HO 13 Comm AttyCatindig

ARELLANO UNIVERSITY SCHOOL OF LAW

ARELLANO BAR REVIEW PROGRAM

ABRP

13PROF.TRISTAN A. CATINDIG

SAMPLE MCQs

1. If the insured waives his right to change the beneficiary, the insured could thereafter:

a) assign the policy;b) add a new beneficiary;c) refuse to pay the premium on the policy;d) take the cash surrender value of the policy; e) change the irrevocable designation to revocable, even though

the change is just and reasonable.

2. The insurable interest of the farmer on the rice he has planted on his land yesterday is:

a) a personal interest;b) an existing interest;c) an inchoate interest founded on an existing interest;d) an expectancy coupled with an existing interest in that out of

which the expectancy arises.

3. Cesar extended an unsecured loan of P5 million to ABC Corporation. To protect his interest, Cesar proposed to take out a fire insurance policy on the five-storey building in Makati owned by ABC Corporation worth P50 million that is the latter’s primary asset. Could he do so?

a) Yes he could;b) No he could not;c) Yes he could as the building is the primary asset of ABC

Corporation;d) No he could not as the value of the building exceeds the amount

of his loan.

1|Sample MCQ’s and Problems |Commercial Law

SAMPLE MCQ’s AND PROBLEM IN MERCANTILE LAW



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4. Cynthia wrote a short story that was substantially similar to the unpublished short story of Ruben. Ruben, after becoming aware of Cynthia’s short story, sued the latter for infringement of his copyright. It was conclusively proven in court that Cynthia was not aware of the existence of Ruben’s short story. Which statement below is correct?

a) Cynthia would be liable for damages because her story was substantially similar to the short story of Ruben.

b) Cynthia would not be liable for damages because the story of Ruben is unpublished.

c) Cynthia would not be liable for damages because she had no access to the story of Ruben.

d) Cynthia would be liable for damages because the story of Ruben is protected by copyright.

5. Nairobi Drug Company, Inc., a drug distributor in Kenya, placed an order for 1,000 boxes of Verifax, an anti-viral drug, with its manufacturer in the Philippines, Divide Pharma Corporation, and opened a letter of credit with a bank in Kenya in favor of Divide. As Divide and its own bank do not know the issuing bank, what bank could Divide appoint to insure its receipt of payment for the order?

a) a paying bank;b) a notifying bank;c) a confirming bank;d) a negotiating bank.

6. Two corporations agreed to merge pursuant to the provisions of the Corporation Code as of December 31, 2012. They then executed an agreement specifying the surviving corporation (i.e., ABC) and the absorbed corporation (i.e., XYZ) and their plan of action to carry out the merger. Which one of the following proposed actions under the plan would be valid?

2| Sample MCQ’s and Problems |Commercial Law



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a) the steps to be taken by ABC to dissolve XYZ;b) the steps to be taken by ABC to liquidate and otherwise wind up

the affairs of XYZ;c) the steps to be taken by ABC, before approval of the merger by

the SEC, to file collection suits against the customers of XYZ with past due accounts;

d) the declaration by XYZ’s Board of Directors of all the money XYZ has on deposit with its banks as cash dividend payable to its stockholders before the end of 2012

7. He or she refers to the impartial person that the Securities and Exchange Commission may appoint to the Board of Directors of a deadlocked close corporation:

a) impartial director;b) temporary director;c) provisional director;d) independent director.

8. Why do stockholders have pre-emptive rights?

a) To increase their dividends;b) To increase their voting power;c) To protect themselves from dilution;d) To increase their interest in the corporation

9. Pedro wrote and emailed a love letter to his girlfriend, Perla. He saved it in his computer but he forgot to log out afterwards. Gani, Pedro’s brother, was the next user of the computer. Gani saw the letter, copied it, substituted his name for that of his brother, and addressed and emailed it to his girlfriend Gina. Who owns the copyright over Gani’s letter?

a) Pedro;b) Perla;c) Gani;d) Gina.

10. Which of the following statements is correct?




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a) Only entities that are banks or quasi-banks may be examined by the BSP;

b) Only entities that are banks or quasi-banks and their subsidiaries engaged in allied activities may be examined by the BSP;

c) Only entities that are banks or quasi-banks and their subsidiaries and affiliates engaged in allied activities may be examined by the BSP;

d) Entities that are not banks or quasi-banks may also be examined by the BSP but only for the purpose of determining whether such entities are performing banking or quasi-banking functions without BSP approval.

