2018 MOCK BAR EXAMINATIONS

MERCANTILE LAW

October 14, 2018 8:00 A.M. - 10:30 A.M.

INSTRUCTIONS

1. This Questionnaire contains five (5) pages. Check and make sure
that your Questionnaire has the correct number of pages. You may
write on your Questionnaire as you answer the questions.

Read each question very carefully and write your answers in your Bar
Examination Notebook in the same order of the questions. Answer the
essay questions legibly, clearly, and concisely. Write your answers
only on the front of every page of your Notebook. If the front pages
are not sufficient, continue at the back of the first page and so on.
Start every number on a separate page, but an answer to a sub•
question under the same number may be written continuously on the
same page and on the immediately succeeding pages until the answer
is complete. Follow the numbering sequence of the Questionnaire in
your answers.

2. Your answers should demonstrate your ability to analyze the facts,

apply the pertinent laws and jurisprudence, and arrive at sound and
logical conclusions. Answers must fully explain even if the questions
do not expressly require explanations. A "Yes" or "No"
answer sans explanation or discussion will not be given full credit.

3. Marking of your Notebook with your name or other identifying signs

or symbols extraneous to the subject matter of the questlons may
be considered as cheating and may disqualify you.

Good luck!

YOU CAN BRING HOME THE QUESTIONNAIRE.

ACADEMICUS REVIEW CENTER

2018 Mock Bar Examinations
MERCANTILE LAW 2

I
.
Vitaliano filed, in his capacity as stockholder in behalf of FQB+7, Inc., a
complaint for intra-corporate dispute, injunction, inspection of
corporate books and records against respondent Bocobo, a member of
the board of FQB+7. Vitaliano learned of a General Information Sheet
indicating substantive changes with respect to the composition of directors
and subscribers of FQB+7, with Bocobo as the culprit.

During the trial, Bocobo informed the court that FQB+7's Certificate of
Registration was already revoked for its failure to comply with the SEC
reportorial requirements.

A
.
What are the elements of an intra-corporate controversy? {5%)

An intra-corporate controversy is one which arises between a stockholder and

the corporation. There is no distinction, qualification nor any exemption
whatsoever. The provision is broad and covers all kinds of controversies between
stockholders and corporations. (Tabang v. National Labor Relations
Commission, 334 Phil.424, 1997)
The following elements must concur: (a) the status or relationship of the
parties; and (b) the nature of the question that is subject of their
controversy (Renato Real vs. Sangu Philippines, Inc. and Kiichi Abe, G.R.
No. 168757, January 19, 2011)

B
.
What is the effect of the subsequent dissolution of a corporation on an
existing intra• corporate dispute, which does not constitute a continuation
of corporate business? (5%)

Pursuant to Section 145 of the Corporation Code, an existing intra-

corporate dispute, which does not constitute a continuation of corporate
business, is not affected by the subsequent dissolution of the corporation.
(Vitaliano N. Aguirre and Fidel N. Aguirre vs. FQB+7, Nathaniel
Bocobo, Priscila Bocobo and Antonio De Villa, G.R. No. 170770,
January 9, 2013)

None. The dissolution of the corporation simply prohibits it from continuing

its business. However, despite such dissolution, the parties involved in the
litigation are still corporate actors. The dissolution does not automatically
convert the parties into total stranger or change their intra corporate
relationships. Neither does it change or terminate existing causes of
action, which arose because of corporate ties between the parties
MERCANTILE LAW 3

II

Special Steel sold welding electrodes to Interco, In payment for the above
welding electrodes, Interco issued three checks payable to the order of
Special Steel. Each check was crossed with the notation "account payee
only" and was drawn against Equitable. Uy, an lnterco employee, in charge
of the purchasing department, and the son-in-law of its majority
stockholder, presented each crossed check to Equitable on the day of its
issuance and claimed that he had good title thereto. He demanded the
deposit of the checks in his personal accounts in Equitable. Thus, Equitable
accepted the checks for deposit in Uy's personal accounts and stamped "all
prior indorsement and/or lack of indorsement guaranteed" on their
dorsal portion. Uy promptly withdrew the proceeds of the checks. When
the scheming act was discovered, Special Steel sued Equitable.

What are the effects of crossing a check? (5°/o)

The effect of crossing a check relates to the mode of payment, meaning

that the drawer had intended the check for deposit only by the rightful
person, i.e., the payee named therein

What are the effects of crossing a check?

