AGENCY CX is liable for the bank loan because he authorized the

Agency (2003) mortgage on his property to secure the loan contracted by

Jo-Ann asked her close friend, Aissa, to buy some groceries DY. If DY later defaults and fails to pay the loan, CX is liable
for her in the supermarket. Was there a nominate contract to pay. However, his liability is limited to the extent of the
entered into between Jo-Ann and Aissa? In the affirmative, value of the said property. ALTERNATIVE ANSWER: CX
what was it? Explain. 5% is not personally liable to the bank loan because it was
SUGGESTED ANSWER: contracted by DY in his personal capacity. Only the property
Yes, there was a nominate contract. On the assumption that of CX is liable. Hence, while CX has authorized the mortgage
Aissa accepted the request of her close friend Jo-Ann to but on his property to secure the loan of DY, the bank cannot
some groceries for her in the supermarket, what they entered sue CX to collect the loan in case DY defaults thereon. The
into was a nominate contract of Agency. Article 1868 of the bank can only foreclose the property of CX.
New Civil Code provides that by the contract of agency a CIVIL LAW Answers to the BAR as Arranged by Topics (Year
person binds himself to render some service or to do 1990-2006)
something in representation or on behalf of another, with the And if the proceeds of the foreclosure are not sufficient to All
consent or authority of the latter. those contracts were executed by B while A was
ALTERNATIVE ANSWER: pay the loan in full, the bank cannot run after CX for the
Yes, they entered into a nominate contract of lease to service deficiency.
in the absence of a relation of principal and agent between ALTERNATIVE ANSWER:
them (Article 1644, New Civil Code). While as a general rule the principal is not liable for the
Agency vs. Sale (2000) contract entered into by his agent in case the agent acted in
A foreign manufacturer of computers and a Philippine his own name without disclosing his principal, such rule does
distributor entered into a contract whereby the distributor not apply if the contract involves a thing belonging to the
agreed to order 1,000 units of the manufacturer's computers principal. In such case, the principal is liable under Article
every month and to resell them in the Philippines at the 1883 of the Civil Code. The contract is deemed made on his
manufacturer's suggested prices plus 10%. All unsold units at behalf(Sy-juco v. Sy-juco 40 Phil. 634 [1920]).
the end of the year shall be bought back by the manufacturer ALTERNATIVE ANSWER:
at the same price they were ordered. The manufacturer shall CX would not be liable for the bank loan. CX's property
hold the distributor free and harmless from any claim for would also not be liable on the mortgage. Since DY did not
defects in the units. Is the agreement one for sale or agency? specify that he was acting for CX in the transaction with the
(5%) bank, DY in effect acted in his own name. In the case of
SUGGESTED ANSWER: Rural Bank of Bombon v. CA, 212 SCRA, (1992), the
The contract is one of agency, not sale. The notion of sale is Supreme
negated by the following indicia: (1) the price is fixed by the Court, under the same facts, ruled that "in order to bind the
manufacturer with the 10% mark-up constituting the principal by a mortgage on real property executed by an
commission; (2) agent, it must upon its face purport to be made, signed and
the manufacturer reacquires the unsold units at exactly the sealed in the name of the principal, otherwise, it will bind the
same agent only. It is not enough merely that the agent was in fact
price; and (3) warranty for the units was borne by the authorized to make the mortgage, if he, has not acted in the
manufacturer. name of the principal. Neither is it ordinarily sufficient that in
The foregoing indicia the mortgage the agent describes himself as acting by virtue
units was never intended to transfer to the distributor. of a power of attorney, if in fact the agent has acted in his
Agency; coupled with an interest (2001) own name and has set his own hand and seal to the
Richard sold a large parcel of land in Cebu to Leo for P100 mortgage. There is no principle of law by which a person can
million payable in annual installments over a period of ten become liable on a real estate mortgage which she never
years, but title will remain with Richard until the purchase executed in person or by attorney in fact".
price is fully paid. To enable Leo to pay the price, Richard Appointment of Sub-Agent (1999)
gave him a power-of-attorney authorizing him to subdivide X appoints Y as his agent to sell his products in Cebu City.
the land, sell the individual lots, and deliver the proceeds to Can Y appoint a sub-agent and if he does, what are the
Richard, to be applied to the purchase price. Five years later, effects of such appointment? (5%)
Richard revoked the power of attorney and took over the SUGGESTED ANSWER:
sale of the subdivision lots himself. Is the revocation valid or Yes, the agent may appoint a substitute or sub-agent if the
not? Why? (5%) principal has not prohibited him from doing so, but he shall
SUGGESTED ANSWER: be responsible for the acts of the substitute:
The revocation is not valid. The power of attorney given to (1) when he was not given the power to appoint one;
the buyer is irrevocable because it is coupled with an interest: (2) when he was given such power, but without designating
the agency is the means of fulfilling the obligation of the the person, and the person appointed was notoriously
buyer to pay the price of the land (Article 1927, CC). In other incompetent or insolvent.
words, a bilateral contract (contract to buy and sell the land) General Agency vs. Special Agency (1992)
is dependent on the agency. A as principal appointed B as his agent granting him general
Agency; Guarantee Commission (2004) and unlimited management over A's properties, stating that A
As an agent, AL was given a guarantee commission, in withholds no power from B and that the agent may execute
addition to his regular commission, after he sold 20 units of such acts as he may consider appropriate.
refrigerators to a customer, HT Hotel. The customer, Accordingly, B leased A's parcel of land in Manila to C for
however, failed to pay for the units sold. AL’s principal, four (4) years at P60,000.00 per year, payable annually in
DRBI, demanded from AL payment for the customer’s advance.
accountability. AL objected, on the ground that his job was B leased another parcel of land of A in Caloocan City to D
only to sell and not to collect payment for units bought by without a fixed term at P3,000.00 per month payable
the customer. Is AL’s objection valid? Can DRBI collect monthly.
from him or not? Reason. (5%) B sold to E a third parcel of land belonging to A located in
SUGGESTED ANSWER: Quezon City for three (3) times the price that was listed in
No, AL's objection is not valid and DRBI can collect from the inventory by A to B.
AL. Since AL accepted a guarantee commission, in addition confined due to illness in the Makati Medical Center. Rule on
to his regular commission, he agreed to bear the risk of the validity and binding effect of each of the above contracts
collection and to pay the principal the proceeds of the sale on upon A the principal. Explain your answers,
the same terms agreed upon with the purchaser (Article 1907, SUGGESTED ANSWER:
Civil Code) The agency couched in general terms comprised only acts of
Agency; Real Estate Mortgage (2004) administration (Art. 1877, Civil Code). The lease contract on
CX executed a special power of attorney authorizing DY to the Manila parcel is not valid, not enforceable and not
secure a loan from any bank and to mortgage his property binding upon A. For B to lease the property to C, for more
covered by the owner’s certificate of title. In securing a loan than one (1) year, A must provide B with a special power of
fromMBank, DY did not specify that he was acting for CX attorney (Art. 1878. Civil Code).
in the transaction with said bank. Is CX liable for the bank The lease of the Caloocan City property to D is valid and
loan? Why or why not? Justify your answer. (5%) binding upon A. Since the lease is without a fixed term, it is
SUGGESTED ANSWER: understood to be from month to month, since the rental is
payable monthly (Art. 1687, Civil Code). Metro Manila, which he rents out to tenants. On 1 April 1991
The sale of the Quezon City parcel to E is not valid and not he left for the United States without appointing any
binding upon A. B needed a special power of attorney to administrator to manage his apartments such that uncollected
validly sell the land (Arts. 1877 and 1878, Civil Code). The rentals accumulated for three (3) years. Amparo, a niece of
sale of the land at a very good price does not cure the defect Armando, concerned with the interest of her uncle, took it
of the contract arising from lack of authority upon herself to administer the property. As a consequence,
Powers of the Agent (1994) she incurred expenses in collecting the rents and in some
Prime Realty Corporation appointed Nestor the exclusive instances even spent for necessary repairs to preserve the
agent in the sale of lots of its newly developed subdivision. property.
Prime Realty told Nestor that he could not collect or receive 1. What Juridical relation between Amparo and Armando, if
payments from the buyers. Nestor was able to sell ten lots to any, has resulted from Amparo's unilateral act of assuming the
Jesus and to collect the down payments for said lots. He did administration of Armando's apartments? Explain.
not turn over the collections to Prime Realty. Who shall bear 2. What rights and obligations, if any, does Amparo have
the loss for Nestor's defalcation, Prime Realty or Jesus? under the circumstances? Explain.
SUGGESTED ANSWER: SUGGESTED ANSWER:
a) The general rule is that a person dealing with an agent 1. Negotiorumgestio existed between Amparo and
must inquire into the authority of that agent. In the present Armando, She voluntarily took charge of the agency or
case, if Jesus did not inquire into that authority, he is liable management of the business or property of her uncle without
for the loss due to Nestor's defalcation unless Article 1900, any power from her uncle whose property was neglected. She
Civil Code governs, in which case the developer corporation is called the gestornegotiorum or officious manager, (Art.
bears the loss. 2144, NCC)
Art. 1900 Civil Code provides: "So far as third persons are 2. It is recommended by the Committee that an enumeration
