Tuesday, March 03, 2009

Portrait of the Street Strategist as Bar Examiner Part 9

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Portrait of the Street Strategist as Bar Examiner - 9 -

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his is the continuing pseudo-treatise on the portrait of the Street Strategist as a bar examiner on how to maximize the effectiveness of the bar examinations as the only reference performance metric (RPM) of the candidate, and how to minimize its inherent shortcomings.

In Part 1, we discussed the oblique ratio decidendi establishing the reason why a person who is not even qualified as an examiner should possess the wisdom to conjure up this treatise. In Part 2, we discussed the basic operations of the bar examinations. In Part 3, we discussed the species of bar examiners, their positives and negatives. In Part 4, we discussed the ego of the bar examiners and reviewed a few idiosyncratic bar questions. In Part 5, we discussed more questionable aspects of test construction as practiced by the examiners over the years. In Part 6, we discussed the benefits of converting an enumeration question into a problem-type question. In Part 7, we discussed the bar reforms coincidentally promulgated by the Supreme Court just after we started this series. In Part 8, I proposed the implementation of the fully computerized Pre-Bar Qualification (PBQ) exam to screen out those incompetent to take the bar. The PBQ can also be used in the prejudicature and the mandatory continuing legal education (MCLE) programs.

In this part we shall discuss the possibilities that the answer that the bar examiner has in mind, may be different from the candidate’s answer, and the latter may be correct.

Weird coincidence, part 2

Well, in another very weird coincidence, during another lecture forum, the handsome professor asked, out of the blue: “Is a cadaver a property? Is it a thing?”

Come on guys, why is this question gaining currency in your minds? I was very much amused. Really. You know, incognito, is a very fun thing. Well, of all possible speakers or lecturers, this bar topnotcher would be top of the list as a reader of BusinessWorld. After all, he was a former commissioner of a financial regulatory body.

As we drove to his hotel, knowing that he was one of those who drafted the Five Failure Rule (FFR) and other reforms promulgated by the Supreme Court discussed in my previous installment, I told him that I disagreed with the formation of a Board of Examiners.

Precisely, as I wrote in this series, because of the institutional corruption involved in the bar. Some judges can even be corrupted, selling their TROs and decisions, how much more for the examiners?

He related that some organizations do nothing but identify the examiners. Once found out, they try to talk to the secretaries, colleagues, drivers of the examiners. These organizations can offer as much as P100,000 per question. If a secretary can leak 10 of the 50 questions, she stands to gain P1 million, and she can justify it by knowing that she helped some people pass the bar.

How about the poor provincial candidates with no connections and “bar operations”?

On another issue, I told him I was against the objective types of questions. He reasoned out that in the U.S. bar exams have multiple choice, true or false, matching types. I repeated my arguments that the case of the U.S. is different. I have written about this last time.

I told him, “Do you know, sir, that there are some law schools, who pass their students and simply leave everything to the bar? Some professors rarely attend classes themselves, and for this reason, they have no moral ascendancy to fail the students. Some professors attend only once a week.”

“Really?” he said.

“Yes, and if we allow these students to take objective type of bar, then we will have lawyers with no lawyering skills. In the U.S. the law schools are strict, the students learn lawyering in law school, and for that matter, the bar is nothing but a mere formality to them. But in the Philippines , law schools are diploma mills.”

That set him thinking for a few seconds. I know that the chief executive officer of the National Conference of Board Examiners in the U.S. was one of those who proposed bar reforms.

But her experience doesn’t count. Their law schools are a continuing four-year bar exams, while in this country, the bar is a continuing lottery contract.

Anyway, I have proposed my own reforms in this series, not as an expert but as an outsider looking in.

Examiners

I hope the Supreme Court will revert to the old guideline that the bar examiner should not be an expert on the subject because he would be asking about deep topics for experts and not the basic knowledge required of new lawyers.

For example, a bar topnotcher who is now practicing mercantile law should be assigned to Labor Law. An expert on Taxation should be assigned to Civil Law. In this manner, while the examiners were former topnotchers or former Justices, or former professors, they still have the general knowledge of being topnotch lawyers but not the tyranny of “subject expertise.”

The subject experts will be asking about exceptions to the general rule in almost all cases. That is the tyranny. Even the members of the committee of the U.P Law Center balk at the inappropriateness of many questions asked by “subject experts.”

