COMMERCIAL LAW (2019) pt.1

1. Under the Bulk Sales Law, what is the effect of violating its provisions?

A. The sale is voidable at the instance of the seller.

B. The sale is deemed fraudulent and void, but civil liabilities remain enforceable.

C. The sale remains valid but unenforceable against creditors.

D. The sale is valid if notarized.

Legal Basis: A sale violating the Bulk Sales Law is deemed fraudulent and void, but civil liabilities remain enforceable between parties. (2019 Bar Exam A.1[c])

2. Can dividends be declared from corporate capital?

A. Yes, if majority of stockholders approve.

B. Yes, provided there is board approval.

C. No, dividends can only be declared from unrestricted retained earnings.

D. No, unless expressly allowed in the articles of incorporation.

Legal Basis: Dividends may only be declared out of unrestricted retained earnings; declaring from capital violates the trust fund doctrine. (2019 Bar Exam A.1[d])

3. What happens to a bank under receivership?

A. It may continue granting loans.

B. It may accept deposits with BSP approval.

C. It is prohibited from doing business.

D. It may operate but only under limited capacity.

Legal Basis: A bank under receivership cannot do business; its assets are administered for creditors’ benefit. (2019 Bar Exam A.1[e])

4. May a stockholder owning only one (1) share initiate a derivative suit?

A. No, because a minimum shareholding is required.

B. Yes, derivative suits are allowed regardless of shareholding.

C. No, only majority stockholders can sue derivatively.

D. Yes, but only if holding at least 10% of stock.

Legal Basis: A derivative suit is available to any stockholder, even if he owns only one share, to protect corporate rights. (2019 Bar Exam A.2[a])

5. Is a derivative suit an intra-corporate dispute?

A. No, because it involves public interest.

B. Yes, because it is a suit by a stockholder enforcing corporate rights.

C. No, because it is filed in the SEC.

D. Yes, but only if filed by majority stockholders.

Legal Basis: A derivative suit is an intra-corporate dispute as it enforces corporate rights between stockholders and directors. (2019 Bar Exam A.2[b])

6. Where should a derivative suit be filed?

A. SEC

B. RTC where the corporation’s principal office is located

C. CA

D. Supreme Court

Legal Basis: Derivative suits must be filed in the RTC where the corporation’s principal office is located. (2019 Bar Exam A.2[b])

7. Will the derivative suit prosper if the stockholder fails to allege exhaustion of remedies and absence of appraisal rights?

A. Yes, partial compliance suffices.

B. Yes, if the stockholder owns at least 1%.

C. No, failure to allege essential requisites bars the suit.

D. No, unless ratified by the board.

Legal Basis: Derivative suits require compliance with requisites such as exhaustion of intra-corporate remedies; otherwise, the suit will not prosper. (2019 Bar Exam A.2[c])

8. If an insurer issues a policy to an 80-year-old despite offering coverage only to ages 50–75, may it deny a claim based on age?

A. Yes, because the applicant was outside the age limit.

B. No, because the insurer waived the age requirement by approving the application.

C. Yes, unless expressly ratified by the insurer.

D. No, unless fraud was committed by the insured.

Legal Basis: Approval of the application despite disclosure of age constitutes waiver of age requirement. (2019 Bar Exam A.3[a])

9. Does issuance of a cover note constitute perfection of an insurance contract?

A. No, cover notes are not binding.

B. Yes, cover notes temporarily bind the insurer pending issuance of a policy.

C. No, unless premiums are paid.

D. Yes, but only upon board approval.

Legal Basis: Cover notes temporarily bind the insurer for 60 days pending issuance of a policy. (2019 Bar Exam A.3[b])

10. Does promotional texting to 80% of subdivision residents establish habitual engagement in commerce?

A. No, because the store has not yet been established.

B. Yes, because the law presumes commerce once public announcements are made.

C. No, because no profit was realized yet.

D. Yes, only if actual transactions occur.

Legal Basis: Announcements (even via text) trigger the presumption of habitual commerce under Article 3 of the Code of Commerce. (2019 Bar Exam A.4)

