DAY 3 (PM) Commercial Law Flashcards
(1) P rode a Sentinel Liner bus going to Baguio from Manila. At a stop-over in Tarlac, the bus driver, the conductor, and the passengers disembarked for lunch. P decided, however, to remain in the bus, the door of which was not locked. At this point, V, a vendor, sneaked into the bus and offered P some refreshments. When P rudely declined, V attacked him, resulting in P suffering from bruises and contusions. Does he have cause to sue Sentinel Liner?
(A) Yes, since the carrier’s crew did nothing to protect a passenger who remained in the bus during the stop-over.
(B) No, since the carrier’s crew could not have foreseen the attack.
(C) Yes, since the bus is liable for anything that goes wrong in the course of a trip.
(D) No, since the attack on P took place when the bus was at a stop-over.
(A) Yes, since the carrier’s crew did nothing to protect a passenger who remained in the bus during the stop-over.
(2) A cargo ship of X Shipping, Co. ran aground off the coast of Cebu during a storm and lost all its cargo amounting to Php50 Million. The ship itself suffered damages estimated at Php80 Million. The cargo owners filed a suit against X Shipping but it invoked the doctrine of limited liability since its vessel suffered an Php80 Million damage, more than the collective value of all lost cargo. Is X Shipping correct?
(A) Yes, since under that doctrine, the value of the lost cargo and the damage to the ship can be set-off.
(B) No, since each cargo owner has a separate and individual claim for damages.
(C) Yes, since the extent of the ship’s damage was greater than that of the value of the lost cargo.
(D) No, since X Shipping neither incurred a total loss nor abandoned its ship.
(D) No, since X Shipping neither incurred a total loss nor abandoned its ship.
(3) A writes a promissory note in favor of his creditor, B. It says: “Subject to my option, I promise to pay B Php1 Million or his order or give Php1 Million worth of cement or to authorize him to sell my house worth Php1 Million. Signed, A.” Is the note negotiable?
(A) No, because the exercise of the option to pay lies with A, the maker and debtor.
(B) No, because it authorizes the sale of collateral securities in case the note is not paid at maturity.
(C) Yes, because the note is really payable to B or his order, the other provisions being merely optional.
(D) Yes, because an election to require something to be done in lieu of payment of money does not affect negotiability.
(A) No, because the exercise of the option to pay lies with A, the maker and debtor.
(4) ABC Corp. increased its capital stocks from Php10 Million to Php15 Million and, in the process, issued 1,000 new shares divided into Common Shares “B” and Common Shares “C.” T, a stockholder owning 500 shares, insists on buying the newly issued shares through a right of pre-emption. The company claims, however, that its By-laws deny T any right of pre-emption. Is the corporation correct?
(A) No, since the By-Laws cannot deny a shareholder his right of pre-emption.
(B) Yes, but the denial of his pre-emptive right extends only to 500 shares.
(C) Yes, since the denial of the right under the By-laws is binding on T.
(D) No, since pre-emptive rights are governed by the articles of incorporation.
(A) No, since the By-Laws cannot deny a shareholder his right of pre-emption.
(5) M makes a promissory note that states: “I, M, promise to pay Php5,000.00 to B or bearer. Signed, M.” M negotiated the note by delivery to B, B to N, and N to O. B had known that M was bankrupt when M issued the note. Who would be liable to O?
(A) M and N since they may be assumed to know of M’s bankruptcy
(B) N, being O’s immediate negotiator of a bearer note
(C) B, M, and N, being indorsers by delivery of a bearer note
(D) B, having known of M’s bankruptcy
(B) N, being O’s immediate negotiator of a bearer note
(6) S delivered 10 boxes of cellphones to Trek Bus Liner, for transport from Manila to Ilocos Sur on the following day, for which S paid the freightage. Meanwhile, the boxes were stored in the bus liner’s bodega. That night, however, a robber broke into the bodega and stole S’s boxes. S sues Trek Bus Liner for contractual breach but the latter argues that S has no cause of action based on such breach since the loss occurred while the goods awaited transport. Who is correct?
(A) The bus liner since the goods were not lost while being transported.
(B) S since the goods were unconditionally placed with T for transportation.