Personally, I have met some experts, over a period of time. What if these people are the examiners, and I would be answering their questions? Hop on.

Garbage

Hypothetical bar question: “Is garbage res nullius? Explain.”

In one instance, a professor, who is the editor of the book that provides the Supreme Court answers to the bar examinations every year as formulated by experts, was giving a lecture on property. He once cited garbage as an example of res nullius (belonging to no one) in contrast to res alicujus (belonging to someone).

This professor has been teaching at the state university for over twenty years. His colleagues have been bar examiners, and many of his former students are now occupying high government positions. If he were the bar examiner, and he asked this question, guys like me stand no chance at all; I have a different answer.

During the coffee break, I approached him and said: “Sir, I think using garbage as res nullius might be a bad example.”

He said, “Why?”

I said, “Just because a thing is thrown away by the owner doesn’t mean somebody else can’t own it, even if it’s garbage.”

He said, “But that’s for anybody now to take.”

I said, “Not really, sir. I think the State owns it. The moment, the State uses funds and resources such as garbage collectors and garbage trucks to acquire that garbage, then that garbage is not res nullius. It is res alicujus, and the owner is the State.”

He nodded his head, and said, “Yes, yes…”

I continued, “What if there’s an invention that can turn garbage into something really valuable? Then everybody will be fighting for that garbage. And if the State has already expended economic resources to acquire that garbage, it should be owned by the State.”

He nodded in agreement.

I continued, “Actually, sir, just as an illustration that somebody owns the garbage, there was this case in Hong Kong. All garbage are gathered by the trucks to garbage depots around the city. In one case, a government garbage employee, segregated things that are still in good condition such a sofa beds, stereos, aircons, refs.”

He said, “Ah, yes, there they throw away appliances that are still working. And that’s what some of the seamen bring back home.”

I said, “Yes, sir, and they are still very good. So, this worker in the depot, segregated the good ones, and later on sold them for a few bucks. But you know what happened, sir?”

“What?” he said.

“This worker of more than ten years lost his job,” I said.

“Why?”

“Because he was charged with corruption. When he sold garbage for a profit, he was actually selling government property, and that money should have gone to the government. It does not matter if the government wouldn’t have sold it in the first place. It’s the government’s decision to sell or not to sell garbage. But then the worker profited from the garbage and that was corruption. He lost his job.”

“That’s how strict they are?” he asked

“That’s how seriously they treat corruption.” I said. “In this country, the top officials could be receiving millions from gambling and drug lords; the customs and internal revenue field men could be owning mansions, and we only get one or two token charges filed in court that will be dismissed eventually for lack of evidence. We don’t even think of selling garbage as a crime here but in Hong Kong, a worker loses his job for scavenging. Anyway, sir, this is just an illustration that garbage might not be res nullius after all. A tenured worker lost his job over it.”

Goodwill

Bar 1999: “Is depreciation of goodwill deductible from gross income for income tax purposes?”

In one occasion, a tax expert who sits in the committee that the Supreme Court has designated to prepare answers to the bar questions in taxation, gave a lecture on allowable deductions from gross income.

When he touched on goodwill, I was eagerly waiting for his pronouncement. I knew that in 1999 this was a bar question because, coincidentally, again, it was on that year that I wrote the article “The M&A Whiz,” tackling among others the then stormy proposal by the US Financial Accounting Standards Board (FASB) to change their treatment of goodwill. I also wrote a follow-up article “Goodwill the Intangible.”

What I was interested in was how he would discuss the changes in the tax treatment of goodwill. That same question in 1999 would have a different answer in 2001.

He said goodwill cannot be amortized, and is not allowed as a deduction from gross income.

So far, so good. That is the new answer. But I wanted him to discuss the historical change so that others could have a deeper insight into the concept of goodwill.

“Why can’t we amortize goodwill?” I asked.

“Because it does not a definite life,” he said.

“What if we assign a life to it?”

“No, it does not have definite life, it is an intangible,” he said.

“Can’t we assign a life of 20 years or 40 years to goodwill?”

“No, it has no period or life at all,” he said. He was somewhat annoyed that I couldn’t understand a simple thing such as goodwill not having a definite life and why I insisted in putting a life span to it. The others in the conference hall were probably wondering about my asinine line of questioning.