11. May a drawee lawfully dishonor a bill of exchange because the payee was the drawer’s paramour?

A. Yes, because of illicit consideration.

B. No, because the holder in due course is entitled to payment.

C. Yes, if the drawee is the drawer’s spouse.

D. No, unless the holder had knowledge of the illicit cause.

Legal Basis: A holder in due course, who gave value in good faith, is entitled to payment regardless of illicit cause. (2019 Bar Exam A.5[a])

12. Does an illicit cause affect the negotiability of an instrument?

A. Yes, because consideration must be lawful.

B. No, negotiability depends on the face of the instrument, not the legality of consideration.

C. Yes, if the payee knew of the illicit cause.

D. No, unless fraud is involved.

Legal Basis: Negotiability depends only on compliance with Section 1 of NIL, not the legality of consideration. (2019 Bar Exam A.5[b])

13. What kind of average arises when cargo is jettisoned to save the vessel from a typhoon?

A. Particular average

B. General average

C. Extraordinary average

D. Marine salvage

Legal Basis: Jettison of cargo to save vessel and other goods from common danger constitutes general average. (2019 Bar Exam A.6)

14. Who indemnifies the cargo owner for loss in a general average?

A. Only the ship captain

B. The consignee

C. The shipowner and owners of the saved cargo

D. No one, since it was fortuitous

Legal Basis: In general average, loss is shared by the shipowner and owners of cargoes saved. (2019 Bar Exam A.6)

15. May the Monetary Board close a bank relying solely on a Supervising and Examining Department (SED) report?

A. No, prior hearing is required.

B. Yes, the SED report suffices.

C. No, unless approved by depositors.

D. Yes, but only if liquidation is commenced simultaneously.

Legal Basis: A report by the SED suffices for closure; prior hearing is unnecessary. (2019 Bar Exam A.7[a])

16. How may the Monetary Board’s order of bank closure be questioned?

A. Petition for mandamus in RTC.

B. Petition for certiorari in CA.

C. Appeal to BSP.

D. Appeal to Supreme Court.

Legal Basis: Closure orders may be questioned via certiorari in the Court of Appeals by majority stockholders within 10 days. (2019 Bar Exam A.7[b])

17. When does a corporation commit an ultra vires act?

A. When it exercises powers beyond those in its articles or law.

B. When it fails to file SEC reports.

C. When it undercapitalizes.

D. When it incurs debts.

Legal Basis: Acts beyond express, implied, or incidental powers of a corporation are ultra vires. (2019 Bar Exam A.8[a])

18. When does the board of directors commit an ultra vires act?

A. When it acts without stockholder approval in matters reserved to stockholders.

B. When it delays dividends.

C. When it amends by-laws.

D. When it hires officers.

Legal Basis: Board actions requiring stockholder approval without such approval are ultra vires. (2019 Bar Exam A.8[b])

19. When do corporate officers commit ultra vires acts?

A. When they act beyond their personal powers.

B. When they contract for the corporation without authority.

C. When they resign without notice.

D. When they refuse to attend meetings.

Legal Basis: Acts by officers without authority, even if within corporate powers, are ultra vires. (2019 Bar Exam A.8[c])

20. Which of the following is NOT an exempt security under the SRC?

A. Government bonds issued by the Republic of the Philippines.

B. Securities issued by a foreign government with diplomatic ties.

C. Shares issued by a commercial bank.

D. Shares issued by a private corporation to the public.

Legal Basis: Exempt securities include government-issued/guaranteed, foreign government (reciprocity), receiver/trustee in bankruptcy, certain regulated transfers, and bank-issued securities (not its own shares). (2019 Bar Exam A.9)

21. A loan agreement authorizing the bank branch manager to determine the interest rate violates which law?

A. Usury Law

B. Civil Code

C. Truth in Lending Act

D. Bulk Sales Law

Legal Basis: The Truth in Lending Act requires disclosure of charges and interest prior to consummation; leaving rate to manager’s discretion violates it. (2019 Bar Exam A.10[a])