11. Flexor Pharma Corporation made an Initial Public Offering (IPO) of 1,000,000 shares of its authorized capital stock. As required by the Securities Regulation Code (SRC), Flexor prepared and filed a registration statement which was signed by the persons required to do so under the SRC. The registration statement was accompanied by Flexor’s audited financial statements duly certified by its external auditors, by the required opinion of its retained legal counsel, and by a statement from its medical director attesting to the medical facts stated in the statement. The IPO was underwritten by All Nations Financial & Investment Corporation. After its registration with the SEC, the shares were listed with the Philippine Stock Exchange.

In its registration statement, Flexor, on the basis of the report of its medical director, said that Prestofax, its new drug that is supposed to inhibit the growth of cancerous cells in the male prostate gland, has already received the approval of the Bureau of Food and Drugs (BFAD). Indeed, the BFAD has approved Prestofax but only for use by Flexor for five years in controlled tests between two groups of middle-aged males: one group to take Prestofax and the other group to take a placebo. If Prestofax lives up to expectations, billions of pesos are expected to flow into the coffers of Flexor.




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Armida, an employee of the underwriter, wanted to but did not buy any Flexor shares. At the time of the IPO, she did not have any investible funds. Brigida, an assistant attorney in the retained law firm of Flexor, bought 1,000 shares of the IPO. She did not read the registration statement although she was furnished a copy of the prospectus by her broker before she bought her shares. Corinna, the secretary of the President of Flexor, was aware of the untrue statement in the registration statement but nonetheless bought 100 shares out of loyalty to her boss.

Three months after the IPO, the untrue statement of Flexor in its registration statement became publicly known and the price of its shares in the stock market plummeted to only half of its offering price.

11.1 Could Flexor be sued in court?

a) Yes, as it is the issuer;b) Yes, as the act of its agent is its act;c) Yes, as it has profited from the sale of its shares;d) Yes, as the omission was caused by its own lack of diligence.

11.2 Who could sue Flexor? a) Armida;b) Brigida;c) Corinna;d) None of the above.

11.3 Who among the following could NOT be sued by the plaintiff(s)?

a) Flexor’s comptroller;b) Flexor’s underwriter;c) Flexor’s medical director;d) Flexor’s production manager;




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11.4 What damages could NOT be recovered by the plaintiff(s)?

a) Actual;b) Moral;c) Treble;d) Exemplary.

11.5 Could Flexor make an offer of settlement after the case has been filed in court?

a) Yes, if allowed by the court;b) No, as it is the party that violated the Securities Regulation

Code;c) Yes, if it is made before a case is filed in court or any other

tribunal;d) No, as it is available only in investigations or proceedings

before the Securities and Exchange Commission;e) Yes, as it is a prerogative given by the law to those charged

with a violation of the Securities Regulation Code.

11.6 Roberto, a director of Flexor, was out of the country at the time the registration statement was filed with the SEC and did not participate in its approval. Could he also be sued?

a) No, as he was abroad;b) Yes, if allowed by the court;c) No, as he had no hand in the approval of the registration

statement; d) Yes, as he is a director of Flexor at the time the registration

statement was filed with the SEC.

11.7 The by-laws of Flexor contain a provision which states that Flexor will indemnify any director who may be sued in connection with the performance of his duties as such




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director. If Roberto were included in the suit and made to pay damages, could he recover the same from Flexor?

a) Yes, if allowed by the court;b) No, as he was adjudged to be liable for the omission and to

allow him to be indemnified would be to enable him to transfer the burden of damages to Flexor;

c) Yes, as the by-laws of Flexor expressly allows him to be indemnified by the corporation if he is sued in connection with the performance of his duties as director;

d) No, as the law requires him to contribute equally to the total liability adjudged in the case and prohibits him from recovering his contribution to the liability from the issuer.

11.8 Does the plaintiff have to prove that the decline in value of the shares was caused by the untrue statement or omission?

a) No;b) Yes;c) Maybe;d) If required by the court.

11.9 Does the plaintiff have to prove fraud or bad faith?

a) No;b) Yes;c) If required by the court;d) Under certain circumstances.

11.10 What is the prescriptive period for bringing suit in this case?

a) Two years after the purchase of the shares;b) Five years after the discovery of the untrue statement;




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c) Within two years after the discovery of the untrue statement but within five years after the security was bona fide offered to the public;

d) Within five years after the discovery of the untrue statement but within ten years after the security was bona fide offered to the public.

