the investing public. (SECURITIES AND EXCHANGE COMMISSION vs.
PERFORMANCE FOREIGN EXCHANGE CORP. G.R. 154131, 20 July 2006)

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VIII

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Are trust accounts also protected under RA 1405 (Bank Secrecy Law)? May trust
accounts be examined in connection with a plunder case without violating the law?

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Answer: RA 1405 is broad enough to cover trust accounts because the term deposit as
used in RA 1405 is to be understood broadly and not limited only to accounts which give
rise to a creditor-debtor relationship between the depositor and the bank. If the money
deposited under an account may be used by banks for authorized loans to third persons,
then such account, regardless of whether it creates a creditor-debtor relationship between
the depositor and the bank, falls under the category of accounts which the law precisely
seeks to protect for the purpose of boosting the economic development of the country.
(EJERCITO vs. SANDIGANBAYAN AND PEOPLE OF THE PHILIPPINES, G.R. No. 157294-95,
30 November 2006)

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IX

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Machang Realty was incorporated to hold and purchase real properties in trust for
Pigue Bank. This was conceived by Pigue Bank in view of the limit on a banks
allowable investments in real estate to 50% of its capital assets. In the implementation
of the trust agreement, Pigue Bank sold to Machang Realty some of its real properties
while the latter simultaneously leased to the former the properties for 20 years.
Eventually, Machang repudiated the trust, claimed the titles for itself and demanded
payment of rentals, deposits and goodwill, with a threat to eject Pigue Bank. Pigue
Bank filed a complaint for reconveyance of the properties against Machang Realty. Will
the case prosper?

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Answer: The agreement between the parties adverted to as an implied trust is contrary to
law. Thus, while the sale and lease of the subject property is genuine and binding upon the
parties, the implied trust cannot be enforced even assuming the parties intended to create
it. xxx "the courts will not assist the payor in achieving his improper purpose by enforcing a
resultant trust for him in accordance with the clean hands doctrine. " Pigue Bank cannot
thus demand reconveyance of the property based on its alleged implied trust relationship
with Machang Realty.

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The parties being in pari delicto, thus, no affirmative relief should be given to one against
the other. Pigue Bank should not be allowed to dispute the sale of its lands to Machang
Realty nor should Machang Realty be allowed to further collect rent from Pigue Bank. The
clean hands doctrine will not allow the creation nor the use of a juridical relation such as a
trust to subvert, directly or indirectly, the law. Neither party came to court with clean
hands; neither will obtain relief from the court as the one who seeks equity and justice
must come to court with clean hands. (TALA REALTY, et al. vs. COURT OF APPEALS, 7 April
2009)

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Sometime in 1986 or 1987, Bento Co. , a foreign company and Yaki, Inc. , a local
company, orally entered into a dealership agreement whereby Bento granted Yaki
the right to market, sell, distribute, install, and service its products to end-user
customers within the Philippines. Under what condition/s may Bento Co. be
considered doing business in the Philippines?

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Answer: Following the Foreign Investment Act (FIA) and its IRR, the appointment of a
distributor in the Philippines is not sufficient to constitute "doing business" unless it is
under the full control of the foreign corporation. On the other hand, if the distributor is an
independent entity which buys and distributes products, other than those of the foreign
corporation, for its own name and its own account, the latter cannot be considered to be
doing business in the Philippines. It should be kept in mind that the determination of
whether a foreign corporation is doing business in the Philippines must be judged in light
of the attendant circumstances. (Steelcase, Inc. v. Design International Selections, Inc. ,
G.R. No. 171995, April 18, 2012)

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In what cases is the buyer of the assets liable for the debts of the seller?

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As a rule, a corporation that purchases the assets of another will not be liable for the debts
of the selling corporation, provided the former acted in good faith and paid adequate
consideration for such assets, except when any of the following circumstances is present:
(1) where the purchaser expressly or impliedly agrees to assume the debts; (2) where the
transaction amounts to a consolidation or merger of the corporations; (3) where the
purchasing corporation is merely a continuation of the selling corporation; and (4) where
the selling corporation fraudulently enters into the transaction to escape liability for those
debts. (Ma. Corina C. Jiao, et. al. v. National Labor Relations Commission, Global
Business Bank, Inc. , et. al. , G.R. No. 182331, April 18, 2012)

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XII

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The spouses Yang and Chow secured a managers check from Porki Bank to satisfy
their obligation to Ebi Company. However, the check remained in the possession of
the spouses but Ebi Company was advised that is it available for withdrawal. Since
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more than 10 years passed without the amount of the check being withdrawn, Porki
Bank reported it to the Bureau of Treasury as among its unclaimed balances.
Should the amount corresponding to the check be considered part of the Porki
Banks unclaimed balances and therefore, could be the subject of an escheat
proceedings?

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Answer: The mere issuance of a managers check does not ipso facto work as an automatic
transfer of funds to the account of the payee. In case the procurer of the managers or
cashiers check retains custody of the instrument, does not tender it to the intended payee,
or fails to make an effective delivery, it cannot be said that delivery of the check has taken
place.