22. When does a warehouseman lose his lien under the Warehouse Receipts Law?

A. When the goods perish.

B. When he surrenders possession of the goods.

C. When he assigns the receipt.

D. When the depositor dies.

Legal Basis: A warehouseman’s lien is possessory; surrender of possession extinguishes the lien. (2019 Bar Exam A.10[b])

23. Is the following a negotiable instrument? “Pay to X or order P5,000 five days after Sparky the dog dies. Signed Y.”

A. Yes, because death of the dog is certain, though time is uncertain.

B. No, because it is subject to a condition.

C. Yes, because it is payable on demand.

D. No, because the consideration is vague.

Legal Basis: Payment upon the death of a dog is payable at a determinable future time; negotiable under Section 4 of NIL. (2019 Bar Exam A.10[c])

24. In a deed of assignment of receivables, the assignor undertook to pay if obligors fail. When checks bounced, the financing company sued. Can the assignor argue lack of notice of dishonor?

A. Yes, because he was only secondarily liable.

B. No, because his liability is direct under the Deed of Assignment.

C. Yes, because indorsers must be notified.

D. No, because the drawee should be sued first.

Legal Basis: The cause of action is the loan secured by receivables; assignor bound himself to pay if obligors fail. (2019 Bar Exam B.11)

25. If receivables assigned as loan security cannot be collected, what is the liability of the assignor under the deed?

A. None, as the risk passes to the assignee.

B. Assignor must pay loan plus stipulated penalty.

C. Assignee must sue the indorsers.

D. Assignor is liable only if negligent.

Legal Basis: Assignor agreed to unconditionally pay if obligors failed; liability is direct and penalized by 3% monthly. (2019 Bar Exam B.11)

26. In the lease contract between SBC (lessor) and Ciriaco (lessee), a clause assigned fire insurance proceeds to the lessor. Who is entitled to the proceeds when fire destroyed the merchandise?

A. The lessor (SBC), since assignment clause controls.

B. The lessee (Ciriaco), since he has insurable interest.

C. Both lessor and lessee equally.

D. The insurer, since the clause is void.

Legal Basis: Insurance is personal; only the insured with insurable interest (Ciriaco) may recover. Clause assigning proceeds to SBC is void. (2019 Bar Exam B.12)

27. Why is the stipulation assigning insurance proceeds to the lessor void?

A. Because the lessor has no insurable interest in the lessee’s merchandise.

B. Because it was not notarized.

C. Because it was not approved by SEC.

D. Because insurance contracts are always non-assignable.

Legal Basis: Lessor had no insurable interest in lessee’s goods; stipulation is void. (2019 Bar Exam B.12)

28. Does the Bulk Sales Law apply when a judicial receiver sells all or substantially all assets of a corporation under receivership?

A. Yes, always.

B. No, because receiver acts under judicial process.

C. Yes, unless court orders otherwise.

D. No, unless creditors intervene.

Legal Basis: Bulk Sales Law expressly excludes receivers and officers acting under judicial process. (2019 Bar Exam B.13)

29. Boxer Sonny Bachao sues Lacoste for trademark infringement because they used his photo wearing their shirt. Will it prosper?

A. Yes, because his image is his trademark.

B. No, because photos were not registered as trademark.

C. Yes, because fame gives automatic trademark rights.

D. No, unless consent was given.

Legal Basis: Trademark infringement requires registered trademark; Sonny’s photo was not registered. (2019 Bar Exam B.14[a])

30. Can Sonny sue Lacoste for copyright infringement for using his photographs in ads?

A. Yes, because he owns the copyright to his image.

B. No, because copyright belongs to the photographer or newspaper.

C. Yes, because copyright automatically vests in the subject.

D. No, unless he paid for copyright registration.

Legal Basis: Copyright belongs to photographer or employer-newspaper; not to the subject of the photo. (2019 Bar Exam B.14[b])

31. Can Sonny Bachao enjoin Lacoste from using his image in ads?

A. No, since he has no copyright.

B. Yes, because it violates his right to privacy.

C. No, unless he owns a trademark.

D. Yes, but only if copyright assigned to him.

Legal Basis: Using his image without consent violates his right to privacy; injunction will prosper. (2019 Bar Exam B.14[c])