If the tax professor were the bar examiner, still, I don’t have a ghost of a chance.

I approached him after his talk. I said, “Why can’t we amortize goodwill?” His answer was the same.

“But in the U.S. you can amortize goodwill, right?” I said.

“I don’t know,” he said.

“Yes, you can, and in fact, this was a very big hit during the merger manias such as Worldcom-Sprint. Their annual amortization about twice the capitalization of PNB is tax deductible.”

It was then that I realized, we were talking of apples and oranges. He was talking of RP GAAP which I did not know, and I was talking of US GAAP which he did not know.

All this time, I thought I had the correct answer to the 1999 bar question on goodwill. But I thought wrong. It didn’t sink in to me at the time that this country uses the IAS standard while my limited knowledge was based on the U.S. FASB standard which allowed from 20 to 40 years for amortizing goodwill. But then, again, since 2002, the FASB abandoned goodwill amortization and opted for goodwill impairment.

By the way, I looked up UP Law Center’s official answer to this question and they offered two answers, both correct: a) No, it is not deductible and b) Yes, it is deductible citing different reasons. So which is which? That’s the bar for you. You’re even fortunate that the said center did not come out with three different answers, which they did with some questions.

All I’m saying is, if the tax professor were the bar examiner, I don’t have a ghost of a chance because my answer is different.

Commodatum

Hypothetical bar question: “Are depositum, commodatum, and mutuum gratuitous? Can there be a stipulation to the contrary?”

A former judge and professor of law, not sure if he still is, who tours the lecture circuit around the country once said that depositum, commodatum, and mutuum are gratuitous, unless there is a stipulation to the contrary.

If he were the bar examiner with the question above, I’d be a goner because my answer is different.

I raised my hand to interject a query but he ignored me. You see that is a very important concept. According to this, if you borrow money from me (mutuum) without any mention as to interest, then it is presumed that there is none, despite the fact that I have a risky lending exposure.

After his lecture, I approached him. “You said earlier that depositum, commodatum, and mutuum are gratuitous, unless there is a stipulation to the contrary.”

“Yes,” he said.

“Therefore, in depositum, even if I burdened the person with my deposit of personal property, I don’t have to pay him?”

“Unless there is a stipulation to the contrary,” he said.

“But sir, you can’t have a stipulation to the contrary in commodatum,” I said.

“Why not, you can have a stipulation,” he said.

“But, sir, in commodatum, you can’t agree on payment,” I said.

“Why not?”

“Because the moment there is payment, it ceases to be a commodatum,” I said.

“What would it be?” he asked.

“It would cease to be a commodatum, and it becomes another contract such as lease.” I said.

“Ah, yes,” he nodded as he finally saw my point. “But commodatum is essentially gratuitous.”

“Essentially gratuitous, or absolutely gratuitous?” I pressed the point. He thought for a second or two before answering this question.

“Absolutely gratuitous,” he finally agreed. I was glad that our answers finally converged.

As I said, if he were the bar examiner with the question above, I’d be a goner because my answer is different.

In personam

Hypothetical bar question: “In an action strictly in personam, may there be service of summons by publication?”

If the author mentioned below were the examiner, and I would have to take that particular bar, I will surely flunk, because his answer is divergent from mine, as usual.

Involved this time is a bestselling author of several books for bar candidates. During one of his lectures in the conference hall, I slipped him a note that read: “In your answer in your book, you stated that it is not allowed, unless the action is converted from an action strictly in personam to an action quasi in rem. You cited Citizens Surety vs. Melencio-Herrera 38 SCRA 369. Some of lecture participants are now debating; because they agree with your book’s answer but, respectfully, I disagree.”

This is patent Street Strategist. You know, if you ask me to recite the 11 exceptions to the hearsay rule, I could name only three. On the other hand, even if you don’t ask me to, I will find chinks in the armor of experts – whether traffic experts, economists, or legal luminaries.

Of course, not being a legal genius, nobody believed me, even if I revealed my logic to them. After all, who was I go against the book which devoted half a page to specifically to this question?

As I have said many times before, facts alone do not form a belief. Some people demand the credibility of the person himself, not what he is talking about. It’s sad, when you come to think about it, that some people can’t separate the thought from the personality.