SAMPLE PROBLEMS

12. Hennessy Wong, a retailer of wines and spirits, purchased on credit from Triad Imports Corporation, a liquor importer and wholesaler, 600 cases of wine. Under the terms of the purchase, Hennessy is required to make a down payment of 20% of the purchase price and pay the balance out of the proceeds of the sale of the wine. If Hennessy were unable to sell the wine within a ninety-day period then he is obligated to return the same to Triad. These terms and other conditions were embodied in a trust receipt for the goods signed by Hennessy in favor of Triad. Hennessy was able to sell only 350 cases of the wine and the proceeds were not enough to pay the entire purchase price. Could Triad file a complaint for estafa against Hennessy under the Trust Receipts Law if the latter were to fail to return the remaining 250 cases of wine?

13. Cesar, Danny and Ed, being new stockholders and directors in XYZ Bank, approached you for advice on the following matters:

a) Cesar asked you whether he, as a stockholder and director, could borrow from the bank and what would be required in order that the bank could validly extend a loan to him.

b) Danny informed you that he owns a manpower company and that he would like to supply to the bank janitors, messengers and tellers for employment during peak periods of the year.

c) Ernie disclosed to you that he plans to subscribe to 50% of the outstanding shares of stock of the bank and that his friends Cesar and Danny have no objection to his plan.

What would you tell them?




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14. Amy, a teller at the Cubao Branch of Sigma Bank, applied for a housing loan with Alpha Bank. Omega Holding Corporation owns a majority of the outstanding capital stock of both Sigma Bank and Alpha Bank. The amount proposed to be borrowed by Amy, together with the amounts of the loans previously obtained by her father, brothers and sisters from Alpha Bank, total more than 6% of the capital and surplus of Alpha Bank. Alpha Bank approved the loan application of Amy and thereafter required Amy to waive the secrecy of her deposits with any and all banks in the Philippines. Is this requirement of Alpha Bank valid?

15. Don Pedro has had his eyes on acquiring control of XYZ Corporation. Having heard that Don Roberto is sick and in need of money for his medical expenses, Don Pedro approached him and offered to buy his shares (which constitute about 15% of the total outstanding shares of XYZ). If he were able to purchase Don Roberto’s shares, Don Pedro would then own 50% of the total outstanding shares of XYZ.

a)Would Don Pedro be required to buy the shares of the other stockholders if he were able to purchase Don Roberto’s shares?

b)Assuming that your answer to (a) is in the affirmative and that the tender offer provisions of the Securities Regulation Code were applicable, how many shares does Don Pedro have to acquire from each stockholder?

c) Assuming that your answer to (a) is in the negative because the tender offer provisions of the Securities Regulation Code were not applicable, would your answer be the same if Don Pedro should acquire an additional 20% of the total outstanding shares of XYZ after a year?

d)Assuming that XYZ Corporation were a listed company, would your answer to (a) be the same if the acquirer of the shares were not Don Pedro but Largo Bank to whom Don Roberto pledged the shares?

16. Yendik Corporation licensed to Oryx Instruments, Inc. the manufacture and sale of a portable dialysis machine on which, it represented to Oryx, it has a subsisting and valid patent. After a couple of years, Yendik was sued by Enots Medical Equipment, Inc. for infringement of




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the latter’s patent on a similar portable dialysis machine. Enots was adjudged the real inventor of the machine and Yendik’s patent was invalidated. Afterwards, Enots also sued Oryx for infringement. What defense could Oryx put up? Explain.

17. Ignacio invented a gadget that would cut the consumption of gasoline by 50% when attached to the engine of a motor vehicle. Without securing a patent therefor, he started manufacturing and selling the gadget in large quantities. Jerome bought one gadget, dismantled and studied the same, and, in due time, started manufacturing an identical device. Before offering it for sale to the public, Jerome secured a patent for his device. The actions of Jerome were brought to the attention of Ignacio who then sought your assistance in filing a case against Jerome either (i) for infringement of his rights as inventor of the gadget, or (ii) unfair competition. What would you advise Ignacio?

18. Xeno applied for registration in his name of the trademark “Loving Care” for use in a shoe-cleaning product. Yago opposed the application for the reasons that, first, Xeno has not used the trademark in trade or commerce prior to the filing of the application, and, second, Yago has registered an identical trademark for use in a line of body lotions six months prior to the filing of Xeno’s application. Zoldar, a non-resident American national, also filed an opposition to Xeno’s application on the ground that he is the owner of an identical trademark registered in the United States (but not in the Philippines) for use in ladies undergarments and that his mark is known throughout the world.

a) Is the first reason given by Yago valid? b) In respect of Yago’s second reason, does it matter that shoe

cleaning products and body lotions belong to different classes under the Nice system of classification?

c) Does Zoldar’s opposition have any merit?