32. Can Lacoste claim immunity from Philippine jurisdiction because it is a foreign corporation?

A. Yes, because it is based abroad.

B. No, if it is licensed or doing business here, it may be sued.

C. Yes, unless it voluntarily appears.

D. No, because foreign corporations cannot sue here.

Legal Basis: Licensed foreign corporations may be sued in Philippine courts. (2019 Bar Exam B.14[d])

33. A holder of preferred shares sues to compel payment of dividends even without unrestricted retained earnings. Will it prosper?

A. Yes, because preferred shares guarantee dividends.

B. No, dividends must come only from unrestricted retained earnings.

C. Yes, if stockholders approve.

D. No, unless directors waive.

Legal Basis: Dividends may only be declared from unrestricted retained earnings; preferred holders are not creditors. (2019 Bar Exam B.15)

34. May a preferred shareholder compel the corporation to redeem his shares when the terms say redemption is “at the option of the corporation”?

A. Yes, because redemption is a shareholder’s right.

B. No, redemption is discretionary with the corporation.

C. Yes, if SEC approves.

D. No, unless majority stockholders agree.

Legal Basis: Redemption under the terms is at the option of the corporation, not the shareholder. (2019 Bar Exam B.15)

35. Philippine Palaces Realty (PPR) sold timeshares without SEC authority, later obtaining registration. Can SEC approval retroactively validate the prior sale?

A. Yes, because approval ratifies previous acts.

B. No, permit must be issued before sale; approval does not retroact.

C. Yes, if buyers ratify the sale.

D. No, unless price was below threshold.

Legal Basis: SEC permit must precede sale; later approval does not retroact. (2019 Bar Exam B.16)

36. Are timeshare certificates considered “securities” under the Securities Regulation Code?

A. No, they are contracts of lease.

B. Yes, they are securities requiring SEC registration.

C. No, because they are real property interests.

D. Yes, but only if dollar-denominated.

Legal Basis: Timeshare certificates are securities and require SEC registration. (2019 Bar Exam B.16)

37. Triple A Corporation’s articles of incorporation showed 500 founders’ shares and 78 common shares subscribed at incorporation, but its stock and transfer book later recorded only 33. Which governs?

A. Stock and transfer book.

B. Articles of incorporation.

C. SEC records.

D. Treasurer’s affidavit.

Legal Basis: Articles of incorporation define the corporate charter and are binding; they prevail over stock and transfer book. (2019 Bar Exam B.17[a])

38. May the heir of an incorporator compel the corporation to recognize his inherited shares not recorded in the stock and transfer book?

A. No, because only the book is proof.

B. Yes, because the articles of incorporation show the subscription.

C. No, because transfer requires board approval.

D. Yes, only if notarized.

Legal Basis: Articles of incorporation confer rights binding on the corporation and stockholders. (2019 Bar Exam B.17[a])

39. Triple A Corporation (Triple A) was incorporated in 1960, with 500 founders’ shares and 78 common shares as its initial capital stock subscription. However, Triple A registered its stock and transfer book only in 1978, and recorded merely 33 common shares as the corporation’s issued and outstanding shares. On May 6, 1992, a special stockholders’ meeting was held. What constituted a quorum at the May 6, 1992 stockholders’ meeting of Triple A Corporation?

A. Majority of the 33 shares in the stock and transfer book.

B. Majority of the 578 shares in the articles of incorporation.

C. Majority of subscribed shares, regardless of record.

D. Majority of shares present, regardless of number.

Legal Basis: Quorum = majority of outstanding voting shares, i.e., 578 shares per the articles of incorporation. (2019 Bar Exam B.17[b])

40. What is a stock and transfer book?

A. Proof of property ownership.

B. A book recording stockholders, payments, and transfers.

C. A substitute for the articles of incorporation.

D. A corporate tax record.

Legal Basis: A stock and transfer book records stockholders alphabetically, payments, transfers, and by-law entries. (2019 Bar Exam B.17[c])

41. Romeo, a stowaway injured in a bus accident, sues for breach of contract of carriage. Will his action prosper?

A. Yes, because he was inside the bus.

B. No, because there was no valid contract of carriage.

C. Yes, because carriers are insurers of safety.

D. No, unless he paid the fare.

Legal Basis: Stowaways have no valid contract of carriage; action fails. (2019 Bar Exam B.18[a])

42. Samuel, a pickpocket caught robbing inside a bus, sues for breach of contract of carriage after an accident. Will his suit prosper?

