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com JayArhSals

Insurable Interest; Building Destroyed by Globe & Rutgers Fire Insurance

Fire (2010) Company, 57 Phil. 576 (1932)). Second,
fire insurance policies contain a
No.X. To secure a loan of P10 million, Mario
warranty that the insured will not store
mortgaged his building to Armando. In
hazardous materials within the insured
accordance with the loan arrangements,
premises. Mario breached this warranty
Mario had the building insured with First
when he stored inflammable materials in
Insurance Company for P10 million,
the building. (Young v. Midland Textile
designating Armando as the beneficiary.
Insurance Company, 30 Phil. 617
Armando also took an insurance of the
(1915)).These two factors exonerate First
building upon his own interest with Second
Insurance Company from liability to
Insurance Company for P5 million.
Armando as mortgagee even though it
The building was totally destroyed by fire, a
was Mario who committed them (Section
peril insured against under both insurance
8 of the Insurance Code).
policies. It was subsequent determined that
the fire had been intentionally started by
(B) What happens to the P10 million debt of
Mario and that in violation of the loan
Mario to Armando? Explain. (3%)
agreement, he had been storing
SUGGESTED ANSWER:
inflammable materials in the building.
Since Armando would have collected P5
million from Second Insurance
(A) How much, if any, can Armando recover
Company, this amount should be
from either or both insurance companies?
considered as partial payment of the
(2%)
loan. Armando can only collect the
SUGGESTED ANSWER:
balance of P5 million (Panlileo v. Cosio,
Armando can receive P5 million from
supra). Second Insurance Company can
Second Insurance Company. As
recover from Mario the amount of P5
mortgagee, he had an insurable interest
million it paid, because it became
in the building (Panlileo v. Cosio, 97
subrogated to the rights of Armando
Phil. 919 (1955)). Armando cannot
(Panlileo v. Cosio, supra).
collect anything from First Insurance
Company. First Insurance Company is
not liable for the loss of the building.
First, it was due to a willful act of Mario,
who committed arson (Section 87 of the
Insurance Code; East Furnitures, Inc. v.

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Insurance; Double Insurance, Validity SUGGESTED ANSWER:

(2012)
Yes. If X obtained an open policy then
No.V X borrowed from CCC Bank. She she could claim an amount
mortgaged her house and lot in favor of the corresponding to the extent of the
bank. X insured her house. The bank also damage based on the value of the house
got the house insured. determined as of the date the damage
occurred, but not to exceed the face
(A) Is this double insurance? Explain your value of the insurance policy; however, if
answer. (3%) she obtained a valued policy then she
could claim an amount corresponding to
SUGGESTED ANSWER:
the extent of the damage based on the
agreed upon valuation of the house.
No, there is no double insurance. Double
insurance exists where the same person
As for CCC Bank, it could claim an
is insured by several insurers separately
amount corresponding to the extent of
with respect to the same subject and
the damage but not to exceed the
interest. (Sec. 93, Insurance Code)
amount of the loan it extended to X or
so much thereof as may remain unpaid.
(B) Is this legally valid? Explain your
answer. (3%)

SUGGESTED ANSWER:

Yes, X and CCC Bank can both insure the Insurance; Perfection of Insurance

house as they have different insurable Contracts (2009)

interest therein. X, the borrower

No.IV. Antarctica Life Assurance
mortgagor, has an insurable interest in
Corporation (ALAC) publicly offered a
the house being the owner thereof while
specially designed insurance policy covering
CCC Bank, the lender, also has an
persons between the ages of 50 to 75 who
insurable interest in the house as
may be afflicted with serious and
mortgagee thereof.
debilitating illnesses. Quirico applied for
insurance coverage, stating that he was
(C) In case of damage, can X and CCC Bank
already 80 years old. Nonetheless, ALAC
separately claim for the insurance
approved his application.
proceeds? (4%)

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Quirico then requested ALAC for the

issuance of a cover note while he was trying The cover note is a receipt whereby the
to raise funds to pay the insurance company agrees to insure the insured for
premium. ALAC granted the request. Ten 60 days pending the issuance of a
days after he received the cover note, regular policy. No separate premium is
Quirico had a heart seizure and had to be to be paid on a cover note. It is not a
hospitalized. He then filed a claim on the separate policy but is integrated in the
policy. regular policy to be subsequently issued.