It means that it could only be deposited and could not be

converted into cash. Thus, the effect of crossing a check relates to the

mode of payment, meaning that the drawer had intended the check for

deposit only by the rightful person, i.e.,the payee named therein. (Bank of

America, NT & SA, vs. Associated Citizens Bank, G.R. No. 141001,

141018, May 21, 2009, [Carpio, J.])

In Bataan Cigar v. Court of Appeals, the Supreme Court

enumerated the effects of crossing a check as follows:

a.) The check may not be encashed but only deposited in the bank;

b.) The check may be negotiated only once—to one who has an account

with a bank; and

MERCANTILE LAW 4

c.) The act of crossing the check serves as a warning to the holder that

the check has been issued for a definite purpose so that he must inquire if

he has received the check pursuant to that purpose; otherwise, he is not a

holder in due course.

The effect therefore of crossing a check relates to the mode of its

presentment for payment. Under Section 72 of the Negotiable Instruments

Law, presentment for payment to be sufficient must be made (a) by the

holder, or by some person authorized to receive payment on his behalf…

As to who the holder or authorized person will depend on the instructions

stated on the face of the check. (State Investment House vs. Intermediate

Appellate Court, G.R. No. 72764, July 13, 1989, [Fernan, C.J:])

The act of crossing a check serves as a warning to the holder that the

check has been issued for a definite purpose so that the holder thereof

must inquire if he has received the check pursuant to that purpose;

otherwise, he is not a holder in due course. (Dino vs. Loot, G.R. No.

170912, April 19, 2010, [Carpio, J.])

Duty of the collecting bank when dealing with crossed checks

In Philippine Commercial International Bank vs. Court of Appeals

and Ford Phils., Inc.,[1] it was held that: “the crossing of the check with

the phrase “Payee’s Account Only,” is a warning that the checks should be

deposited only in the account of the CIR. Thus, it is the duty of the

collecting bank PCIBank to ascertain that the check be deposited in

payee’s account only. Therefore, it is the collecting bank (PCIBank) which

is bound to scrutinize the check and to know its depositors before it could
MERCANTILE LAW 5

make the clearing indorsement “all prior indorsements and/or lack of

indorsement guaranteed.

In Banco de Oro and Mortgage Bank vs. Equitable Banking

Corporation,[2] we ruled:

“Anent petitioner’s liability on said instruments, this court is in full accord

with the ruling of the PCHC’s Board of Directors that:

‘In presenting the checks for clearing and for payment, the defendant

made an express guarantee on the validity of “all prior endorsements.”

Thus, stamped at the back of the checks are the defendant’s clear

warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF

ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff

would not have paid on the checks.’

No amount of legal jargon can reverse the clear meaning of defendant’s

warranty. As the warranty has proven to be false and inaccurate, the

defendant is liable for any damage arising out of the falsity of its

representation.”[3]

What may be the ways of crossing a check?

The crossing may be “special” wherein between the two parallel

lines is written the name of a bank or business institution, in which case

the drawee should pay only with the intervention of that bank or company.

It may also be “general” wherein between two parallel diagonal lines

are written the words “and Co.” or none at all, in which case the drawee

should not encash the same but merely accept the same for deposit.

(Bank of America, NT & SA, vs. Associated Citizens Bank, G.R. No.
MERCANTILE LAW 6

141001, 141018, May 21, 2009, [Carpio, J.])

[1] G.R. Nos. 121413, 121479, 128604, January 29, 2011

[2] 157 SCRA 188 (1988)
[3] Id. at 194

B
Is the bank liable? (5°/o}

Yes. The checks that Interco issued in favour of Special Steel were all
crossed checks made payable to Special Steel’s order and contained the
notation “account payee only.” This creates a reasonable expectation that
the payee alone would receive the proceeds of the checks and that
diversion of the check would be averted. The nature of crossed checks
should place a bank on notice that it should exercise more caution to
ascertain whether the payee on the check has authorized the holder to
deposit the same in a different account since the banking business is
impressed with public interest. The highest degree of diligence is
expected of the bank.

III.

A Fuso truck an Isuzu truck sandwiched the car of the Mangalinaos. The
latter died, leaving their minor children who filed a suit against the
registered owners and drivers of the trucks. Based on the evidence, the
road was wet and slippery that night and the Fuso truck, which was
running fast, had lost control, skidded to the left and blocked the way of the
car. The Fuso truck rammed onto the car, pinning it to the Isuzu truck.
A.