(C) S since the freightage for the goods had been paid.
(D) The bus liner since the loss was due to a fortuitous event.
(B) S since the goods were unconditionally placed with T for transportation.
(7) X Corp. operates a call center that received orders for pizzas on behalf of Y Corp. which operates a chain of pizza restaurants. The two companies have the same set of corporate officers. After 2 years, X Corp. dismissed its call agents for no apparent reason. The agents filed a collective suit for illegal dismissal against both X Corp. and Y Corp. based on the doctrine of piercing the veil of corporate fiction. The latter set up the defense that the agents are in the employ of X Corp. which is a separate juridical entity. Is this defense appropriate?
(A) No, since the doctrine would apply, the two companies having the same set of corporate officers.
(B) No, the real employer is Y Corp., the pizza company, with X Corp. serving as an arm for receiving its outside orders for pizzas.
(C) Yes, it is not shown that one company completely dominates the finances, policies, and business practices of the other.
(D) Yes, since the two companies perform two distinct businesses.
(C) Yes, it is not shown that one company completely dominates the finances, policies, and business practices of the other.
(8) A negotiable instrument can be indorsed by way of a restrictive indorsement, which prohibits further negotiation and constitutes the indorsee as agent of the indorser. As agent, the indorsee has the right, among others, to
(A) demand payment of the instrument only.
(B) notify the drawer of the payment of the instrument.
(C) receive payment of the instrument.
(D) instruct that payment be made to the drawee.
(C) receive payment of the instrument.
(9) Under the Negotiable Instruments Law, a signature by procuration operates as a notice that the agent has but a limited authority to sign. Thus, a person who takes a bill that is drawn, accepted, or indorsed by procuration is duty-bound to inquire into the extent of the agent’s authority by:
(A) examining the agent’s special power of attorney.
(B) examining the bill to determine the extent of such authority.
(C) asking the agent about the extent of such authority.
(D) asking the principal about the extent of such authority.
(B) examining the bill to determine the extent of such authority.
(10) Under the Negotiable Instruments Law, if the holder has a lien on the instrument which arises either from a contract or by implication of law, he would be a holder for value to the extent of
(A) his successor’s interest.
(B) his predecessor’s interest.
(C) the lien in his favor.
(D) the amount indicated on the instrument’s face.
(C) the lien in his favor.
(11) The liability of a common carrier for the goods it transports begins from the time of
(A) conditional receipt.
(B) constructive receipt.
(C) actual receipt.
(D) either actual or constructive receipt.
(D) either actual or constructive receipt.
(12) On X’s failure to pay his loan to ABC Bank, the latter foreclosed the Real Estate Mortgage he executed in its favor. The auction sale was set for Dec. 1, 2010 with the notices of sale published as the law required. The sale was, however, cancelled when Dec. 1, 2010 was declared a holiday and re-scheduled to Jan. 10, 2011 without republication of notice. The auction sale then proceeded on the new date. Under the circumstances, the auction sale is
(A) rescissible.
(B) unenforceable.
(C) void.
(D) voidable.
(C) void.
(13) X executed a promissory note with a face value of Php50,000.00, payable to the order of Y. Y indorsed the note to Z, to whom Y owed Php30,000.00. If X has no defense at all against Y, for how much may Z collect from X?
(A) Php20,000.00, as he is a holder for value to the extent of the difference between Y’s debt and the value of the note.
(B) Php30,000.00, as he is a holder for value to the extent of his lien.
(C) Php50,000.00, but with the obligation to hold Php20,000.00 for Y’s benefit.
(D) None, as Z’s remedy is to run after his debtor, Y.
(C) Php50,000.00, but with the obligation to hold Php20,000.00 for Y’s benefit.
(14) Under the Anti-Money Laundering Law, a covered institution is required to maintain a system of verifying the true identity of their clients as well as persons purporting to act on behalf of
(A) those doing business with such clients.
(B) unknown principals.
(C) the covered institution.
(D) such clients.
(D) such clients.
(15) It is settled that neither par value nor book value is an accurate indicator of the fair value of a share of stock of a corporation. As to unpaid subscriptions to its shares of stock, as they are regarded as corporate assets, they should be included in the
(A) capital value.