19. Bilbo Corporation is a Philippine corporation engaged in overseas manpower recruitment. It incurred substantial losses in its operations in 2012. For this reason, Bilbo wanted to shift to the business of trading in 2013.




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(a)If trading were a secondary purpose of Bilbo, what corporate and other approvals must Bilbo obtain in order to engage in the trading business?

(b)Would your answer be the same if trading were not a secondary purpose of Bilbo?

20. Jane, a minority stockholder of Banahaw Corporation, wrote to Marnie, the latter’s President, requesting that she be allowed to examine the audited financial statements and related financial records of the corporation during the period from 1998 to 2000. Marnie denied the request on the ground that Jane did not indicate the purpose of her request. Jane then complained in writing to the Board of Directors of the corporation about the action of Marnie and reiterated her request. The Board sustained the action of Marnie.

a) Could Jane bring a derivative suit against Banahaw? (2 points)b) How about a class suit? (2 points)c) Would Jane would succeed if she sues in her own name? (2

points)

21. The stockholders of Wise Corporation, at their annual meeting in April 2012, unanimously approved the following policy:

“At the next election of the Board of Directors and at every election thereafter, not more than one-half of the eleven-man Board shall be re-elected.”

At the April 2013 annual meeting of the stockholders, all the eleven incumbent directors were re-elected. The losing candidates, numbering five, protested the election and contended that, pursuant to the policy adopted by the stockholders at their previous annual meeting, only six of the old Board of Directors could be re-elected. Is the contention of the five losing candidates correct? Why?

22. Fidel, a businessman, fell into hard times. His businesses were not doing well and he was running short of working capital. Not wanting to pay the high interest rates being charged by the banks, Fidel decided to borrow money from his five closest




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friends, namely, Apeng, Berto, Cesar, Dencio and Estong. Each one agreed to lend Fidel P10,000 provided Fidel issues to each one of them a negotiable promissory note. Fidel executed and delivered five promissory notes, all of them dated October 18,2005, which read as follows:

a) “I promise to pay Apeng or order P10,000 or, at his option, to give him a video cassette recorder of his choice worth P10,000 in lieu thereof, on or before December 31, 2005.”

b) “I promise to pay Berto or order P10,000 upon the death of his 70-year old father.”

c) “I promise to pay to the order of Cesar P10,000 180 days after the date hereof out of the cash dividend which I expect to receive on the said date from San Miguel Corporation.”

d) “I promise to pay Dencio P10,000, plus all other sums which I may owe him as of the date hereof, if the sun should rise on November 21, 2005.”

Are the promissory notes that Fidel issued to his friends negotiable as they requested? Please explain.

23. On January 10, 2012, Delgado issued a check for P10,000 against Elite Bank and payable to Florencio. On the day the check was issued, Delgado had P12,000 in his account with Elite Bank. The check was delivered the same day to Florencio. The next day, Florencio went to Elite Bank to find out if Delgado had funds and, as he had to leave for Iloilo later that day, requested Elite Bank to certify Delgado’s check, which was done. Three days later, on January 13, 2012, Delgado issued another check for the sum of P6,000 against Elite Bank and payable to George who cashed it on the same day. Two days later, i.e., on January 15, 2012, Florencio presented to Elite Bank for payment Delgado’s check issued in his favor but as Delgado had then in the bank a balance of P6,000 only this was all the money which Florencio was able to collect. Florencio instituted an action in court against Elite Bank and Delgado for the recovery from the defendants jointly and severally the difference of P4,000 which he failed to collect. Does Florencio have a cause of action against (a) Elite Bank, and (b) Delgado?

24. Pedro owns a mango plantation in Zambales. One day, he asked Z Liner, a bus company, to transport 100 boxes of mangoes to Divisoria.




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The shipment will be accompanied by his farm manager, Juan. Z Liner, in accepting the shipment, asked Pedro if he wants to save a little money. Pedro, of course, said yes. Z Liner said that if Pedro signs a written statement stating that Z Liner need not observe extraordinary diligence in the transport of the mangoes and the carriage of Juan, from Zambales to Manila, Z Liner would give Pedro a 25% discount on the usual transportation charges. Is Z Liner’s proposal valid?

25. RC Corporation purchased rice from Thailand that it intended to sell locally. Due to stormy weather, the ship carrying the rice became submerged in seawater, and with it the rice cargo. When the cargo arrived in Manila, it was discovered that three-fourths of the rice was no longer fit for human consumption. RC quickly filed a claim for total loss with the insurer. Is RC’s claim justified?


Documents

HO 13 Comm AttyCatindig