Can the Fuso truck invoke the Emergency Rule? Why or why not?
(5%)

No. The Emergency Rule states – one who suddenly finds himself in
a place of danger and is required to act without time to consider the
best means that may be adopted to avoid the impending danger is
not guilty of negligence. If he fails to adopt what subsequently and
upon reflection may appear to have been a better method unless the
emergency in which he finds himself is brought about by his own
negligence. Here, the emergency was brought upon by the Fuso
truck’s negligence. Given the wet and slippery condition of the road
that night, the Fuso truck driver should have been prudent to reduce
his speed and increase his distance from the car.

B.
MERCANTILE LAW 7

The owner of the Fuso truck claimed that the truck was
already sold to a third person, albeit unregistered, hence he
should not be liable in the suit. Is he correct? (5%)

No. Regardless of whoever one claims to be the actual owner of the

Fuso by reason of a contract of sale. It is, nevertheless, primarily
liable for the damages or injury the truck registered under it have
caused pursuant to the Registered Owner Rule. A victim of
recklessness on the road is usually without means to identify the
person causing the injury or damage other than by a recourse to the
registration in the Motor Vehicle Office to determine who is the
owner. The protection that the law aims to extend to him would
become illusory by disproving his ownership. Besides, the registered
owners have to be indemnified by the real owner via filing a third
party complaint against the new owner.

IV.

Edna Diago Lhuillier, a Filipino, filed a complaint for

damages against British Airways before the RTC of Makati City
for the rude treatment she received from its stewardesses while
on board flight 548 from London, United Kingdom bound for
Rome, Italy. Lhuillier bought the ticket in Italy.

A motion to dismiss was filed on grounds of lack of jurisdiction

over the case and over the person of the respondent British
Airways, as only the courts of London, United Kingdom or Rome,
Italy has jurisdiction over the case.

A.

Following the Warsaw Convention in which the Philippines, United

Kingdom and Italy are all signatories, where can a plaintiff file an
action for damages? (5%)

Plaintiff may bring the action for damages before –

1. The court where the carrier is domiciled;

2. The court where the carrier has its principal place of business;
3. The court where the carrier has an establishment by which the
contract has been made; or,
4. The court of the place of destination

B.

If you were the judge, will you grant the motion to dismiss? (5%)

Yes. As the Philippine courts have no jurisdiction. British Airways is

domiciled in the United Kingdom. It is also where it has its principal
MERCANTILE LAW 8

place of business. The ticket was brought in Italy and the place of
destination is Italy. Just because the plaintiff is a Filipino does not
mean Philippine courts have jurisdiction.

V.

The employees of Mitsubishi Motors, Inc. has a Collecting

Bargaining Agreement with Mitsubishi Motors, Inc. granting
hospitalization insurance benefits for the covered dependents.
When a claim was filed by the union members,
Mitsubishi Motors paid only a portion of their hospitalization
insurance claims, not the full amount as the employees already
have a Medicard.

A.

What do you understand by "collateral source rule"? (5%)

“Collateral source rule” means the defendant is prevented from

benefitting from the plaintiff’s receipt of money from other sources. If
an injured person receives compensation for his injuries from a
source wholly independent of the tortfeasor, the payment should not
be deducted from the damages which he would otherwise collect
from the tortfeasor.

The collateral source rule, or collateral source doctrine,

is an American case law evidentiary rulethat prohibits the
admission of evidence that the plaintiff or victim has
received compensation from some source other than the
damages sought against the defendant.

B.

Assuming that the hospitalization insurance with Mitsubishi

Motors is a no-fault insurance, can Mitsubishi be compelled to
pay the full amount of the claim, following the collateral source
rule? (5°/o)

No. The “Collateral source rule” finds no application to cases

involving no-fault insurances under which the insured is indemnified
for losses by insurance companies, regardless of who was at fault
in the incident. Mitsubishi Motors Corporation is a no-fault insurer.
Hence, it cannot be obliged to pay the hospitalization expenses of
the dependents of its employees which had already been paid by
separate health insurance providers of said dependents.

VI.
MERCANTILE LAW 9

ASB Realty is the registered owner of a lot in Pasig City. It

commenced an action in MTC of Pasig City for unlawful detainer of
the subject premises against Umale. ASB Realty alleged that it
entered into a lease contract with Umale. Their agreement was
for Umale to conduct a pay-parking business on the property and
pay a monthly rent. But. upon the contract's expiration, Umale
continued occupying the premises and paying rentals albeit at an
increased monthly rent.