A. Yes, because he was a passenger.

B. No, because he boarded to commit robbery, not as a passenger.

C. Yes, because carriers owe diligence to all aboard.

D. No, unless fare was paid.

Legal Basis: No contract of carriage exists where boarding was not for transport but for crime. (2019 Bar Exam B.18[a])

43. Teresita, the driver’s mistress who rode for free, sues for breach of contract of carriage. Will her suit prosper?

A. Yes, because she was aboard with driver’s consent.

B. No, because she was not accepted as passenger.

C. Yes, because all aboard are passengers.

D. No, unless fare was paid.

Legal Basis: No contract of carriage exists as she was not transported as a passenger. (2019 Bar Exam B.18[a])

44. Uriel, riding with a free pass won in a raffle, sues for breach of contract of carriage after an accident. Will his action prosper?

A. Yes, because gratuitous passengers are still covered.

B. No, because carriage was free.

C. Yes, but only for moral damages.

D. No, unless he paid fare.

Legal Basis: Carriage is valid even if gratuitous; Uriel is a passenger under Art. 1768 Civil Code. (2019 Bar Exam B.18[a])

45. What defense can a bus company raise against stowaways, pickpockets, and unauthorized riders in accident suits?

A. They are bound by contributory negligence.

B. Carrier exercised diligence of a good father in driver selection/supervision.

C. Contractual waiver.

D. Act of state.

Legal Basis: Without a contract, liability is based on quasi-delict, and due diligence is a valid defense. (2019 Bar Exam B.18[b])

46. If Uriel sues the bus company under a free ride, may the carrier exempt itself from liability for simple negligence?

A. No, stipulation exempting from negligence is void.

B. Yes, but only for simple negligence, not gross negligence.

C. No, carriers are always insurers of passengers.

D. Yes, if in ticket terms.

Legal Basis: Carriers may exempt themselves from simple negligence but not gross negligence or willful acts. (2019 Bar Exam B.18[b])

47. What defense may both bus companies raise if the collision was due exclusively to the negligence of the other driver?

A. Force majeure (fortuitous event).

B. Assumption of risk.

C. Laches.

D. Prescription.

Legal Basis: Exclusive negligence of the other driver is a fortuitous event for the innocent carrier. (2019 Bar Exam B.18[b])

48. Refer to number 42. What defense can the bus company raise against Samuel, the pickpocket?

A. No insurable interest.

B. He was engaged in an illegal act during the collision.

C. Contributory negligence.

D. Waiver.

Legal Basis: Liability is barred when the plaintiff was engaged in an illegal act at the time of injury. (2019 Bar Exam B.18[b])

49. One of the passenger buses owned by Continental Transit Corporation (CTC), plying its usual route, figured in a collision with another bus owned by Universal Transport, Inc. (UTI). Among those injured inside the CTC bus were: Romeo, a stowaway; Samuel, a pickpocket then in the act of robbing his seatmate when the collision occurred; Teresita, the bus driver’s mistress who usually accompanied the driver on his trips for free; and Uriel, holder of a free riding pass he won in a raffle held by CTC. Since UTI (other bus) had no contract with passengers, what defense can it raise in suits filed against it?