(A) Can ALAC validly deny the claim on the

ground that the insurance coverage, as
publicly offered, was available only to
Insurance; Property Insurance;
persons 50 to 75 years of age? Why or why
Assignments (2009)
not? (2%)

No.XIII. Ciriaco leased a commercial

SUGGESTED ANSWER: apartment from Supreme Building
No. By approving the application of Corporation (SBC). One of the provisions of
Quirino who disclosed that he was the one-year lease contract states:
already 80 years old, ALAC waived the
age requirement. ALAC is now stopped ―18.xxx The LESSEE shall not insure
from raising such defense of age of the against fire the chattels, merchandise,
insured. textiles, goods and effects placed at any
stall or store or space in the leased
(B) Did ALAC’s issuance of a cover note premises without first obtaining the written
result in the perfection of an insurance consent of the LESSOR. If the LESSEE
contract between Quirico and ALAC? obtains fire insurance coverage without the
Explain. (3%) consent of the LESSOR, the insurance
policy is deemed assigned and transferred
SUGGESTED ANSWER: to the LESSOR for the latter’s benefit.‖
The issuance of a cover note by ALAC
resulted in the perfection of the contract Notwithstanding the stipulation in the
of insurance. In that case, it is only contract, without the consent of SBC,
because there is delay in the issuance of Ciriaco insured the merchandise inside the
the policy that the cover notes was leased premises against loss by fire in the
issued.

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amount of P500, 000 with First United

Insurance Corporation (FUIC). On April 5, 2010, the car was involved in an
accident that resulted in its total loss.
A day before the lease contract expired, fire
broke out inside the leased premises, On April 10, 2010, the drawee bank
damaging Ciriaco’s merchandise. Having returned Enrique’s check with the notation
learned of the insurance earlier procured by ―Insurance funds.‖ Upon notification,
Ciriaco, SBC demanded from FUIC that the Enrique immediately deposited additional
proceeds of the insurance policy be paid funds with the bank and asked the insurer
directly to it, as provided in the lease to redeposit the check.
contract.
Enrique thereupon claimed indemnity from
Who is legally entitled to receive the the insurer. Is the insurer liable under the
insurance proceeds? Explain. (4%) insurance coverage? Why or why not? (3%)
SUGGESTED ANSWER: SUGGESTED ANSWER:
Ciriaco is entitled to receive the The insurer is not liable under the
proceeds of the insurance policy. The insurance policy. Under Article 1249 of
stipulation that the policy is deemed the Civil Code, the delivery of a check
assigned and transferred to SBC is void, produces the effect of payment only
because SBC has no insurable interest in when it is encashed. The loss occurred
the merchandise of Ciriaco (Cha v. Court on April 5, 2010. When the check was
of Appeals, 277 SCRA 690 (1997)) deposited, it was returned on April 10,
2010, for insufficiency of funds. The
check was honored only after Enrique
deposited additional funds with the
bank. Hence, it did not produce the
Insurance; Property Insurance; Late
effect of payment (Vitug, Commercial
Payment of Premiums (2010)
Laws and Jurisprudence, Vol. I, p.250).

No.XI. Enrique obtained from Seguro

Insurance Company a comprehensive ALTERNATIVE ANSWER:

motor vehicle insurance to cover his top of Yes. The insurer is liable. The insurance

the line Aston martin. The policy was policy was issued. In effect, there was a

issued on March 31, 2010 and, on even grant of credit for the payment of the

date, Enrique paid the premium with a premium. The insurer can deduct the

personal check postdated April 6, 2010.