concerned, an act is deemed to have been performed within of any two (2) obligations and two (2) rights as enumerated in
the scope of the agent's authority, if such act is within the Arts. 2145 to 2152, NCC, would entitle the examinee to full
terms of the power of attorney, as written, even if the agent credit.
has in fact exceeded the limits of his authority according to Alma was hired as a domestic helper in Hongkong by the
an understanding between the principal and the agent. Dragon Services, Ltd., through its local agent. She executed a
However, if Jesus made due inquiry and he was not informed standard employment contract designed by the Philippine
by the principal Prime Realty of the limits of Nestor's Overseas Workers Administration (POEA) for overseas
authority. Prime Realty shall bear the loss. Filipino workers. It provided for her employment for one
b) Considering that Prime Realty Corporation only "told" year at a salary of US$1,000.00 a month. It was submitted to
Nestor that he could not receive or collect payments, it and approved by the POEA. However, when she arrived in
appears that the limitation does not appear in his written Hongkong, she was asked to sign another contract by Dragon
authority or power of attorney. In this case, insofar as Jesus, Services, Ltd. which reduced her salary to only US$600.00 a
who is a third person is concerned, Nestor's acts of collecting month. Having no other choice, Alma signed the contract but
payments is deemed to have been performed within the scope when she returned to the Philippines, she demanded payment
of his authority {Article 1900. Civil Code). Hence, the of the salary differential of US$400.00 a month. Both Dragon
principal is liable. Services, Ltd. and its local agent claimed that the second
However, if Jesus was aware of the limitation of Nestor's contract is valid under the laws of Hongkong, and therefore
power as an agent, and Prime Realty Corporation does not binding on Alma. Is their claim correct? Explain.
CIVIL LAW Answers to the BAR as Arranged by Topics (Year SUGGESTED ANSWER:
1990-2006) Their claim is not correct. A contract is the law between the
ratify the sale contract, then Jesus shall be liable (Article parties but the law can disregard the contract if it is contrary
allowing the other general partner to bind the corporation to public policy. The provisions of the 1987 Constitution on
1898. Civil Code). the protection of labor and on social justice (Sec. 10. Art II)
Termination; Effect of Death of Agent (1997) embody a public policy of the Philippines. Since the
Stating briefly the thesis to support your answer to each of application of Hongkong law in this case is in violation of
the following cases, will the death - (c) of an agent end an CIVIL LAW Answers to the BAR as Arranged by Topics (Year
agency? 1990-2006)
SUGGESTED ANSWER: that public policy, the application shall be disregarded by Court
Yes. The death of an agent extinguishes the agency, by of Appeals (G.R No. 104235, Nov. 10, 1993) the
express provision of par. 3, Art 1919 of the Civil Code. our Courts. (Cadalin v. POEA. 238 SCRA 762)
Quasi-Contracts; NegotioriumGestio (1992) ALTERNATIVE ANSWERS;
In fear of reprisals from lawless elements besieging his a) Their claim is not correct. Assuming that the second
barangay, X abandoned his fishpond, fled to Manila and left contract is binding under Hongkong law, such second
for Europe. Seeking that the fish in the fishpond were ready contract is invalid under Philippine law which recognizes as
for harvest, Y, who is in the business of managing fishponds valid only the first contract. Since the case is being litigated in
on a commission basis, took possession of the property, the Philippines, the Philippine Court as the forum will not
harvested the fish and sold the entire harvest to Z. Thereafter, enforce any foreign claim obnoxious to the forum's public
Y borrowed money from W and used the money to buy new policy. There is a strong public policy enshrined in our
supplies of fish fry and to prepare the fishpond for the next Constitution on the protection of labor. Therefore, the
crop. a) What is the Juridical relation between X and Y second contract shall be disregarded and the first contract will
during X's absence? b) Upon the return of X to the barangay, be enforced. (Cadalin v. POEA, 238 SCRA 762).
what are the obligations of Y to X as regards the contract b) No, their claim is not correct. The second contract
with Z? c) Upon X's return, what are the obligations of X as executed in Hongkong, partakes of the nature of a waiver that
regards Y's contract with W? d) What legal effects will result if is contrary to Philippine law and the public policy governing
X expressly ratifies Y's management and what would be the Filipino overseas workers. Art. 17, provides that our
obligations of X in favor of Y? Explain all your answers. prohibitive laws concerning persons, their acts, or their
SUGGESTED ANSWER: property or which have for their object public order, public
(a) The juridical relation is that of the quasi-contract of policy and good customs shall not be rendered ineffective by
"negotiorumgestio". Y is the "gestor" or "officious manager" laws or conventions agreed upon in a foreign country. Besides,
and X is the "owner" (Art. 2144, Civil Code). Alma's consent to the second contract was vitiated by undue
(b) Y must render an account of his operations and deliver to influence, being virtually helpless and under financial distress
X the price he received for the sale of the harvested fish in a foreign country, as indicated by the given fact that she
(Art, 2145, Civil Code). signed because she had no choice. Therefore, the defendants
(c) X must pay the loan obtained by Y from W because X claim that the contract is valid under Hongkong law should be
must answer for obligations contracted with third persons in rejected since under the DOCTRINE OF PROCESSUAL
the interest of the owner (Art. 2150, Civil Code), PRESUMPTION a foreign law is deemed similar or identical
(d) Express ratification by X provides the effects of an to Philippine law in the absence of proof to the contrary, and
express agency and X is liable to pay the commissions such is not mentioned in the problem as having been adduced.
habitually received by the gestor as manager (Art. 2149, Civil PARTNERSHIP
Code). Composition of Partnerships; Spouses; Corporations
Quasi-Contracts; NegotioriumGestio (1995) (1994)
Armando owns a row of residential apartments in San Juan, 1) Can a husband and wife form a limited partnership
to engage in real estate business, with the wife being a limited dissolution of the partnership before the expiration of its
partner? specified term? Explain.
2) Can two corporations organize a general partnership under SUGGESTED ANSWER:
the Civil Code of the Philippines? 3) Can a corporation and 1, Under Art. 1830 (1) (c) of the NCC, the dissolution by
an individual form a general partnership? Patricia and Priscilla is valid and did not violate the contract
SUGGESTED ANSWER: of partnership even though Pauline and Philip did not
1) a) Yes. The Civil Code prohibits a husband and wife from consent thereto. The consent of Pauline is not necessary
constituting a universal partnership. Since a limited because she had already assigned her interest to Philip. The
partnership is not a universal partnership, a husband and wife consent of Philip is not also necessary because the assignment
may validly form one. b) Yes. While spouses cannot enter to him of Pauline's interest did not make him a partner, under
into a universal partnership, they can enter into a limited Art, 1813 of the NCC.
partnership or be members thereof (CIR u. Suter, etal. 27 ALTERNATIVE ANSWER:
SCRA 152). Interpreting Art. 1830 (1) (c) to mean that if one of the
SUGGESTED ANSWER: partners had assigned his interest on the partnership to
2) a) No, A corporation is managed by its board of CIVIL LAW Answers to the BAR as Arranged by Topics (Year
directors. If the corporation were to become a partner, 1990-2006)
co-partners would have the power to make the corporation another the remaining partners may not dissolve the A should
party to transactions in an irregular manner since the partners be hired as Secretary. The decision for the hiring
are not agents subject to the control of the Board of partnership, the dissolution by Patricia and Priscilla without
Directors. But a corporation may enter into a joint venture the consent of Pauline or Philip is not valid.
with another corporation as long as the nature of the venture SUGGESTED ANSWER:
is in line with the business authorized by its charter. (Tuason 2. No, Philip has no right to petition for dissolution because
& Co., Inc. v. Bolano, 95 Phil. 106). he does not have the standing of a partner (Art. 1813 NCC).
b) As a general rule a corporation may not form a general Dissolution of Partnership; Termination (1993)
partnership with another corporation or an individual because A, B and C formed a partnership for the purpose of
a corporation may not be bound by persons who are neither contracting with the Government in the construction of one
directors nor officers of the corporation. of its bridges. On June 30, 1992, after completion of the
However, a corporation may form a general partnership with project, the bridge was turned over by the partners to the
another corporation or an individual provided the following Government. On August 30, 1992, D, a supplier of materials
conditions are met: used in the project sued A for collection of the indebtedness
1) The Articles of Incorporation of the to him. A moved to dismiss the complaint against him on the
corporation expressly allows the corporation to enter ground that it was the ABC partnership that is liable for the
into partnerships; debt. D replied that ABC partnership was dissolved upon
2) The Articles of Partnership must provide that completion of the project for which purpose the partnership
all partners will manage the partnership, and they shall be was formed. Will you dismiss the complaint against A If you
jointly and severally liable; and were the Judge?
3) In case of a foreign corporation, it must be SUGGESTED ANSWER:
licensed to do business in the Philippines. As Judge, I would not dismiss the complaint against A.
c) No. A corporation may not be a general partner because because A is still liable as a general partner for his pro rata
the principle of mutual agency in general partnership share of 1/3 (Art. 1816, C. C.J. Dissolution of a partnership
will violate the corporation law principle that only the board caused by the termination of the particular undertaking
