2008 Bar Question

Tom Cruz obtained a loan of P 1 Million from XYZ Bank to finance his purchase of 5,000 bags of fertilizer. He executed a trust receipt in favor of XYZ Bank over the 5,000 bags of fertilizer. Tom Cruz withdrew the 5,000 bags from the warehouse to be transported to Lucena City where his store was located. On the way, armed robbers took from Tom Cruz the 5,000 bags of fertilizer. Tom Cruz now claims that his obligation to pay the loan to XYZ Bank is extinguished because the loss was not due to his fault. Is Tom Cruz correct? Explain. (4%) Suggested answer: No, Tom Cruz is no correct. Under the Trust Receipts Law, the entrustee is liable for loss of the goods, whether or not he is negligent . Moreover, in a trust receipt transaction where a loan feature is involved, the obligation for the load is not extinguished until such loan is paid. In the present case, the fact that the stealing of the goods was not Tom Cruz fault does not exculpate him from liability. This is especially true since the goods subject of the trust receipt transaction serves only as security for the payment of the loan. The loss of the security did not impair XYZ banks title to the goods, which can only be extinguished once Tom Cruz pays the advancement made. Hence, it is not correct for Tom Cruz to avoid liability under the Trust Receipt on the premise that the goods are lost without his fault 2008 Bar Question: Pedro owns 70% of the subscribed capital stock of a company which owns an office building. Paolo and Juan own the remaining stock equally between them. Paolo also owns a security agency, a janitorial company and a catering business. In behalf of the office building company, Paolo engaged his companies to render their services to the office building. Are the service contracts valid? Explain. (4%) Suggested answer: Yes, the service contracts are valid. Under the Corporation Code, contract entered into by interlocking directors are valid if the interest of the interlocking director in one corporation is nominalthat is, less than 20% of the outstanding capital stockand provided that the following conditions are met: 1. The presence of such director in the board meeting approving the contract was not necessary to constitute quorum 2. His vote was not necessary to approve the contract. 3. The contract is fair and reasonable under the circumstances. According to the facts of the case, Pedro owns 70% of the stocks, leaving 30% to be divided equally between Juan and Paolo. This shows that Paolo owns only a nominal interest of 15%. Hence ,provided that all other conditions are met, Paolos service contracts with the company are valid.