Umale c.hallenged ASB Realty's personality to recover the subject

premises considering that ASB Realty had been placed under
receivership by the SEC and a rehabilitation receiver had been duly
appointed, Since ASB Realty claims that it owns the subject
premises, it is its duly-appointed receiver that should sue to recover
possession of the same.

A.
What do you mean by debtor-in-possession or debtor-in-place in
corporate rehabilitation? (5%)
Debtor-in-possession or debtor-in-place in corporate
rehabilitation means that the debtor corporation (the corporation
undergoing rehabilitation), through its Board of Directors and
corporate officers remains in control of its business and properties,
subject only to the monitoring of the appointed rehabilitation
receiver.

B.

Is Umale correct? (5%)

No. The interim rehabilitation receiver of the debtor corporation

does not take over the control and management of the debtor
corporation. Likewise, the rehabilitation receiver that will replace the
interim receiver is tasked to monitor the successful implementation
of the rehabilitation plan. There is nothing in the concept of
corporate rehabilitation that would ipso facto deprive the Board of
Directors and the corporate officers of a debtor corporation, such as
ASB Realty’s control such that it can no longer enforce its right to
recover its property from an errant lessee.
VII.

Wincorp was selling to the public securities, i.e., shares in the Power
Merge credit in the form of investment contracts. Wincorp, the
investment house, would match investors with pre-screened
corporate borrowers in need of financial assistance. All the monies
infused by the investors are pooled in an account maintained by
Wincorp. The investors were promised that they would earn
substantial returns from their investments.
MERCANTILE LAW 1
0

A.

What do you mean by Howey test? (5%)

The Howey test named after the landmark case of Securities and
Exchange Commission vs. W.J. Howey Co., is used to determine
whether or not the security being offered takes the form of an
investment contract. Under the Howey test, the following must
concur for an investment contract to exist: 1) a contract transaction
or scheme 2) an investment of money; 3) investment is made in a
common enterprise; 4) expectation of profit; and 5) profits arising
primarily from the efforts of others.

The United States Supreme Court held in Securities and Exchange

Commission v. W.J. Howey Co.[10] that, for an investment contract to
exist, the following elements, referred to as the Howey test must
concur: (1) a contract, transaction, or scheme; (2) an investment of
money; (3) investment is made in a common enterprise; (4)
expectation of profits; and (5) profits arising primarily from the efforts
of others.(United Housing Foundation, Inc. v. Forman, 421 US
837 (1975); Securities and Exchange Commission v. Glen W.
Turner Enterprises, Inc., 474 F. 2d 476 (1973).

Source: Virata vs. Ng Wee, G.R. No. 220926, July 5, 2017

In this jurisdiction, the Court employs the Howey test, named after
the landmark case of Securities and Exchange Commission v. W.J.
Howey Co.,111 to determine whether or not the security being offered
takes the form of an investment contract. The case served as the
foundation for the domestic definition of the said security.

Under the Howey test, the following must concur for an investment
contract to exist: (1) a contract, transaction, or scheme; (2) an
investment of money; (3) investment is made in a common
enterprise; (4) expectation of profits; and (5) profits arising primarily
from the efforts of others. Indubitably, all of the elements are present
in the extant case.

First, Wincorp offered what it purported to be "sans

recourse" transactions wherein the investment house would
allegedly match investors with pre-screened corporate borrowers in
need of financial assistance.

Second, Ng Wee invested the aggregate amount of

₱213,290,410.36 in the "sans recourse" transactions through his
trustees, as embodied in the Confirmation Advices.
MERCANTILE LAW 1
1

Third, prior to being matched with a corporate borrower, all the

monies infused by the investors are pooled in an account
maintained by Wincorp.112 This ensures that there are enough funds
to meet large drawdowns by single borrowers.

Fourth, the investors were induced to invest by Wincorp with

promises of high yield. In Ng Wee's case, his Confirmation Advices
reveal that his funds were supposed to earn 13.5% at their
respective maturity dates.

Fifth, the profitability of the enterprise depended largely on whether

or not Wincorp, on best effort basis, would be able to match the
investors with their approved corporate borrowers.

Apparent then is that the factual milieu of the case at bar sufficiently
satisfies the Howey test. The "sans recourse" transactions are, in
actuality, investment contracts wherein investors pool their
resources to meet the financial needs of a borrowing company.

B.

Is there a proper investment contract in the case? (5%)

Yes. The investment of money pursuant to a contract is made by
common enterprise. The investor expects profits without doing
anything other than to invest as the profits would arise from the
efforts of Wincorp in matching the investors with the borrowers.
VIII.