of directors may bind the corporation. specified in the agreement does not extinguish obligations,
SUGGESTED ANSWER: which must be liquidated during the "winding up" of the
3) No, for the same reasons given in the Answer to Number partnership affairs (Articles 1829 and 1830. par. 1-a, Civil
2 above. Code).
Conveyance of a Partner’s Share Dissolution (1998) Effect of Death of Partner (1997)
Dielle, Karlo and Una are general partners in a merchandising Stating briefly the thesis to support your answer to each of
firm. Having contributed equal amounts to the capital, they the following cases, will the death - of a partner terminate the
also agree on equal distribution of whatever net profit is partnership?
realized per fiscal period. After two years of operation, SUGGESTED ANSWER:
however, Una conveys her whole interest in the partnership to Yes. The death of a partner will terminate the partnership, by
Justine, without the knowledge and consent of Dielle and express provision of par. 5, Art. 1830 of the Civil Code.
Karlo. Obligations of a Partner (1992)
1. Is the partnership dissolved? W, X, Y and Z organized a general partnership with W and X
12%] as industrial partners and Y and Z as capitalist partners. Y
2. What are the rights of Justine, if any, should she desire to contributed P50,000.00 and Z contributed P20,000.00 to the
participate in the management of the partnership and in the common fund. By a unanimous vote of the partners, W and
distribution of a net profit of P360.000.00 which was realized X were appointed managing partners, without any
after her purchase of Una's interest? [3%] specification of their respective powers and duties.
SUGGESTED ANSWER: A applied for the position of Secretary and B applied for the
1. No, a conveyance by a partner of his whole interest in a position of Accountant of the partnership.
partnership does not of itself dissolve the partnership in the The hiring of A was decided upon by W and X, but was
absence of an agreement. (Art. 1813. Civil Code) opposed by Y and Z.
SUGGESTED ANSWER: The hiring of B was decided upon by W and Z, but was
2. Justine cannot interfere or participate in the management or opposed by X and Y.
administration of the partnership business or affairs. She may, Who of the applicants should be hired by the partnership?
however, receive the net profits to which Una would have Explain and give your reasons.
otherwise been entitled. In this case, P120.000 (Art. 1813, SUGGESTED ANSWER:
Civil Code) of A prevails because it is an act of administration which can
Dissolution of Partnership (1995) be performed by the duly appointed managing partners, W
Pauline, Patricia and Priscilla formed a business partnership and X.
for the purpose of engaging in neon advertising for a term of B cannot be hired, because in case of a tie in the decision of
five (5) years. Pauline subsequently assigned to Philip her the managing partners, the deadlock must be decided by the
interest in the partnership. When Patricia and Priscilla learned partners owning the controlling interest. In this case, the
of the assignment, they decided to dissolve the partnership opposition of X and Y prevails because Y owns the
before the expiration of its term as they had an unproductive controlling Interest (Art. 1801, Civil Code).
business relationship with Philip in the past. On the other Obligations of a Partner; Industrial Partner (2001)
hand, unaware of the move of Patricia and Priscilla but Joe and Rudy formed a partnership to operate a car repair
sensing their negative reaction to his acquisition of Pauline's shop in Quezon City. Joe provided the capital while Rudy
interest, Philip simultaneously petitioned for the dissolution contributed his labor and industry. On one side of their shop,
of the partnership. Joe opened and operated a coffee shop, while on the other
1. Is the dissolution done by Patricia and Priscilla without side, Rudy put up a car accessories store. May they engage in
the consent of Pauline or Philip valid? Explain. such separate businesses? Why? [5%]
2. Does Philip have any right to petition for the SUGGESTED ANSWER:
Joe, the capitalist partner, may engage in the restaurant of her share in the land; moral damages for the mental
business because it is not the same kind of business the anguish, anxiety, moral shock and wounded feelings she had
partnership is engaged in. On the other hand, Rudy may not suffered; exemplary damage by way of example for the
engage in any other business unless their partnership common good, and attorney's fees.
expressly permits him to do so because as an industrial Juana has no cause of action against the buyer who acquired
partner he has to devote his full time to the business of the the land for value and in good faith, relying on the transfer
partnership [Art. 1789, CC). certificate of title showing that Juan is the registered owner
Commodatum&Mutuum of the land.
Commodatum (1993) ANOTHER ANSWER:
A, upon request, loaned his passenger Jeepney to B to enable 1. Under Article 476 of the Civil Code, Juana can file an
B to bring his sick wife from Paniqui.Tarlac to the Philippine action for quieting of title as there is a cloud in the title to the
General Hospital in Manila for treatment. On the way back to subject real property. Second, Juana can also file an action for
Paniqui, after leaving his wife at the hospital, people stopped damages against Juan, because the settled rule is that the
the passenger Jeepney. B stopped for them and allowed them proper recourse of the true owner of the property who was
to ride on board, accepting payment from them just as in the prejudiced and fraudulently dispossessed of the same is to
case of ordinary passenger Jeepneys plying their route. As B bring an action for damages against those who caused or
was crossing Bamban, there was an onrush of Lahar from Mt employed the same. Third, since Juana had the right to her
Pinatubo, the Jeep that was loaned to him was wrecked. 1) share in the property by way of inheritance, she can demand
What do you call the contract that was entered into by the partition of the thing owned in common, under Article
A and B with respect to the passenger Jeepney that was 494 of the Civil Code, and ask that the title to the remaining
loaned by A to B to transport the latter's sick wife to property be declared as exclusively hers.
Manila? 2) Is B obliged to pay A for the use of the passenger However, since the farmland was sold to an innocent purchaser
jeepney? 3) Is B liable to A for the loss of the for value, then Juana has no cause of action against the buyer
Jeepney? consistent with the established rule that the rights of an innocent
SUGGESTED ANSWER: purchaser for value must be respected and protected
1) The contract is called "commodatum". [Art. 1933. Civil notwithstanding the fraud employed by the seller in securing his
Code). COMMODATUM is a contract by which one of the title. (Eduarte vs. CA, 253 SCRA 391)
parties (bailor) delivers to another (bailee) something not ADDITIONAL ANSWER:
consumable so that the latter may use it for a certain time share in the proceeds of the sale with legal interest thereof,
and return it. and (b) such damages as she may be able to prove as having
2) No, B is not obliged to pay A for the use of the passenger been suffered by her, which may include actual or
Jeepney because commodatum is essentially gratuitous. (Art. compensatory damages as well as moral and exemplary
1933. Civil Code] damages due to the breach of trust and bad faith (Imperial
3) Yes, because B devoted the thing to a purpose different vs. CA, 259 SCRA 65). Of course, if the buyer knew of the
from that for co-ownership over the lot he was buying, Juana can seek (c)
reconvenyance of her one-half share instead but she must
TRUST implead the buyer as co-defendant and allege his bad faith in
Express Trust; Prescription (1997) purchasing the entire lot. Finally, consistent with the ruling in
On 01 January 1980, Redentor and Remedies entered into an Imperial us. CA. Juana may seek instead (d) a declaration that
agreement by virtue of which the former was to register a she is now the sole owner of the entire remaining lot on the
parcel of land in the name of Remedies under the explicit theory that Juan has forfeited his one-half share therein.
covenant to reconvey the land to Remigio, son of Redentor, ADDITIONAL ANSWER:
upon the son's graduation from college. In 1981, the land 1. Juana can file an action for damages against Juan for having
was registered in the name of Remedies. fraudulently sold one of the two parcels which he partly held
Redentor died a year later or in 1982. In March 1983, Remigio in trust for Juana's benefit. Juana may claim actual or
graduated from college. In February 1992, Remigio compensatory damage for the loss of her share in the land;
accidentally found a copy of the document so constituting moral damages for the mental anguish, anxiety, moral shock
Remedies as the trustee of the land. In May 1994, Remigio and wounded feelings she had suffered; exemplary damage by
filed a case against Remedies for the reconveyance of the land way of example for the common good, and attorney's fees.
to him. Remedies, in her answer, averred that the action Juana has no cause of action against the buyer who acquired
already prescribed. How should the matter be decided? the land for value and in good faith, relying on the transfer
SUGGESTED ANSWER: certificate showing that Juan is the registered owner of the
CIVIL LAW Answers to the BAR as Arranged by Topics (Year land.
1990-2006) SUGGESTED ANSWER:
The matter should be decided in favor of Remigio (trustee) 1. 2. Juana's suit to have herself declared as sole owner of the
Juana has the right of action to recover (a) her one-half entire remaining area will not prosper because while Juan's
because the action has not prescribed. The case at bar act in selling the other lot was wrongful. It did not have the
involves an express trust which does not prescribe as long as legal effect of forfeiting his share in the remaining lot.
they have not been repudiated by the trustee (Diaz vs. However, Juana can file an action against Juan for partition
Gorricho.103 Phil, 261). or termination of the co-ownership with a prayer that the lot
Implied Trust (1998) sold be adjudicated to Juan, and the remaining lot be
Juan and his sister Juana inherited from their mother two adjudicated and reconveyed to her.
parcels of farmland with exactly the same areas. For ANOTHER ANSWER:
convenience, the Torrens certificates of title covering both 2. The suit will prosper, applying the ruling in Imperial vs.
