2013 Commercial Law Exam Essay Questions

October 29, 2013
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I.

Antonio issued the following instrument:

August 10, 2013
Makati City

P100,000.00

Sixty days after date, I promise to pay Bobby or his designated representative the sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) from my BPI Acct. No. 1234 if, by this due date, the sun still sets in the west to usher in the evening and rises in the east the following morning to welcome the day.

(Sgd.) Antonio Reyes

Explain each requirement of negotiability present or absent in the instrument. (8%)

II.

Benny applied for life insurance for Php1.5 Million. The insurance company approved his application and issued an insurance policy effective Nov. 6, 2008. Benny named his children as his beneficiaries. On April 6, 2010, Benny died of hepatoma, a liver ailment.

The insurance company denied the children’s claim for the proceeds of the insurance policy on the ground that Benny failed to disclose in his application two previous consultations with his doctors for diabetes and hypertension, and that he had been diagnosed to be suffering from hepatoma. The insurance company also rescinded the policy and refunded the premiums paid.

Was the insurance company correct? (8%)

III.

From his first term in 2007, Congressman Abner has been endorsing his pork barrel allocations to Twin Rivers in exchange for a commission of 40% of the face value of the allocation. Twin Rivers is a non-governmental organization  whose supporting papers, after audit, were found by the Commission on Audit to be fictitious. Other than to prepare and submit falsified papers to support the encashment of the pork barrel checks, Twin Rivers does not appear to have done anything on the endorsed projects and Congressman Abner likewise does not appear to have bothered to monitor the progress of the projects he endorsed. The congressman converted most of the commissions he generated into US dollars, and deposited these in a foreign currency account with Banco de Plata (BDP).

Based on amply-supported tips given by a congressman from another political party, the Anti-Money Laundering Council sent BDP an order: (1) to confirm Cong.  Abner’s deposits with the bank and to provide details of these deposits; and (2) to hold all withdrawals and other transactions involving the congressman’s bank accounts.

As counsel for BDP, would you advise the bank to comply with the order? (8%)

IV.

Rudy is a fine arts student in a university. He stays in a boarding house with Bernie as his roommate. During his free time, Rudy would paint and leave his finished works lying around the boarding house. One day, Rudy saw one of his works – an abstract painting entitled Manila Traffic Jam – on display at the university cafeteria. The cafeteria operator said he purchased the painting from Bernie who represented himself as its painter and owner.

Rudy and the cafeteria operator immediately confronted Bernie. While admitting that he did not do the painting, Bernie claimed ownership of its copyright since he had already registered it in his name with the National Library as provided in the Intellectual Property Code.

Who owns the copyright to the painting? Explain. (8%)

V.

You are a member of the legal staff of a law firm doing corporate and securities work for Coco Products Inc., a company with unique products derived from coconuts and whose shares are traded in the Philippine Stock Exchange. A partner in the law firm, Atty. Buenexito, to whom you report, is the Corporate Secretary of Coco Products. You have long been investing in Coco Products stocks even before you became a lawyer.

While working with Atty. Buenexito on another file, he accidentally gave you the Coco Products file containing the company’s planned corporate financial rehabilitation. While you knew you had the wrong file, your curiosity prevailed and you browsed through the file before returning it. Thus, you learned that a petition for financial rehabilitation is imminent, as the company could no longer meet its obligations as they fell due.

Soon after, your mother is rushed to the hospital for an emergency operation, and you have to raise money for her hospital bills. An immediate option for you is to sell your Coco Products shares. The sale would be very timely because the price of the company’s stocks are still high.

Would you sell the shares to raise the needed funds for your mother’s hospitalization? Take into account legal (5%) and ethical (3%)considerations.(8% total points)

VI.

Delano Cruz is in default in the payment of his existing loan from BDP Bank. To extend and restructure this loan, Delano agreed to execute a trust receipt in the bank’s favor covering the iron pellets Delano imported from China one year earlier. Delano subsequently succeeded in selling the iron pellets to a smelting plant, but the proceeds went to the payment of the separation benefits of his employees who were laid off as he reduced his operations.