Starwood was able to register with the I PO the trademark "W". W

Land, later, applied for the registration of its own “W” mark but was
denied. W land, then, filed a Petition for Cancellation of Starwood's
mark for non-use claiming that Starwood has no hotel or
establishment in the Philippines rendering the services covered by
its registration.

Starwood argued that it conducts hotel. and leisure business through

subsidiaries and franchisees, and operates interactive
w e b s i t e s for its W Hotels in order to accommodate its
potential clients worldwide. The website is in English;
Starwood targeted local customers by constituting a local
contact phone number, a specific local webpage and accepting
payments in peso for its hotels abroad which were booked by
Filipinos online. It has also presented data showing a
considerably growing number of internet users in the Philippines
visiting its website.
A.
MERCANTILE LAW 1
2

How would exhibition of goods or services over the internet constitute

actual use? (5%)
It must be shown that the owner has actually transacted or
intentionally targeted customers of a particular jurisdiction in
order to be considered as having used the trade mark in the
ordinary course of his trade in that country. A showing of an
actual commercial link to the country is imperative. The use of
mark on the internet must be shown to result into a within State
sale of discernibly intended to target customers that reside in that
country.
Alternative: There must be an actual commercial transaction through
the website or at the very least the website must show that it intends
to target local consumers by containing specific details geared
towards a commercial activity or interaction. These details may
constitute a local contact phone number for local consumers to call
for information or other local concerns, a specific local webpage,
whether domestic language and currency is used on the website,
and/or whether domestic payment methods are accepted.
B.

Was Starwood able to comply with the requirements of website use?

{5%)

Yes. The website is readily accessible to Philippine citizens

and residents where they can be avail and book amenities
and other services in any of Starwood’s W Hotels worldwide.
Its website also readily provides a phone number for Philippine
consumers to call for information or other concerns. The website
further uses the English language — considered as an official
language in this country — which the relevant market in the
Philippines understands and often uses in the daily conduct of
affairs. In addition, the prices for its hotel accommodations and/or
services can be converted into the local currency or the Philippine
Peso. Amidst all of these features, Starwood’s “W” mark is
prominently displayed in the website through which consumers in
the Philippines can instantaneously book and pay for their
accommodations, with immediate confirmation, in any of its W
Hotels. Furthermore, it has presented data showing a considerably
growing number of internet users in the Philippines visiting its
website since 2003, which is enough to conclude that Starwood has
established commercially-motivated relationships with Philippine
consumers.
IX.

Senator Trililing has two shady sidelines: a) organizing tours and

travel plans consisting of tourism packages for the purpose of
offering persons for prostitution; and b) engaging in tong-its
operation. His fund for the tourism sideline is maintained in his peso
savings account with Bank X while the funds for tong-its are with
Bank Y. In case of bank closure, may the good Senator ask for the
recovery of his deposits via PDIC? {10%)
MERCANTILE LAW 1
3

Under Section 5 (g), RA 1o0846 (Amending PDIC), deposits

that are determined to be the proceeds of an unlawful activity
as defined by RA 9160 are not covered by PDIC. Under
Section 3 of RA 10365, trafficking is a predicate crime while
“tong-its” is not, as only jueteng and masiao are included in
illegal gambling. Hence, there can be no recovery for its
money with Bank X but there is recovery for the money with
Bank Y.

X.

National Steel Corporation {NSC) entered into an Export Sales contract

with Klockner East Asia Limited. NSC sold 1,200 metric tons of prime
cold rolled coils to Kleckner. Kleckner applied for and was granted an
irrevocable letter of credit with HSBC in favor of NSC as the
beneficiary. NSC coursed the collection of its payment from Klockner
through CityTrust Banking Corporation, CityTrust sent a collection
order to HSBC, stating that proceeds should be remitted to Standard
Chartered Bank. However, HSBC refused to honor the Letter of Credit
simply because it could not collect first from Klockner. Can HSBC
refuse payment? (10%)

No. Under the Independence Principle, an issuing bank assumes

no liability or responsibility “for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of any documents or for
that general and/or particular conditions stipulated in the documents
or superimposed thereon. Thus, as long as the proper documents
are presented the issuing bank has an obligation to pay even if the
buyer should later on refuse payment. Hence, Klockner refused to
pay carrier has no effect whatsoever on HSBC’s obligation to pay
under the Letter of Ctredit. To allow HSBC to refuse to honor the
Letter of Credit simply because it could not collect first from
Klockner is considered a breach of the Independence Principle.

-END-

-GOOD LUCK-