lots were placed in Juan's name alone. In 1996, Juan sold to CA cited above. Both law and equity authorize such a result,
an innocent purchaser one parcel in its entirety without the said the Supreme Court.
knowledge and consent of Juana, and wrongfully kept for Strictly speaking, Juana's contention that her brother had
himself the entire price paid. forfeited his share in the second lot is incorrect. Even if the
1. What rights of action, if any, does Juana have against two lots have the same area, it does not follow that they have
and/or the buyer? |3%] the same value. Since the sale of the first lot on the Torrens
2. Since the two lots have the same area, suppose Juana title in the name of Juan was valid, all that Juana may recover
flies a complaint to have herself declared sole owner of the is the value of her undivided interest therein, plus damages.
entire remaining second lot, contending that her brother had In addition, she can ask for partition or reconveyance of her
forfeited his share thereof by wrongfully disposing of her undivided interest in the second lot, without prejudice to any
undivided share in the first lot. Will the suit prosper? [2%] agreement between them that in lieu of the payment of the
SUGGESTED ANSWER: value of Juana's share in the first lot and damages, the second
1. When, for convenience, the Torrens title to the two parcels lot be reconveyed to her.
of land were placed in Joan's name alone, there was created ALTERNATIVE ANSWER:
an implied trust (a resulting trust) for the benefit of Juana 2. The suit will not prosper, since Juan's wrongful act of
with Juan as trustee of one-half undivided or ideal portion of pocketing the entire proceeds of the sale of the first lot is not
each of the two lots. Therefore, Juana can file an action for a ground for divesting him of his rights as a co-owner of the
damages against Joan for having fraudulently sold one of the second lot. Indeed, such wrongdoing by Juan does not
two parcels which he partly held in trust for Juana's benefit. constitute, for the benefit of Juana, any of the modes of
Juana may claim actual or compensatory damage for the loss acquiring ownership under Art. 712, Civil Code.
CIVIL LAW Answers to the BAR as Arranged by Topics (Year on all sales. After the delivery of the merchandise to B but
1990-2006) before he could sell any of them, B’s store in Isabela was
Trust; Implied Resulting Trust (1995) completely burned without his fault, together with all of A's
In 1960, Maureen purchased two lots in a plush subdivision pants. Must B pay A for his lost pants? Why? (5%)
registering Lot 1 in her name and Lot 2 in the name of her SUGGESTED ANSWER:
brother Walter with the latter's consent. The idea was to The contract between A and B is a sale not an agency to sell
circumvent a subdivision policy against the acquisition of because the price is payable by B upon 60 days from delivery
more than one lot by one buyer. Maureen constructed a house even if B is unable to resell it. If B were an agent, he is not
on Lot 1 with an extension on Lot 2 to serve as a guest house. bound to pay the price if he is unable to resell it.
In 1987, Walter who had suffered serious business losses As a buyer, ownership passed to B upon delivery and, under
demanded that Maureen remove the extension house since Art. 1504 of the Civil Code, the thing perishes for the owner.
the lot on which the extension was built was his property. In Hence, B must still pay the price.
1992, Maureen sued for the reconveyance to her of Lot 2 Contract of Sale; Marital Community Property; Formalities
asserting that a resulting trust was created when she had the (2006)
lot registered in Walter's name even if she paid the purchase Spouses Biong and Linda wanted to sell their house. They
price. Walter opposed the suit arguing that assuming the found a prospective buyer, Ray. Linda negotiated with Ray for
existence of a resulting trust the action of Maureen has already the sale of the property. They agreed on a fair price of P2
prescribed since ten years have already elapsed from the Million. Ray sent Linda a letter confirming his intention to
registration of the title in his name. Decide. Discuss fully. buy the property. Later, another couple, Bernie and Elena,
SUGGESTED ANSWER: offered a similar house at a lower price of P 1.5 Million. But
This is a case of an implied resulting trust. If Walter claims to Ray insisted on buying the house of Biong and Linda for
have acquired ownership of the land by prescription or if he sentimental reasons. Ray prepared a deed of sale to be signed
anchors his defense on extinctive prescription, the ten year by the couple and a manager's check for P2 Million. After
period must be reckoned from 1987 when he demanded that receiving the P2 Million, Biong signed the deed of sale.
Maureen remove the extension house on Lot No. 2 because However, Linda was not able to sign it because she was
such demand amounts to an express repudiation of the trust abroad. On her return, she refused to sign the document
and it was made known to Maureen. The action for saying she changed her mind. Linda filed suit for nullification
reconveyance filed in 1992 is not yet barred by prescription. of the deed of sale and for moral and exemplary damages
(Spouses Huang v. Court of Appeals, Sept. 13, 1994). against Ray.
SALES Will the suit prosper? Explain. (2.5)
Assignment of Credit vs. Subrogation (1993)
Peter Co, a trader from Manila, has dealt business with Allied
Commodities in Hongkong for five years. All through the
years, Peter Co accumulated an indebtedness of P500,000.00 ------------------------------------
with Allied Commodities. Upon demand by its agent in
Manila, Peter Co paid Allied Commodities by check the TAXATION LAW BAR EXAMINATION 2019 QUESTIONS
amount owed. Upon deposit in the payee's account in Manila,
the check was dishonored for insufficiency of funds. For and
in consideration of P1.00, Allied Commodities assigned the
credit to HadjiButu who brought suit against Peter Co in the
RTC of Manila for recovery of the amount owed. Peter Co AND SUGGESTED ANSWERS
moved to dismiss the complaint against him on the ground
thatHadjiButu was not a real party in interest and, therefore,
without legal capacity to sue and that he had not agreed to a
subrogation of creditor. Will Peter Co's defense of absence of A.1.
agreement to a subrogation of creditor prosper?
SUGGESTED ANSWER:
No, Co's defense will not prosper. This is not a case of
subrogation, but an assignment of credit. ASSIGNMENT OF On October 5, 2016, the Bureau of Internal Revenue (BIR)
CREDIT is the process of transferring the right of the sent KLM Corp. a Final Assessment Notice (FAN), stating that
assignor to the assignee. The assignment may be done either after its audit pursuant to a Letter of Authority duly issued
gratuitously or onerously, in which case, the assignment has
therefor, KLM Corp. had deficiency value-added and
an effect similar to that of a sale (Nyco Sales Corp.v.BA
Finance Corp. G.R No.71694. Aug.16, 1991 200 SCRA withholding taxes. Subsequently, a warrant of distraint and/or
637).As a levy was issued against KLM Corp. KLM Corp. opposed the
result of the assignment, the plaintiff acquired all the rights of actions of the BIR on the ground that it was not accorded due
the assignor including the right to sue in his own name as the process because it did not even receive a Preliminary
legal assignee. In assignment, the debtor's consent is not Assessment Notice (PAN) after the BIR’s investigation, which
essential for the validity of the assignment the BIR admitted.
(Art. 1624; 1475. CC; Rodriguez v. CA, et al, G. R No. 84220,
March 25. 1992 207 SCRA 553).
ALTERNATIVE ANSWER:
No, the defense of Peter Co will not prosper. HadjiButu
validly acquired his right by an assignment of credit under Distinguish a PAN from a FAN. (2%)
Article 1624 of the Civil Code. However, the provisions on
the contract of sale (Article 1475 Civil Code) will apply, and Are the deficiency tax assessment and warrant of distraint
the transaction is covered by the Statute of Frauds. (Art. and/or levy issued against KLM Corp. valid? Explain. (3%)
1403 par. (2) Civil Code)
Conditional Sale vs. Absolute Sale (1997) SUGGESTED ANSWERS:
Distinguish between a conditional sale, on the one hand, and
an absolute sale, on the other hand.
SUGGESTED ANSWER:
A CONDITIONAL SALE is one where the vendor is A PAN is a communication issued by the Regional Assessment
granted the right to unilaterally rescind the contract predicated Division, or any other concerned BIR Office, informing a
on the fulfillment or non-fulfillment, as the case may be, of
Taxpayer who has been audited of the findings of the Revenue
the prescribed condition. An ABSOLUTE SALE is one
where the title to the property is not reserved to the vendor or Officer, following the review of these findings. If the Taxpayer
if the vendor is not granted the right to rescind the contract disagrees with the findings stated in the PAN, he shall then
based on the fulfillment or nonfulfillment, as the case may be, have fifteen (15) days from his receipt of the PAN to file a
of the prescribed condition. written reply contesting the proposed assessment.
Contract of Sale vs. Agency to Sell (1999)
A granted B the exclusive right to sell his brand of Maong A FAN, on the other hand, is a declaration of deficiency taxes
pants in Isabela, the price for his merchandise payable within issued to a taxpayer who:
60 days from delivery, and promising B a commission of 20%
fails to respond to a PAN within the prescribed period of time, The destination principle provides that the destination of the
or (2) whose reply to the PAN was found to be without merit. A goods determines taxation or exemption from tax. Export sales
FAN contains not only a computation of tax liabilities, but also of goods are subject to 0% rate (or zero-rated), while
a demand for payment within a prescribed period. The formal importations of goods are subject to the 12% VAT. Exports are
letter of demand calling for payment of the taxpayer’s zero-rated because the consumption of such goods will be
deficiency tax or taxes shall state the facts, the law, rules and made outside the Philippines, while imports of goods are
regulations, or jurisprudence on which the assessment is subject to 12% VAT because they are for consumption within
based, otherwise, the formal letter of demand and the notice of the Philippines.
assessment shall be void. If the Taxpayer disagrees with the
findings stated in the FAN, he shall then have thirty (30) days A.3.
from receipt of FAN to file a protest, either a request for
reconsideration or a request for reinvestigation.