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amount of the check from the proceeds (B) Would your answer in (a) be the same if
of the insurance. it was found that the proximate cause of
the fire was an explosion and that fire was
but the immediate cause of loss and there
is no excepted peril under the policy?
SUGGESTED ANSWER:
Insurance; Property Insurance; Payment
Yes, recovery under the insurance
of Premiums by Check (2007)
contract is allowed if the cause of the

No.IV. Alfredo took out a policy to insure loss was either the proximate or the

this commercial building fire. The broker immediate cause as long as an excepted

for the insurance company agreed to give a peril, if any was not the proximate cause

15-day credit within which pay the of the loss (Section 86, Insurance Code

insurance premium. Upon delivery of the of the Philippines).

policy on May 15, 2006, Alfredo issued a

postdated check payable on May 30, 2006. (C) If the fire was found to have been

On May 28, 2006, a fire broke out and caused by Alfredo’s own negligence, can he

destroyed the building owned by Alfredo. still recover on the policy?

(10%)
Reason briefly in (a), (b) and (c).

(A) May Alfredo recover on the insurance

policy? SUGGESTED ANSWER:
Yes, mere negligence on the part of the

SUGGESTED ANSWER: insured will not prevent recovery under

Yes, Alfredo may recover on the policy. the insurance policy. The law merely

It is valid to stipulate that the insured prevents recovery when the cause of loss

will be granted credit term for payment is the willful act of the insured, alone or

of premium. Payment by means of a in connivance with others (Section 87,

check which was accepted by the Insurance Code of The Philippines).

insurer, bearing a date prior to the loss,

would be sufficient. The subsequent
effects of encashment retroact to the
date of the check (UCPB General
Insurance Co., Inc. v. Masagana
Telamart, Inc., 356 SCRA 307 [2001]).

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Insurance; Property Insurance; Payment St. Peter Manufacturing Company is

of Premiums even after Loss (2013) entitled to recover for the loss from
stable Insurance Company. Stable
No.VII. Stable Insurance Co. (SIC) and St.
Insurance Company granted a credit
Peter Manufacturing Co. (SPMC) have had a
term to pay the premiums. This is not
long-standing insurance relationship with
against the law, because the standing
each other; SPMC secures the
business practice of allowing St. Peter
comprehensive fire insurance on its plant
Manufacturing Company to pay the
and facilities from SIC. The standing
premiums after 60 or 90 days, was relied
business practice between them has been
upon in good faith by SPMC. Stable
to allow SPMC a credit period of 90 days
Insurance Company is in estoppels
from the renewal of the policy with which to
(UCPB General Insurance Company, Inc.
pay the premium.
v. Masagana Telemart, Inc. 356 SCRA
307, 2001).
Soon after the new policy was issued and
before premium payments could be made, a
fire gutted the covered plant and facilities to
Insurer: Effects: Several Insurers (2008)
the ground. The day after the fire, SPMC
issued a manager’s check to SIC for the fire No.VII. Terrazas de Patio Verde, a
insurance premium, for which it was issued condominium building, has a value of P50
a receipt; a week later SPMC issued its Million. The owner insured the building
notice of loss. against fire with three (3) insurance
companies for the following amounts:
SIC responded by issuing its own
Northern Insurance Corp. – P20 Million
manager’s check for the amount of the
premiums SPMC had paid, and denied Southern Insurance Corp. – P30 Million
SPMC’s claim on the ground that under the
―cash and carry‖ principle governing fire Eastern Insurance Corp. – P50 Million

insurance, no coverage existed at the time

(A) Is the owner’s taking of insurance for
the fire occurred because the insurance
the building with three (3) insurers valid?
premium had not been paid.
Discuss. (3%)
Is SPMC entitled to recover for the loss form
SUGGESTED ANSWER:
SIC? (8%)
Taking out insurance covering the same
SUGGESTED ANSWER:
property, same insurable interest and
same risk with three insurance