(B) book value.
(C) par value.
(D) market value.
(B) book value.
(16) P sold to M 10 grams of shabu worth Php5,000.00. As he had no money at the time of the sale, M wrote a promissory note promising to pay P or his order Php5,000. P then indorsed the note to X (who did not know about the shabu), and X to Y. Unable to collect from P, Y then sued X on the note. X set up the defense of illegality of consideration. Is he correct?
(A) No, since X, being a subsequent indorser, warrants that the note is valid and subsisting.
(B) No, since X, a general indorser, warrants that the note is valid and subsisting.
(C) Yes, since a void contract does not give rise to any right.
(D) Yes, since the note was born of an illegal consideration which is a real defense.
(B) No, since X, a general indorser, warrants that the note is valid and subsisting.
(17) In a contract of carriage, the common carrier is liable for the injury or death of a passenger resulting from its employee’s fault although the latter acted beyond the scope of his authority. This is based on the
(A) rule that the carrier has an implied duty to transport the passenger safely.
(B) rule that the carrier has an express duty to transport the passenger safely
(C) Doctrine of Respondeat Superior.
(D) rule in culpa aquiliana.
(A) rule that the carrier has an implied duty to transport the passenger safely.
(18) A holder in due course holds the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves. An example of such a defense is -
(A) fraud in inducement.
(B) duress amounting to forgery.
(C) fraud in esse contractus.
(D) alteration.
(A) fraud in inducement.
(19) In elections for the Board of Trustees of non-stock corporations, members may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. This is true -
(A) unless set aside by the members in plenary session.
(B) in every case even if the Board of Trustees resolves otherwise.
(C) unless otherwise provided in the Articles of Incorporation or in the By-laws.
(D) in every case even if the majority of the members decide otherwise during the elections.
(C) unless otherwise provided in the Articles of Incorporation or in the By-laws.
(20) The rule is that the valuation of the shares of a stockholder who exercises his appraisal rights is determined as of the day prior to the date on which the vote was taken. This is true -
(A) regardless of any depreciation or appreciation in the share’s fair value.
(B) regardless of any appreciation in the share’s fair value.
(C) regardless of any depreciation in the share’s fair value.
(D) only if there is no appreciation or depreciation in the share’s fair value.
(A) regardless of any depreciation or appreciation in the share’s fair value.
(21) T Shipping, Co. insured all of its vessels with R Insurance, Co. The insurance policies stated that the insurer shall answer for all damages due to perils of the sea. One of the insured’s ship, the MV Dona Priscilla, ran aground in the Panama Canal when its engine pipes leaked and the oil seeped into the cargo compartment. The leakage was caused by the extensive mileage that the ship had accumulated. May the insurer be made to answer for the damage to the cargo and the ship?
(A) Yes, because the insurance policy covered any or all damage arising from perils of the sea.
(B) Yes, since there appears to have been no fault on the part of the shipowner and shipcaptain.
(C) No, since the proximate cause of the damage was the breach of warranty of seaworthiness of the ship.
(D) No, since the proximate cause of the damage was due to ordinary usage of the ship, and thus not due to a peril of the sea.
(D) No, since the proximate cause of the damage was due to ordinary usage of the ship, and thus not due to a peril of the sea.
(22) X has been a long-time household helper of Z. X’s husband, Y, has also been Z’s long-time driver. May Z insure the lives of both X and Y with Z as beneficiary?
(A) Yes, since X and Y render services to Z.
(B) No, since X and Y have no pecuniary interest on the life of Z arising from their employment with him.
(C) No, since Z has no pecuniary interest in the lives of X and Y arising from their employment with him.
(D) Yes, since X and Y are Z’s employees.
(C) No, since Z has no pecuniary interest in the lives of X and Y arising from their employment with him.
(23) X, Co., a partnership, is composed of A (capitalist partner), B (capitalist partner) and C (industrial partner). If you were partner A, who between B and C would you have an insurable interest on, such that you may then insure him?
(A) No one, as there is merely a partnership contract among A, B and C.
(B) Both B and C, as they are your partners.