No, the deficiency tax assessment and warrant of distraint All the homeowners belonging to ABC Village Homeowners’
and/or levy issued against KLM Corp. are not valid because Association elected a new set of members of the Board of
KLM Corp. did not receive a PAN. After the investigation of Trustees for the Association effective January 2019. The first
BIR, if it is determined that there exists sufficient basis to thing that the Board looked into is the need to increase the
assess the taxpayer for any deficiency tax or taxes, the BIR prevailing association dues. Mr. X, one of the trustees,
shall issue to the taxpayer, at least by registered mail, a proposed an increase of 100% to account for the payment of
the 12% value-added tax (VAT) on the association dues which
PAN for the proposed assessment, showing in detail the facts were being collected for services allegedly rendered “in the
and the law on which the assessment is based. The taxpayer course of trade or business” by ABC Village Homeowners’
must be informed of his liability for deficiency taxes through a Association.
PAN and the non-service of a PAN is fatal to the validity of the
assessment.

What constitutes transactions done “in the course of trade or

business” for purposes of applying VAT? (2%)
A.2.
Is Mr. X correct in stating that the association dues are subject
to VAT? Explain. (3%)

For purposes of value-added tax, define explain or distinguish SUGGESTED ANSWERS:

the following terms:

Transactions done “in the course of trade or business” refer to

Input tax and output tax (3%) the sale, barter, exchange, lease of goods or properties,
service by persons, and the importation of goods in the regular
Zero-rated and effectively zero-rated transactions (3%) conduct or pursuit of a commercial or an economic activity,
including transactions incidental thereto.
Destination principle (2%)
Yes, Mr. X is correct in stating that the association dues are
SUGGESTED ANSWERS: subject to VAT.

Association dues, membership fees, and other assessments

and charges are exempt from VAT but only to the extent of
Input tax is the VAT that is added to the price on the purchase those collected on a purely reimbursement basis by
of goods and services, and on the importation of goods or homeowners’ associations. In this case, the association dues
services; while an Output tax is the VAT that is calculated and were being collected for services allegedly rendered “in the
charged on the sale of goods and services, and on the lease of course of trade or business”. Thus, the association dues
property from a VAT- registered person. Input tax may either collected by ABC Village Homeowners’ Association are subject
be a regular 12% input VAT, a 2% transitional input VAT, or a to VAT.
4% presumptive input VAT; while Output tax may either be a
regular 12% VAT or 0% VAT.

Zero-rated transactions generally refer to the export sale of A.4.

good and supply of services. The tax rate is set at zero. The
seller of such transactions charges no output tax, but can claim
a refund of or a tax credit certificate for the VAT previously
charged by suppliers. Due to rising liquidity problems and pressure from its
concerned suppliers, P. Corp. instituted a flash auction sale of
Effectively zero-rated transactions, however, refer to the sale its shares of stock. P. Corp. was then able to sell its treasury
of goods or supply of services to persons or entities whose shares to Z, Inc., an unrelated corporation, for P1, 000, 000.00,
exemption under special laws or international agreements to which was only a little below the valuation of P Corp.’s shares
which the Philippines is a signatory effectively subjects such based on its latest audited financial statements. In connection
transactions to zero rate. The seller can also claim a refund of therewith, P Corp. sought a Bureau of Internal Revenue ruling
a tax credit certificate for the VAT previously charged to to confirm that, notwithstanding the price difference between
customers. the selling price of the shares and their book value, the said
transaction falls under one of the recognized exemptions to
donor’s tax under the Tax Code.

A zero-rated transaction benefits the seller, while an effectively

zero-rated transactions benefits the purchaser.
Cite the instances under the Tax Code where gifts made are the effectivity date of the TRAIN Law which is January 1, 2018.
exempt from donor’s tax. (3%) Since the decedent died on December 2018, the operative law
in force at this time is the TRAIN Lawn. The said law removed
Does the above transaction fall under any of the exemption? funeral expenses from the list of deductible items for purposes
Explain. (2%) of estate taxation.

SUGGESTED ANSWERS:

The conditions for the deductibility of family home from the

gross estate of the decedent are as follows:
The following are the instances where gifts made are exempt
from donor’s tax:

Gifts made to or for the use of the National Government or any The family home must be the actual residential home of the
entity created by any of its agencies which is not conducted for decedent and his family at the time of his death, as certified by
profit, or to any political subdivision of the said Government; the barangay captain of the locality where the family home is
and, situated;

Gifts in favor of an educational and/or charitable, religious, The total value of the family home must be included as part of
cultural or social welfare corporation, institution, accredited the gross estate of the decedent; and
nongovernment organization, trust or philanthropic
organization or research institution or organization, not more Allowable deduction must be an amount equivalent to the
than 30% of said gifts shall be used by such donee for current fair market value of the decedent’s family home as
administration purposes. declared or included in the gross estate; or the extent of the
decedent’s interest (whether conjugal/community, or exclusive
No, the transaction does not fall under any of the exemption. property, whichever is lower, but not exceeding 10, 000,000.00
However, the transaction may still be exempt from donor’s tax pesos. ( R.R. No. 12-2018, Sec 6(7) (7.2)).
even when the shares of stock were sold on a selling price that
is less than the fair market value of the shares provided that Considering that all the said requisites are complied with, the
the sale is made in the ordinary course of business, in a Php 10,000,000.00 pesos, the amount pertaining to the value
transaction which is a bona fide, at arm’s length, and free from of the decedent’s family home is deductible from the gross
any donative intent. estate of A.