When the extended loan period expired without any significant payment from Delano (not even to the extent of the proceeds of the sale of the iron pellets),BDP Bank consulted you on how to proceed against Delano. The bank is contemplating the filing of estafa pursuant to the provisions of Pres. Decree No. 115 (Trust Receipts Law) to force Delano to turn in at least the proceeds of the sale of the iron pellets.

Would you, as bank counsel and as an officer of the court, advise the bank to proceed with its contemplated action? (8%)

VII.

Stable Insurance Co. (SIC) and St. Peter Manufacturing Co. (SPMC) have had a long-standing insurance relationship with each other; SPMC secures the comprehensive fire insurance on its plant and facilities from SIC. The standing business practice between them has been to allow SPMC a credit period of 90 days from the renewal of the policy within which to pay the premium.

Soon after the new policy was issued and before premium payments could be made, a fire gutted the covered plant and facilities to the ground. The day after the fire, SPMC issued a manager’s check to SIC for the fire insurance premium, for which it was issued a receipt; a week later SPMC issued its notice of loss.

SIC responded by issuing its own manager’s check for the amount of the premiums SPMC had paid, and denied SPMC’s claim on the ground that under the “cash and carry” principle governing fire insurance, no coverage existed at the time the fire occurred because the insurance premium had not been paid.

Is SPMC entitled to recover for the loss from SIC? (8%)

VIII.

In the November 2010 stockholders meeting of Greenville Corporation, eight (8) directors were elected to the board. The directors assumed their posts in January 2011. Since no stockholders’ meeting was held in November 2011, the eight directors served in a holdover capacity and thus continued discharging their powers.

In June 2012, two (2) of Greenville Corporation’s directors- Director A and Director B -resigned from the board. Relying on Section 29 of the Corporation Code, the remaining six (6) directors elected two (2) new directors to fill in the vacancy caused by the resignation of Directors A and B.

Stockholder X questioned the election of the new directors, initially, through a letter-complaint addressed to the board, and later (when his letter-complaint went unheeded), through a derivative suit filed with the court. He claimed that the vacancy in the board should be filled up by the vote of the stockholders of Greenville Corporation. Greenville Corporation’s directors defended the legality of their action, claiming as well that Stockholder X’s derivative suit was improper.

Rule on the issues raised. (8%)

IX.

Fil-Asia Air Flight 916 was on a scheduled passenger flight from Manila when it crashed as it landed at the Cagayan de Oro airport: the pilot miscalculated the plane’s approach and undershot the runway. Of the 150 people on board, ten (10) passengers died at the crash scene.

Of the ten who died, one was a passenger who managed to leave the plane but was run over by an ambulance coming to the rescue. Another was an airline employee who hitched a free ride to Cagayan de Oro and who was not in the passenger manifest.

It appears from the Civil Aeronautics Authority investigation that the co-pilot who had control of the plane’s landing had less than the required flying and landing time experience, and should not have been in control of the plane at the time. He was allowed to fly as a co-pilot because of the scarcity of pilots – Philippine pilots have been recruited by foreign airlines under vastly improved flying terms and wages so that newer and less trained pilots are being locally deployed. The main pilot, on the other hand, had a very high level of blood alcohol at the time of the crash.

You are part of the team that the victims hired to handle the case for them as a group. In your case conference, the following questions came up:

A. Explain the causes of action legally possible under the given facts against the airline and the pilots; whom will you specifically implead in these causes of action? (5%)

B. How will you handle the cases of the passenger run over by  the ambulance and the airline employee allowed to hitch a free ride to Cagayan de Oro? (3%)

X.

Bell Philippines, Inc. (BelPhil) is a public utility company, duly incorporated and registered with the Securities and Exchange Commission. Its authorized capital stock consists of voting common shares and non-voting preferred shares, with equal par values of Php100.00/share. Currently, the issued and outstanding capital stock of BelPhil consists only of common shares shared between Bayani Cruz, a Filipino with 60% of the issued common shares, and Bernard Fleet, a Canadian, with 40%.

To secure additional working fund, BelPhil issued preferred shares to Bernard Fleet equivalent to the currently outstanding common shares. A suit was filed questioning the corporate action on the ground that the foreign equity holdings in the company would now exceed the 40% foreign equity limit allowed under the Constitution for public utilities.

Rule on the legality of Bernard Fleet’s current holdings. (8%)

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