A. Lack of jurisdiction.

B. Exercise of diligence of a good father of a family.

C. Ultra vires act.

D. Res judicata.

Legal Basis: With no contract, UTI’s liability is based on quasi-delict; diligence defense applies. (2019 Bar Exam B.18[b])

50. Refer to number 42. Against whom may Samuel be held liable for damages despite being injured in the collision?

A. Against the driver of UTI.

B. Against the bus companies jointly.

C. Against himself for engaging in illegal act.

D. Against both drivers.

Legal Basis: One committing an illegal act (pickpocketing) may be held liable in quasi-delict. (2019 Bar Exam B.18[b])

51. What is the purpose of the Margin Trading Rule under the SRC?

A. To allow investors to borrow unlimitedly from brokers.

B. To protect investors by preventing excessive credit use in buying securities.

C. To regulate dividends of listed companies.

D. To fix maximum brokerage fees.

Legal Basis: Margin Trading Rule is intended to protect investors against the risks of excessive credit. (2019 Bar Exam B.19[a])

52. Under the Margin Trading Rule, what is the required initial margin?

A. At least 10% of purchase price.

B. At least 20% of purchase price.

C. At least 30% of purchase price.

D. At least 50% of purchase price.

Legal Basis: The investor must pay at least 50% of the purchase price in cash; remainder may be borrowed. (2019 Bar Exam B.19[b])

53. If the investor fails to maintain the margin requirement, what may the broker do?

A. Suspend dividends.

B. Refuse to record the transaction.

C. Sell the securities to restore margin.

D. Report investor to SEC.

Legal Basis: Broker may sell securities to restore margin if requirement is not maintained. (2019 Bar Exam B.19[b])

54. Can the initial 50% margin requirement under the Margin Trading Rule be waived by agreement?

A. Yes, if both broker and client agree in writing.

B. Yes, provided SEC is notified.

C. No, it is mandatory and cannot be waived.

D. No, unless expressly allowed by BSP.

Legal Basis: The margin requirement is mandatory under the law. (2019 Bar Exam B.19[b])

55. XYZ Corp. owns 40% of ABC Corp. and intends to acquire an additional 15%. Is it required to make a tender offer?

A. Yes, because acquisition will exceed 50%.

B. No, because it is a private purchase.

C. Yes, because any acquisition beyond 10% requires tender offer.

D. No, tender offer applies only to government securities.

Legal Basis: Tender Offer Rule requires tender offer when acquisition exceeds 50%. (2019 Bar Exam B.20[a])

56. Tender offer is required when a person or group acquires how much of a public company’s equity?

A. 10% or more.

B. 35% or more.

C. More than 50%.

D. 75% or more.

Legal Basis: Acquisition of 35% or more requires tender offer. The question provided in the bar materials mentions the 50% threshold as an example, but the general rule starts at 35%. (SRC Rule 19)

57. Who are entitled to participate in a tender offer?

A. Only the controlling stockholders.

B. Only minority stockholders.

C. All stockholders of the target company.

D. Only directors and officers.

Legal Basis: Tender offers must be extended to all stockholders of the target company. (2019 Bar Exam B.20[a])

58. What is the rationale for the Tender Offer Rule?

A. To ensure SEC receives filing fees.

B. To protect minority stockholders and give them equal opportunity to sell.

C. To strengthen government control over corporations.

D. To facilitate mergers.

Legal Basis: Tender Offer Rule ensures protection of minority stockholders. (2019 Bar Exam B.20[a])

59. If XYZ Corp. acquires 40% of ABC Corp. from one stockholder, is tender offer required?

A. Yes, because acquisition of 35% or more triggers tender offer.

B. No, because it is from a single stockholder.

C. Yes, but only if acquisition exceeds 50%.

D. No, because it is negotiated sale.

Legal Basis: Acquisition of 35% or more, whether from one or many stockholders, requires tender offer. (2019 Bar Exam B.20[a])

60. Does the Tender Offer Rule apply to both direct and indirect acquisition of shares?

A. Yes, tender offer applies to both.

B. No, it applies only to direct acquisition.

C. Yes, but only to foreign corporations.

D. No, indirect acquisitions are exempt.

Legal Basis: Tender offer covers both direct and indirect acquisition of shares. (2019 Bar Exam B.20[a])

CASE DIGESTS (ARCHIVE)

COMMERCIAL LAW (2019) pt.1

Commercial Law Review MCQs