A.5.

Yes, the heirs can claim a standard deduction in the amount of

5,000,000.00.
A, a resident Filipino citizen, died in December 2018. A’s only
assets consist of a house and lot in Alabang, where his heirs As provided under R.R. No. 12-2018, the value of the net
currently reside, as well as a house in Los Angeles, California, estate of a citizen or resident alien of the Philippines shall be
USA. In computing A’s taxable net estate, his heirs only subject to a standard deduction. A deduction in the amount of
deducted: five million pesos shall be allowed without need of a
substantiation. The full amount of the five million pesos shall
be allowed as deduction for the benefit of the decedent (R.R.

10, 000,000.00 Pesos constituting the value of their house in

Alabang as their family home;
No. 12-2018, Sec. 6(1). Since A is a resident filipino citizen, the
200,000.00 in funeral expenses because no other expenses heirs of the said decedent can claim a standard deduction in
count be substantiated. the amount of 5,000,000.00.

Are both deductions claimed by A’s heirs correct? Explain.

(2%)
Yes, for estate tax purposes, the heirs should include the value
May a standard deduction be claimed by A’s heirs? If so, how of the A’s house in Los Angeles California, USA.
much and what proof needs to be presented for the same to be
validly made? (2%) As provided under the the TRAIN Law and R.R. No. 12-2018,
for purposes of computing the estate tax of a resident or a
In determining the gross estate of A, should the heirs include Filipino citizen, all properties, real or personal, tangible or
A’s house in Los Angeles, California, USA? Explain. (2%) intangible, wherever situated shall be included in determining
the gross estate. Since A was a resident Filipino citizen, the
SUGGESTED ANSWERS: properties of A within and outside the Philippines should be
included in determining his or her gross estate. Hence, the
heirs of A should include A’s house in Los Angeles, California,
No, only the amount pertaining to the value of the decedent’s USA in determining the latter’s gross estate.
family home is deductible from the gross estate, provided that
the conditions for the deductibility of a family are complied with.
Funeral expenses are not considered deductible items under A.6.
R. A. No. 10963.

Estate taxation is governed by the statute in force at the time of

the death of the decedent. The tax rates and procedures XYZ Air, a 100% foreign-owned airline company based and
prescribed by R. A. No. 10963, otherwise known as the Tax registered in Netherlands, is engaged in the international
Reform for Acceleration and Inclusion Law and R.R. No. 12- airline business and is a member signatory of the International
2018 shall govern the estate of decedent who died on or after Air Transport Association. It’s commercial airplanes neither
operate within the Philippine territory nor as its service the former is flow of wealth to the taxpayer which are not
passengers embarking from Philippine airports. Nevertheless, treated as part of gross income for purposes of computing the
XYZ Air is able to sell its airplane tickets in the Philippines taxpayer’s taxable income due to the following reasons
through ABC Agency, it’s general agent in the Philippines. As
XYZ Air’s ticket sales, sold through ABC Agency for the year
2013, amounted to 5,000,000. 00, the Bureau of Internal
Revenue (BIR) assessed XYZ Air deficiency income taxes on it is exempted by the fundamental law;
the ground that the income from the said sales constituted
b. It is exempted by a statute; and
income derived from sources within the Philippines.
c. It does not fall within the definition of income.

On the other hand, tax deductions are the amounts which the
Aggrieved, XYZ Air filed a protest, arguing that, as a non-
law allows to be subtracted from gross income in order to
resident foreign corporation, it should only be taxed for income
arrive at net income.
derived from sources within the Philippines. However, since it
only serviced passengers outside the Philippine territory, the
situs of the income from its ticket sales should be considered
outside the Philippines. Hence, no income tax should be A.8.
imposed on the same.

B transferred his ownership over a 1,000-square meter

Is XYZ Air’s protest meritorious? Explain. (5%) commercial land and three- door apartment to ABC Corp., a
family corporation of which B is a stockholder. The transfer
was in exchange of 10,000 shares of stock of ABC Corp. As a
result, B acquired 51% ownership of ABC Corp., with all the
SUGGESTED ANSWER:
shares of stock having the right to vote. B paid no tax on the
exchange, maintaining that it is a tax avoidance scheme
allowed under the law. The Bureau of Internal Revenue, on the
No, the protest of XYZ Air is not meritorious. other hand, insisted that B’s alleged scheme amounted to tax
evasion.

Under the law, an international air carrier with no landing rights

in the Philippines is a resident foreign corporation if its local Should B pay taxes on the exchange? Explain. (3%)
sales agent sells and issues tickets in its behalf. An offline
international carrier selling passage tickets in the Philippines
through a local general sales agent, is considered a resident
SUGGESTED ANSWER:
foreign corporation doing business in the Philippines. As such,
it is taxable

No, B should not pay taxes on the said exchange.

on income derived from sources within the Philippines and not
on Gross Philippine Billings, subject to any applicable tax
treaty. (Air Canada vs. Commissioner of Internal Revenue G.R. As a general rule, upon the sale or exchange of property, the
No. 169507, January 11,2016). entire amount of the gain or loss, as the case may be, shall be
recognized. One of the accepted exceptions to th said rule is
when a property is transferred to a corporation by a person in
exchange for stock or unit of participation in such a corporation
In the case at bar, XYZ Air was able to sell its airplane tickets
of which as a result of such exchange said person, alone or
in the Philippines through ABC Agency, it’s general agent in
together with others, not exceeding four persons, gains control
the Philippines. As such, it is taxable on income derived from
of said corporation: provided, that stocks issued for services
sources within the Philippines and not on Gross Philippine
shall not be considered as issued in return for property (NIRC.
Billings, subject to any applicable tax treaty.
Sec. 40 C (6)(c)). Moreover, control, in the said case, means
ownership of stocks in a corporation possessing at least (51%)
of the total voting power of all classes of stocks entitled to vote.
A7.

In the case, B transferred his ownership over a 1,000-square

Differentiate tax exclusions from tax deductions. (3%) meter commercial land and three-door. As a result, B acquired
51% ownership of ABC Corp., with all the shares of stock
having the right to vote.

SUGGESTED ANSWER:

A.9.

Tax exclusions pertain to the computation of gross Income

while tax deductions pertain to computation of net Income. Tax
exclusions are something received or earned by the taxpayer GHI Inc., is a corporation authorized to engage in the business
which do not form part of gross income while tax deductions of manufacturing ultra-high density microprocessor unit
are something spent or paid in earning gross income. Lastly, packages. After its registration on July 5, 2005, GHI, Inc.
constructed buildings and purchased machineries and
equipment. As of December 31, 2005, the total cost of the With regard to the first contention, ABC Corp is incorrect.
machineries and equipment amounted to P250,000,000.00. Under the NIRC, direct double taxation exists only when all of
However, GHI, Inc. failed to commence operations. Its factory the following requisites are present:
was temporarily closed effective Sept 15, 2010. On October 1,
2010, it sold its machineries and equipment to JKL Integrated
for P300,000,000.00. Thereafter, GHI, Inc. was dissolved on
November 30, 2010. The two taxes must be imposed on the same:

Is the sale of machineries and equipment to JKL Integrated subject matter,

subject to normal corporate income tax or capital gains tax?
purpose,
Explain. (3%)
by the same taxing authority,
Distinguish an ordinary asset from a capital asset. (2%)
within the same jurisdiction
SUGGESTED ANSWER:
during the same taxing period;

the taxes must be of the same kind or character.

The sale of machineries and equipment to JKL Integrated is
subject to normal corporate income tax. Under Sec. 27 D sub. In this case, the taxing authorities are different. Hence, the tax
Par. 5 of the NIRC, a corporation is only subject to capital to be imposed by the LGU is not a form of direct double
gains tax for the sale of land and buildings. In this case, GHI taxation.
Inc., a corporation, sold machineries and equipment. Hence,
the sale is subject to normal corporate income tax.