(C) Only C, as he is an industrial partner.
(D) Only B, as he is a capitalist partner.
(B) Both B and C, as they are your partners.
(24) X is the holder of an instrument payable to him (X) or his order, with Y as maker. X then indorsed it as follows: “Subject to no recourse, pay to Z. Signed, X.” When Z went to collect from Y, it turned out that Y’s signature was forged. Z now sues X for collection. Will it prosper?
(A) Yes, because X, as a conditional indorser, warrants that the note is genuine.
(B) Yes, because X, as a qualified indorser, warrants that the note is genuine.
(C) No, because X made a qualified indorsement.
(D) No, because a qualified indorsement does not include the warranty of genuineness.
(B) Yes, because X, as a qualified indorser, warrants that the note is genuine.
(25) A bill of exchange has T for its drawee, U as drawer, and F as holder. When F went to T for presentment, F learned that T is only 15 years old. F wants to recover from U but the latter insists that a notice of dishonor must first be made, the instrument being a bill of exchange. Is he correct?
(A) Yes, since a notice of dishonor is essential to charging the drawer.
(B) No, since T can waive the requirement of notice of dishonor.
(C) No, since F can treat U as maker due to the minority of T, the drawee.
(D) Yes, since in a bill of exchange, notice of dishonor is at all times required.
(C) No, since F can treat U as maker due to the minority of T, the drawee.
(26) An insured, who gains knowledge of a material fact already after the effectivity of the insurance policy, is not obliged to divulge it. The reason for this is that the test of concealment of material fact is determined
(A) at the time of the issuance of the policy.
(B) at any time before the payment of premium.
(C) at the time of the payment of the premium.
(D) at any time before the policy becomes effective.
(D) at any time before the policy becomes effective.
(27) T, the captain of MV Don Alan, while asleep in his cabin, dreamt of an Intensity 8 earthquake along the path of his ship. On waking up, he immediately ordered the ship to return to port. True enough, the earthquake and tsunami struck three days later and his ship was saved. Was the deviation proper?
(A) Yes, because the deviation was made in good faith and on a reasonable ground for believing that it was necessary to avoid a peril.
(B) No, because no reasonable ground for avoiding a peril existed at the time of the deviation.
(C) No, because T relied merely on his supposed gift of prophecy.
(D) Yes, because the deviation took place based on a reasonable belief of the captain.
(B) No, because no reasonable ground for avoiding a peril existed at the time of the deviation.
(28) X, drawee of a bill of exchange, wrote the words: “Accepted, with promise to make payment within two days. Signed, X.” The drawer questioned the acceptance as invalid. Is the acceptance valid?
(A) Yes, because the acceptance is in reality a clear assent to the order of the drawer to pay.
(B) Yes, because the form of the acceptance is really immaterial.
(C) No, because the acceptance must be a clear assent to the order of the drawer to pay.
(D) No, because the document must not express that the drawee will perform his promise within two days.
(A) Yes, because the acceptance is in reality a clear assent to the order of the drawer to pay.
(29) X came up with a new way of presenting a telephone directory in a mobile phone, which he dubbed as the “iTel” and which uses lesser time for locating names and telephone numbers. May X have his “iTel” copyrighted in his name?
(A) No, because it is a mere system or method.
(B) Yes, because it is an original creation.
(C) Yes, because it entailed the application of X’s intellect.
(D) No, because it did not entail any application of X’s intellect.
(A) No, because it is a mere system or method.
(30) D, debtor of C, wrote a promissory note payable to the order of C. C’s brother, M, misrepresenting himself as C’s agent, obtained the note from D, then negotiated it to N after forging C’s signature. N indorsed it to E, who indorsed it to F, a holder in due course. May F recover from E?
(A) No, since the forgery of C’s signature results in the discharge of E.
(B) Yes, since only the forged signature is inoperative and E is bound as indorser.
(C) No, since the signature of C, the payee, was forged.
(D) Yes, since the signature of C is immaterial, he being the payee.
(B) Yes, since only the forged signature is inoperative and E is bound as indorser.
(31) A material alteration of an instrument without the assent of all parties liable thereon results in its avoidance, EXCEPT against a
(A) prior indorsee.