My note continued, “Your answer now creates a confusion in my mind because I am under the impression that the Rules of Court does not distinguish whether the action 1) is purely an action in personam, or 2) an action in rem, or 3) an action quasi in rem. (When the law does not distinguish, we should not distinguish.)”

In fairness to the legal expert, I consulted the book by a retired Associate Justice of the Supreme Court who currently holds the highest scores in the history of the bar examinations. The latter’s book is not very eloquent on the matter, and even cited the same jurisprudence above.

Of course, we know that Ameurfina Melencio, who was a former Associate Justice of the Supreme Court is the third woman to top the bar (1947), next to Cecilia Munoz (1937) who also later become an Associate Justice of the Supreme Court , and Gregoria Cruz (1946).

In the abovementioned case, when she was still a trial court judge, Justice Melencio-Herrera dismissed a case because there was no proper service of summons on the defendant because it must be done in person, and not by mere publication. The Supreme Court sided with her that the court has not acquired jurisdiction over the defendant but overturned her decision to dismiss the case, and instead instructed her to archive the case.

The two authors’ contention: In actions strictly in personam, summons by publication does not vest jurisdiction over the defendant, otherwise, his constitutional rights of due process will be violated. The remedy, according to them, is to convert the action into one which is quasi in rem.

My position is that it is not necessary to do so. Why is there a need to convert it?

Anyway, by talking to some of the lecture participants, I soon realized why it is so hard for them to accept my idea, which is probably the same reason why the two legal luminaries are committed to Citizens Surety vs. Melencio-Hererra.

Every time the defendant is missing, the authors applied Sec. 15 or Sec 16 but mysteriously turn a blind eye on Sec. 14 of Rule 14 of the Rules of Court. Obviously, my friends follow the luminaries.

Of course, since I am an amateur, I have no qualms whatsoever in disagreeing with a former justice of the Supreme Court who retains the highest ever ratings in the bar, and a former judge who is an author of several books on different areas in law.

It was only when I showed the distinctions, which is not clear from Rule 14 itself, that I was able to convince some of them.

My note further read: “Sec. 14 is intra-territorial, a point not specifically pointed out in the Rule. Therefore, this section applies when the defendant’s Philippine address is unknown, but still residing in the Philippines, and that summons by publication under this section applies to any action including ones strictly action in personam. (when the law does not distinguish we should not distinguish.). There is no requirement here to convert the action to one which is quasi in rem.

“Sec. 15 is extra-territorial. Therefore, it applies only to actions quasi in rem or actions in rem (but not to actions strictly in personam.) Since Sec. 15 is extra-territorial it has additional requisites compared with Sec. 14 which is only intra-territorial. Therefore, the requirements in Sec. 15 should be followed.

“Sec. 16 is extra-territorial. Therefore applies only to quasi in rem or in rem actions but not to actions strictly in personam (when the Philippine resident is temporarily abroad.)”

Eventually, the author after having scanned my arguments on why I disagree with his book, said, “Shall we discuss this in this forum, or shall we discuss this later?”

He didn’t want to openly discuss my objection to his book, but then he made a sweeping statement without referring to the clash with his answer in the book, “Under the Rules, it is possible to serve summons by publication in an action in personam …” and so on and so forth.

And then, he made one last remark: “This will make a good bar question.”

Thank you, sir. At least, our answers converge, finally. I hope his newly released edition contains the issues we discussed. What do the other legal luminaries think? Come on guys, join the debate.

Isn’t it fun that an unqualified amateur such as the Street Strategist could bring the discussions on obscure points of law to a controversial level?

Income tax

Hypothetical bar question: “Is income tax, as an operating expense, deductible from gross income for purposes of rate-determination of a regulated utility? Explain.”

If this was asked by the experts, I would suffer big time.

One of the highest ranking officers of the BIR said, “No.” He cited the latest jurisprudence of the case.

“But, sir, that is the worldwide standard,” I protested.

“No, under the internal revenue code, income tax is not one of those deductible,” he said. “That’s what the Supreme Court said.”

Well, I was testing him on what his reaction was to this case. As expected, he agreed with the Supreme Court.

During the coffee-break I cornered him. I started in this way, “Sir, regarding that case, I know that the Supreme Court has decided, and being a taxation expert, you agree with the decision. “

He looked at me. “The lawyers of the private utility are my drinking buddies. During the pendency of the case, I told them that they cannot possibly make the taxpayers pay for their income tax, or deduct such tax from their gross income.”