The following are the distinctions between an ordinary asset With regard to the second contention, ABC Corp is incorrect.
from a capital asset: Under the LGC, LGU’s are empowered to enact ordinances
that will aid in their revenue generation, which is consonance
As to taxability, an ordinary asset is subject to income tax; with the principle of the fiscal autonomy of LGU’s. Although the
whereas, a capital asset is subject to capital gains tax; tax to be imposed is akin to VAT, the LGU may nevertheless
impose such local business tax.
As to nature, as a rule, an ordinary asset is regularly used in
the normal course of trade or business; whereas, a capital
asset is an asset not regularly used in the normal course of
trade or business B.11.

Under Sec. 39 of the NIRC,tThe term ‘capital assets’ means

property held by the taxpayer (whether or not connected with
his trade or business), but does not include stock in trade of Mr. D, a Filipino amateur boxer, joined an Olympic qualifying
the taxpayer or other property of a kind which would properly tournament held in Las Vegas, USA, where he won the gold
be included in the inventory of the taxpayer if on hand at the medal. Pleased with Mr. D’s accomplishment, the Philippine
close of the taxable year or property held by the taxpayer Government, through the Philippine Olympic Committee,
primarily for sale to customers in the ordinary course of his awarded him a cash prize amounting to P1,000,000.00. Upon
trade or business, or property used in the trade or business, of receipt of the funds, he went to a casino in Pasay City and won
a character which is subject to the allowance for depreciation the P30,000,000.00 jackpot in the slot machine. The next day,
provided in Subsection (F) of Section 34; or real property used he went to a nearby Lotto outlet and bought a Lotto ticket
in trade or business of the taxpayer. which won him a cash prize of P5,000.00.

A.10. Which of the above sums of money is/are subject to income

tax? Explain (5%)

In 2018, City X amended its Revenue Code to include a new

provision imposing a tax on every sale of merchandise by a SUGGESTED ANSWER:
wholesaler based on the total selling price of the goods,
inclusive of value-added taxes (VAT). ABC Corp., a wholesaler
operating within the city, challenged the new provision based
on the following contentions: 1. The new provision is a form of Mr. D’s winnings from the casino in Pasay City, worth
prohibited double taxation because it essentially amounts to P30,000,000.00 is subject to income tax. Under the TRAIN
City X imposing VAT which was already being levied by the Law, other prizes and winnings in excess of P10,000 shall be
national government; and 2. since the tax being imposed is subject to a 20% final tax on the entire amount of the winnings.
akin to VAT, it is beyond the power of City X to levy the same. In this case, Mr. D’s winnings from the casino in Pasay City are
more than P10,000. Hence, it shall be subject to income tax.

Rule on each of ABC Corp.’s contentions. (5%)

With regard to Mr. D’s cash prize award after winning in an
Olympic qualifying tournament held in Las Vegas, it is not
subject to income tax. Under the NIRC, prizes and awards
SUGGESTED ANSWER: granted to athletes in local and international sports
competitions and tournaments whether held in the PH or
abroad and sanctioned by their national sports associations,
which in this case is the Philippine Olympic Committee, shall NIRC, non-resident aliens not engaged in trade or business
not be subject to income tax. are subject to a flat of rate of 25% based on the gross income.
The NIRC states that non-resident aliens that have an
aggregate number of days staying in the

With regard to Mr. D’s Lotto winnings, it is not subject to Philippines less than 180 days, are considered to be not
income tax. Under the NIRC, any winnings through the PCSO engaged in trade or business. In this case, Mr. J only stayed
Lotto that are in the amount of P10,000 or less shall be exempt for five months or 150 days in the Philippines. Hence, he is
from income tax. In this case, Mr. D won P5,000 thru the considered as a NRANETB, and shall be subjected to flat rate
PCSO Lotto. Hence, it shall not be subject to income tax. of 25% based on gross income earned within the Philippines.

B.12. B.13.

JKL-Philippines is a domestic corporation affiliated with JKL- As a way to augment the income of the employees of DEF Inc.,
Japan, a Japan-based information technology company with a private corporation, the management decided to grant a
affiliates across the world. Mr. F is a Filipino engineer special stipend of P50,000.00 for the first vacation leave that
employed by JKL-Philippines. In 2018, Mr. F was sent to the any employee takes during a given calendar year. In addition,
Tokyo branch of JKL-Japan based on a contract entered into the senior engineers were also giving housing inside the
between the two (2) companies. Under the said contract, Mr. F factory compound for the purpose of ensuring that there are
would be compensated by JKL-Philippines for the months available engineers within the premises everytime there is a
spent in the Philippines, and JKL-Japan for months spent in breakdown in the factory machineries and equipment.
Japan. For the entirety of 2018, Mr. F spent ten (10) months in
the Tokyo branch.

Is the special stipend part of the taxable income of the

employees receiving the same? I f so, what tax is applicable
On the other hand, Mr. J., a Japanese engineer employed by and what tax rate? Explain. (3%)
JKL-Japan, was sent to Manila to work with JKL-Philippines as
a technical consultant. Based on the contract between the two Is the cash equivalent value of the housing facilities received
(2) companies, Mr. J’s annual compensation would still be paid by the senior engineers subject to fringe benefits tax? Explain.
by JKL- Japan. However, he would be paid additional (3%)
compensation by JKL-Philippines for the months spent working
as a consultant. For 2018, Mr. J stayed in the Philippines for SUGGESTED ANSWER:
five (5) months.

Yes, the special stipend is part of the taxable income of the

In 2019, the Bureau of Internal Revenue (BIR) assessed JKL- employees since the same may very well be considered
Philippines for deficiency withholding taxes for both Mr. F and income on his part.
Mr. J for the year 2018. As to Mr. F, the BIR argued that he is a
resident citizen, hence, his income tax should be based on his No, the cash equivalent value of the housing facilities received
worldwide income. As to Mr. J, the BIR argued that he is a by the senior engineers is not subject to fringe benefits tax.
resident alien; hence, his income tax should be based on his The same is exempt from FBT since the housing is located
income from sources within the Philippines at a schedular rate within the Company’s premises and is generally for the
under Sec 24 (A) (2) of the Tax Code, as amended by convenience of the employer.
Republic Act No. 10963, or the “Tax Reform for Acceleration
B.14.
and Inclusion” Law.

City R owns a piece of land which it leased to V Corp. In turn,

Is the BIR correct in basing its income tax assessment on Mr.
V Corp. constructed a public market thereon and leased the
F’s worldwide income? Explain. (3%)
stalls to vendors and small storeowners. The City Assessor
Is the BIR correct in basing its income tax on Mr. J’s income then issued a notice of assessment against V Corp. for the
within the Philippines at a schedular rate? Explain (3%). payment of real property taxes (RPT) accruing on the public
market building, as well as on the land where the said market
SUGGESTED ANSWER: stands.

No, the BIR is not correct in basing its income tax assessment Is the City Assessor correct in including the land in its
on Mr. F’s worldwide income. Under the NIRC, non-resident assessment of RPT against V Corp., even if the same is
citizens are only taxed for income earned within the owned by City R? Explain (3%)
Philippines. In this case, the hybrid status of the taxpayer
cannot be applied, regardless of his initial 2-month stay in the
Philippines and subsequent transfer to Japan. For all intents
SUGGESTED ANSWER:
and purposes, F is considered a non-resident citizen in the
year 2018. Hence, the income tax for 2018 should only be
assessed on income earned within the Philippines.
Yes. Under Section 234 of the Local Government Code, real
No, the BIR is not correct in basing its income tax on Mr. J’s property owned by the Republic of the Philippines or any of its
income within the Philippines at a schedular rate. Under the
political subdivision is exempt from payment of real property Who are the withholding agents in the case of: 1. The 20%
tax except when the beneficial use thereof has been granted, final withholding tax; and 2. The 2% creditable withholding tax?
for consideration or otherwise, to a taxable person or entity. Explain. (2.5%)

When is the deadline for filing a judicial claim for refund for any
excess or erroneous taxes paid in the case of: 1. The 20% final
B.15. withholding tax; and 2. The 2% creditable withholding tax?
(2.5%)

SUGGESTED ANSWER:
Mr. C is employed as a Chief Executive Officer of MNO
Company, receiving an annual compensation of
P10,000,000.00 while Mr. S is a security guard in the same
company earning an annual compensation of P200,000.00. For the 20% final withholding tax, the withholding agent is ABC
Both of them source their income only from their employment Bank being in control of the payment subject to withholding tax.
with MNO Company. (R.R. 2-98, Sec. 2.57.3). On the other hand, XYZ Corporation
is the withholding agent for the 2% creditable withholding tax
being the party paying for the interest payments on the loan
secured, and being listed as a top 20,000 Philippine
At the end of the year, is Mr. C personally required to file an Corporation by the BIR. (RR No. 6-2009).
annual income tax return? Explain. (2.5%)
The deadline for filing a judicial claim for refund for any excess
How about Mr. S? Is he personally required to file an annual or erroneous taxes paid for both the (1) 20% final withholding
income tax return? Explain. (2.5%) tax and (2) the 2% creditable withholding tax is two

SUGGESTED ANSWER: (2) years from the date of payment of the tax. (Section 229,
NIRC).