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Since there was no delivery, presentment of the check to the bank for payment did not
occur. An order to debit the account of the spouses was never made. As a result, the
assigned fund is deemed to remain part of the account of the spouses who procured the
Managers Check. The doctrine that the deposit represented by a managers check
automatically passes to the payee is inapplicable, because the instrument- although
accepted in advance- remained undelivered. The spouses should have been informed that
the deposit had been left inactive for more than 10 years, and that it may be subjected to
escheat proceedings if left unclaimed. (Rizal Commercial Banking Corporation v. Hi-Tri
Development Corporation, G.R. No. 192413, June 13, 2012)

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Nowan, then suffering from diabetes, secured a pension plan from Chow Pension
Plans. On October 30, 1997, the plan was issued. Eleven months later or on
September 15, 1998, Nowan died before his pension plan matured. The beneficiaries
of Nowan are now demanding from Chow but the latter declined the claim on the
ground that Nowan was on maintenance medicine at the time he signed the plan. The
pension plan states that After this Agreement has remained in force for one (1) year,
we can no longer contest for health reasons any claim for insurance under this
Agreement, except for the reason that installment has not been paid (lapsed), or that
you are not insurable at the time you bought this pension program by reason of age. If
this Agreement lapses but is reinstated afterwards, the one (1) year contestability
period shall start again on the date of approval of your request for reinstatement.
Decide whether the claim of the heirs of Nowan is in order.

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Answer: The incontestability clause above-cited precludes the insurer from disowning
liability under the policy it issued on the ground of concealment or misrepresentation
regarding the health of the insured after a year of its issuance. Since Nowan died on the
eleventh month following the issuance of his plan, the one year incontestability period has
not yet set in. Consequently, Chow was not barred from questioning Lourdes entitlement
to the benefits of her husbands pension plan. (Florendo v. Philam Plans, G.R. No. 186983,
February 22, 2012)

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XIV

The Chois are engaged in the business of transporting students from their respective
residences in Paranaque City to Porke Technical Institute in Makati City. The Chows
contracted the Chois to transport their child, Chili, to and from Porke. Are the Chois
engaged in common carrier business?

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Answer: Despite catering to a limited clientele, the Chois operated as common carrier
because they held themselves out as a ready transportation indiscriminately to the
students of a particular school living within or near where they operated the service and
for a fee. (Spouses Teodoro and Nanette Perena v. Spouses Nicolas and Teresita L.
Zarate, G.R. No. 157917, August 29, 2012)

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XV

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What are the two types of confusion arising from the use of similar or colorable
imitation marks?

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Answer: Section 22, IPC covers two types of confusion: a) confusion of goods (product
confusion), in which event the ordinarily prudent purchaser would be induced to purchase
one product in the belief that he was purchasing the other and b) confusion of business
(source or origin confusion), though the goods of the parties are different, the defendants
product is such as might reasonably be assumed to originate with the plaintiff, and the
public would then be deceived either into that belief or into the belief that there is some
connection between the plaintiff and defendant, which, in fact, does not exist.
(MCDONALDS CORPORATION, et al. vs. L.C. BIG MAK BURGER, INC. , et al. ,G.R. No. 143993,
August 18, 2004)

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XVI

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Explain the Doctrine of Equivalents.

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Answer: The doctrine of equivalents provides that an infringement also takes place when a
device appropriates a prior invention by incorporating its innovative concept and, although
with some modification and change, performs substantially the same function in
substantially the same way to achieve substantially the same result. (SMITH KLINE
BECKMAN CORPORATION vs. CA, et al. , G.R. No. 126627, 14 August 2003)

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XVII

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When a co-depositor inquires into the deposit, does he need the written consent of the other
depositor?
Answer: A co-payee in a check deposited in a bank is likewise a co-depositor. No written
consent therefore of the other co-payee is needed in an inquiry of the deposits by the said

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co-depositor. (CHINA BANKING CORPORATION vs. COURT OF APPEALS, G.R. No. 140687, 18
December 2006)

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XVIII

Soba issued a note in this wise: I promise to pay the sum of ten thousand
(P200,000.00) pesos to Bento on or before December 23, 2013. I will not sell the
compressor which stands as security for this note until I shall have paid it in full. (Sgd)
Soba Bento then indorsed the note to Ramen. Answer the following questions: (a) Is
the instrument negotiable? (b) Did Ramen acquire title to the credit of Bento?

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Answer:

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(a) The instrument is not negotiable as it is not payable to order or bearer.

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(b) Ramen acquired title to the instrument not through negotiation but by assignment.
Hence, his claim is subject to defenses available to the obligor as well as infirmities in the
instrument.

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XIX

Explain the Rule of Strict Compliance.

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Answer: In commercial transactions involving letters of credit, documents tendered by the

seller/ beneficiary must strictly conform to the terms of the Letter of Credit, i.e. they must
include all the documents required by the Letter of Credit (Feati Bank vs. CA, 196 SCRA 576).
Thus, a correspondent bank which departs from what has been stipulated under the letter
of credit, as when it accepts a faulty tender, acts on its own risks and may not thereafter be
able to recover from the buyer or the issuing bank the money thus paid to the beneficiary.
Hence, the rule of strict compliance.

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XX

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Explain the Fraud Exception Principle.

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Answer: Fraud or the fraud exception rule is the exception to the independence principle.
As held in Transfield, the untruthfulness of a certificate accompanying a demand for
payment under a standby credit may qualify as fraud sufficient to support an injunction
against payment. The remedy for fraudulent abuse is an injunction. However, injunction
should not be granted unless: (a) there is clear proof of fraud; (b) the fraud constitutes
fraudulent abuse of the independent purpose of the letter of credit and not only fraud
under the main agreement; and (c) irreparable injury might follow if injunction is not
granted or the recovery of damages would be seriously damaged.

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