I said, “But let me tell you why the Supreme Court is wrong, and why the private utility itself is wrong, and why the Solicitor-General is wrong.”

Who wouldn’t fall for a statement like that? He gave me the attention. After about ten minutes of illustrating my logic, he, unexpectedly, agreed with me. That’s was fun. Really fun.

Now, that is a complete reversal on the part of the taxation professor who is the principal member of the committee that prepares the answers to the bar questions on taxation law. But I cannot discuss the details now; only in another article.

All I can tell is you is that we ended our discussion with proposals as to the remedy left for the private utility now that the Supreme Court decision has become final.

Anyway, I was saying that if this were asked in the bar, the answer of the examiner will be different from the answer of the Street Strategist. That’s one thing, for sure.

Yet, after listening to the arguments of the Street Strategist, whose answer will change? That’s one thing that’s no longer sure. It could go either way.

Options

Hypothetical bar question: “Distinguish options from warrants.”

If the expert below were the examiner, I would be annihilated in the bar. Why? Because my answer diverges from his.

This time, the person involved is a real expert. He was a former bar examiner in Mercantile Law. He has worked for more than 20 years in the biggest financial practice law firm in the country. He is a professor of law, and of, course, a book author.

I love to sit-in and listen to conferences, lectures, and forums, on any topic, whenever I can. Whether it be science, engineering, accounting, literature, whatever.

At this one lecture, I listened to the lecturer with interest because it was about banking and finance laws. When he arrived at one particular topic, I raised my hand and said: “Sir, there’s a mistake in your book.” Remember, I didn’t ask him to clarify if it was a mistake or not. I said directly that there was a mistake.

“A mistake? Where?”

“On this page…” I told him the page. The others in the lecture hall were murmuring, after all, they didn’t even know there was mistake. They opened their books as well.

“Yes, what’s the mistake here?” he asked.

“Oh, it’s just a typo, sir,” I said. “You probably mixed up the cut-and-paste.”

“Which one?” he said. Wait a minute, I thought he saw the mistake by the time he saw the page.

“The definition of options is not correct,” I said. “The definition of warrants is not correct too.”

“Why, what should it be?” he asked. Oh boy, this was getting serious.

“Just a typo, you’ve got their definitions reversed.” I said. “The one for options should be the definition of warrants, and vice versa.”

“No, these definitions are correct,” he emphasized. “They are not reversed.”

“But, sir, the definition of options is…” I proceeded to discuss with him why his book was wrong.

“But that is exactly what an option is,” he said. “These definitions are correct.” He said that with finality.

It was not use arguing with him, it was his book, he was the practitioner, and he was a former bar examiner on Mercantile law.

As for me, when I raised my hand, I only wanted to point out to him the typo error in his books. After all, it was written for bar candidates.

It then turned out to be a very scary revelation. The error was not in the typo. The error was in the expert’s knowledge. The error was in the expert’s understanding. How can you correct that? After all, who was I, but just another nameless face in the crowd?

The worst part is this: We were not arguing on a mere statement of fact in his book. No, it’s not that simple. We were arguing about the correct answer to his Question and Answer portion in the book. In other words, his own Q&A had the wrong answer. That’s the worst part.

I just hope that this will not come out in the bar exams. Otherwise, using his book, the candidate will be annihilated. Of course, I could be wrong. After all, I wrote a short history of option theory in my article “The Exogenous Actor.” Remember, when it is the expert against the Street Strategist, you know whose side you should be on.

Mind benders

But you must bear in mind that I made extra efforts to make them change their minds and their answers. Would a candidate have such luxury in the bar? Remember, that virtually all the examiners have demanded that a candidate’s answers should be limited to three sentences because it is not easy to correct 50 booklets every day for 5 months.

Altogether, the Street Strategist has an amateur mind, therefore, subject to any corrections from the experts. A mind that questions every tradition and presumption established by leading experts in the industry, a mind that has the courage to expose its own ignorance, a mind that has the ability to see what everybody else has seen and think what nobody else has thought: the mind of the Street Strategist.

(Thads Bentulan, July 29, 2004)

streetstrategist@gmail.com

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