No, individuals receiving purely compensation income from a

single employer, which has been correctly withheld are no B.18.
longer required to file their annual ITR.

No, individuals receiving purely compensation income from a

single employer, which has been correctly withheld are no After a Bureau of Internal Revenue (BIR) audit, T. Corp., a
longer required to file their annual ITR. domestic corporation engaged in buying and selling of scrap
metals, was found to have deficiency income tax of Php
B.16. 25,000,000.00, including interests and penalties, for the year
2012. For 2012, T Corp. filed its income return (ITR) on April
15, 2013 because it used the calendar year for its accounting.
Differentiate between a calendar year and a fiscal year. (2.5%) The BIR sent the Preliminary Assessment Notice (PAN) on
December 23, 2015, and eventually, the Final Assessment
When is the deadline for the filing of a corporation’s final Notice (FAN) on April 11, 2016, which were received by T
adjustment return for a calendar year? How about for a fiscal Corp. on the same dates that they were sent. Upon receipt of
year? (2.5%) the FAN, T Corp. filed it protest letter on June 25, 2016.

SUGGESTED ANSWER:

Thereafter, and without action from the Commissioner of

Internal Revenue (CIR), T. Corp. filed a petition for review
Calendar year means an accounting period of twelve months before the Court of Tax Appeals, alleging that the assessment
ending on the last day of December. On the other hand, fiscal has prescribed. For its part, the CIR moved to dismiss the
year means an accounting period of twelve months ending on case, pointing out that the assessment had already become
the last day of any month other than the month of December. final because the protest was filed beyond the allowable
period.
For a calendar year, the final return should be filed on or
before the 15th day of April following the close of the taxable
year. For a fiscal year, the final return is filed on or before the
15th day of the 4th month following the close of the taxable Is T Corp.’s contention regarding the prescription of the
year. assessment meritorious? Explain. (2.5%)

B.17. Should the CIR’s motion to dismiss be granted? Explain (2.5%)

SUGGESTED ANSWER:

No, T Corp.’s contention regarding prescription of the

XYZ Corp. is listed as a top 20,000 Philippine corporation by assessment is not meritorious.
the Bureau of Internal Revenue. It secured a loan from ABC
Bank with a 6% per annum interest. All interest payments Under Section 203 of the National Internal Revenue Code, as
made by XYZ Corp. to ABC Bank is subject to a 2% creditable a general rule, internal revenue taxes shall be assessed within
withholding tax. At the same time, XYZ Corp. has a trust three (3) years after the last day prescribed by law for the filing
deposit with ABC Bank in the amount of Php100,000,000.00, of the return. The deadline for filing the annual income tax
which earns a 2% interest per annum, but is subject to a 20% return (ITR) of corporations is the 15th day of the 4th month
final withholding tax on the interest income received by XYZ following the close of the fiscal year.
Corp.
Here, the 15 day of the 4th month following the close of the or penalty. However, Section 229 of the NIRC further states
fiscal year 2012 of T Corp. is April 15, 2013, which is also the the condition that a judicial claim for refund may not be
date the ITR of T Corp. was filed. The BIR has until April 15, maintained until a claim for refund or credit has been duly filed
2016 to assess for proper taxes. The FAN was sent to and with the Commissioner. However, Section 229 does not imply
received by T Corp. on April 11, 2016, which is within the that the Collector of Internal Revenue (CIR) first act upon the
prescriptive period. taxpayer’s claim, and that the taxpayer shall not go to court
before he is notified of the Collector’s action. The claim with
the CIR was intended primarily as a notice of warning that
unless the tax or penalty alleged to have been collected
Yes, the CIR’s motion to dismiss should be granted. erroneously or illegally is refunded, court action will follow, but
the period of two years provided in the last clause shall not be
The taxpayer or authorized representative or agent has thirty
deemed interrupted pending consideration of the claim. (CBK
(30) days from date of receipt of the FAN to protest the same.
Power Company vs CIR, G.R. No. 193383-84, January 14,
If the taxpayer fails to file a valid protest against the FAN within
2014).
30 days, the assessment shall become final executory and
demandable. (RR18-13).

No, the answer will not be the same.

Here, T Corp. received the FAN on April 11, 2016. T. Corp has For value-added tax (VAT) refunds, Section 112 of the Tax
until May 11, 2016 to protest the same. However, T Corp. only Code provides that the taxpayer, whose sales are zero-rated or
filed the protest letter on June 25, 2016. effectively zero-rated, has two years after the close of the
taxable quarter when the sales were made, to apply for an
administrative claim for refund. Thereafter, the Commissioner
Thus, the motion to dismiss should be granted. of Internal Revenue (CIR) has 120 days from the submission of
complete supporting documents to act upon the claim for
refund. In case of full or partial denial of the claim or failure of
the CIR to act on the application within 120 days, the taxpayer
B.19. may appeal with the Court of Tax Appeals (CTA) within 30
days from receipt of the decision or upon expiration of the 120-
day period.

On May 10, 2011, the final withholding tax for certain income
payments to W Corp. was withheld and remitted to the Bureau
of Internal Revenue (BIR), and the corresponding return In the case of CIR vs. Aichi (GR No. 184823 dated October 6,
therefor was concomitantly filed on the same date. Upon 2010), the Supreme Court (SC) held that the observance of the
discovering that the amount 120-day period is a mandatory and jurisdictional requisite to
the filing of a judicial claim for refund before the CTA. As such,
its non- observance would warrant the dismissal of the judicial
claim for lack of jurisdiction.
withheld was excessive, W Corp. filed with the BIR a claim for
refund for erroneously withheld and collected final withholding
income tax on May 3, 2013. A week after, and without waiting
for any decision from the Commissioner of Internal Revenue B.20.
(CIR), W Cor. Filed a petition for review before the Court of
Tax Appeals (CTA) to make sure that the petition was filed
within the two (2)-year period for claiming refunds.
ABC, Inc. owns a 950-square meter commercial lot in Quezon
City. It received a notice of assessment from the City
Assessor, subjecting the property to real property taxes (RPT).
In resisting the claim, the BIR contended that the claim must Believing that the assessment was erroneous, ABC, Inc. filed a
be dismissed by the CTA on the ground of non-exhaustion of protest with the City Treasurer. However, for failure to pay the
administrative remedies because it did not give the CIR the RPT, the City Treasurer dismissed the protest.
opportunity to act on the claim of refund.

Was the City Treasurer correct in dismissing ABC, Inc.’s

Is the BIR’s contention meritorious? Explain (2.5%) protest. Explain. (2.5%)

Assuming that the claim for refund filed by W Corp. is for Assuming that ABC, Inc. decides to appeal the dismissal,
excess and/or unutilized input VAT for the second quarter of where should the appeal be filed. (2.5%)
2011, and for which the return was timely filed on July 25,
2011, would your answer be the same? Explain. (2.5%) SUGGESTED ANSWER:

SUGGESTED ANSWER:

Yes, the City Treasurer was correct in dismissing ABC Inc.’s

protest
No, the BIR’s contention is not meritorious.
Under Section 252 of the Local Government Code, no protest
Sections 204 and 229 of the NIRC pertain to the refund of shall be entertained unless the taxpayer first pays the tax, in
erroneously or illegally collected taxes. Section 204 applies to which the words “paid under protest” shall be annotated on the
administrative claims for refund, while Section 229 to judicial tax receipts.
claims for refund. In both instances, the taxpayer’s claim must
be filed within two (2) years from the date of payment of the tax
Here, ABC Inc. failed to first pay the real property tax assessed
by the Quezon City when it filed a protest before the City
Treasurer.

Assuming that ABC, Inc. decides to appeal the dismissal, the

appeal should be filed with the Local Board of Assessment
Appeals (LBAA).

If the local treasurer denies the protest or fails to act upon it

within the 60-day period provided for in Section 252, the
taxpayer/real property owner may then appeal or directly file a
verified petition with the LBAA within sixty days from denial of
the protest or receipt of the notice of assessment, as provided
in Section 226 of R.A. No. 7160