(B) subsequent acceptor.
(C) subsequent indorser.
(D) prior acceptor.
(C) subsequent indorser.
(32) X constituted a chattel mortgage on a car (valued at Php1 Million pesos) to secure a P500,000.00 loan. For the mortgage to be valid, X should have
(A) the right to mortgage the car to the extent of half its value.
(B) ownership of the car.
(C) unqualified free disposal of his car.
(D) registered the car in his name.
(C) unqualified free disposal of his car.
(33) B borrowed Php1 million from L and offered to him his BMW car worth Php1 Million as collateral. B then executed a promissory note that reads: “I, B, promise to pay L or bearer the amount of Php1 Million and to keep my BMW car (loan collateral) free from any other encumbrance. Signed, B.” Is this note negotiable?
(A) Yes, since it is payable to bearer.
(B) Yes, since it contains an unconditional promise to pay a sum certain in money.
(C) No, since the promise to just pay a sum of money is unclear.
(D) No, since it contains a promise to do an act in addition to the payment of money.
(D) No, since it contains a promise to do an act in addition to the payment of money.
(34) A bank can be placed under receivership when, if allowed to continue in business, its depositors or creditors would incur
(A) probable losses
(B) inevitable losses
(C) possible losses
(D) a slight chance of losses
(A) probable losses
(35) EFG Foundation, Inc., a non-profit organization, scheduled an election for its six-member Board of Trustees. X, Y and Z, who are minority members of the foundation, wish to exercise cumulative voting in order to protect their interest, although the Foundation’s Articles and By-laws are silent on the matter. As to each of the three, what is the maximum number of votes that he/she can cast?
(A) 6
(B) 9
(C) 12
(D) 3
(A) 6
(36) If the drawer and the drawee are the same person, the holder may present the instrument for payment without need of a previous presentment for acceptance. In such a case, the holder treats it as a
(A) non-negotiable instrument.
(B) promissory note.
(C) letter of credit.
(D) check.
(B) promissory note.
(37) D draws a bill of exchange that states: “One month from date, pay to B or his order Php100,000.00. Signed, D.” The drawee named in the bill is E. B negotiated the bill to M, M to N, N to O, and O to P. Due to non-acceptance and after proceedings for dishonor were made, P asked O to pay, which O did. From whom may O recover?
(A) B, being the payee
(B) N, as indorser to O
(C) E, being the drawee
(D) D, being the drawer
(D) D, being the drawer
(38) T, an associate attorney in XYZ Law Office, wrote a newspaper publisher a letter disputing a columnist’s claim about an incident in the attorney’s family. T used the law firm’s letterhead and its computer in preparing the letter. T also requested the firm’s messenger to deliver the letter to the publisher. Who owns the copyright to the letter?
(A) T, since he is the original creator of the contents of the letter.
(B) Both T and the publisher, one wrote the letter to the other who has possession of it.
(C) The law office since T was an employee and he wrote it on the firm’s letterhead.
(D) The publisher to whom the letter was sent.
(A) T, since he is the original creator of the contents of the letter.
(39) E received goods from T for display and sale in E’s store. E was to turn over to T the proceeds of any sale and return the ones unsold. To document their agreement, E executed a trust receipt in T’s favor covering the goods. When E failed to turn over the proceeds from his sale of the goods or return the ones unsold despite demand, he was charged in court for estafa. E moved to dismiss on the ground that his liability is only civil. Is he correct?
(A) No, since he committed fraud when he promised to pay for the goods and did not.
(B) No, since his breach of the trust receipt agreement subjects him to both civil and criminal liability for estafa.
(C) Yes, since E cannot be charged with estafa over goods covered a trust receipt.
(D) Yes, since it was merely a consignment sale and the buyer could not pay.
(B) No, since his breach of the trust receipt agreement subjects him to both civil and criminal liability for estafa.
(40) The authorized alteration of a warehouse receipt which does not change its tenor renders the warehouseman liable according to the terms of the receipt
(A) in its original tenor if the alteration is material.
(B) in its original tenor.
(C) as altered if there is fraud.
(D) as altered.
(B) in its original tenor.