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companies is “double insurance,” insurance Corp. is liable to the extent of

recognized under Sec. 93 of the its coverage but may recover one-half of
Insurance Code. However, in American the total indemnity from the co-insurers
Home Assurance Co. v, Chua, G.R. No. in the proportion of 60% (Southern
130421, 28 June 1999, the court Insurance) – 40% (Northern Insurance).
referred to the common inclusion of the
“other insurance clause” in fire
insurance policies, requiring disclosure
Intellectual Property
of co-insurance of the same property
with other insurers. Agreements: Technology Transfer
Agreements; Requisites & Prohibitions
(B) The Building was totally razed by fire. If (2010)
the owner decides to claim from Eastern
No.VI. (A) What contractual stipulations are
Insurance Corp. only P50 Million, will the
required in all technology transfer
claim prosper? Explain. (2%)
agreements? (2%)
SUGGESTED ANSWER:

Insured can recover from Eastern SUGGESTED ANSWER:

Insurance Corp. up to the extent of his The following stipulations are required
loss. However, Eastern may refuse to pay in all technology transfer agreements:
if the policy contains an “other
insurance clause” stipulating that non- (1) The laws of the Philippines shall
disclosure of double insurance will avoid govern its interpretation and in the
the policy (Geagonia v. Country Bankers event of litigation, the venue shall be
Insurance, G.R. No. 114427, 06 February the proper court in the place where the
1995.) As there is no indication of a licensee has its principal office;
contractual prohibition on double or
other insurance, all insurance contracts (2) Continued access to improvements in
over the building are deemed valid and techniques and processes related to the
enforceable. technology shall be made available
during the period of the technology
The law prohibits double or over-
transfer arrangement;
recovery, not double insurance. Since
Eastern insured the property up 50% of
(3) In case it shall provide for
the total coverage, it is liable for only
arbitration, the Procedure of Arbitration
50% of the total actual loss. Eastern

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of the Arbitration Law of the Philippines

or the Arbitration Rules of the United
Article of Commerce; As Trademark,
Nations Commission on International
Patent & Copyright (2010)
Trade Law or the Rules of Arbitration of
the International Chamber of Commerce No.VI. (C) Can an article of commerce serve
(ICC) shall apply and the venue of as a trademark and at the same time enjoy
arbitration shall be the Philippines or patent and copyright protection? Explain
any neutral country; and give an example. (2%)
SUGGESTED ANSWER:
(4) The Philippine taxes on all payments A stamped or marked container of goods
relating to the technology transfer can be registered as trademark
agreement shall be borne by the licensor (subsections 113.1 of the Intellectual
(Sec. 88, Intellectual Property Code). Property Code). An original ornamental
design or model for articles of
(B) Enumerate three stipulations that are manufacturer can be copyrighted
prohibited in technology transfer (Subsection 172.1 of the Intellectual
agreements. (3%) Property Code). An ornamental design
SUGGESTED ANSWER: cannot be patented, because aesthetic
The following stipulations are prohibited creations cannot be patented (Section 22
in technology transfer agreements: of the Intellectual Property Code).
However, it can be registered as an
(1) Those that contain restrictions industrial design (Subsections 113.1 and
regarding the volume and structure of 172.1 of the Intellectual Code). Thus, a
production; container of goods which has an original
ornamental design can be registered as
(2) Those that prohibit the use of trademark, can be copyrighted, and can
competitive technologies in a non- be registered as an industrial design.
exclusive agreement; and

ALTERNATIVE ANSWER:
It is entirely possible for an article of
(3) Those that establish a full or partial
commerce to bear a registered
purchase option in favor of the licensor
trademark, be protected by a patent and
(Subsections 87.3, 87.4 and 87.5 of the
have most, or some part of it
Intellectual Property Code).
copyrighted. A book is a good example.
The name of the publisher or the

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colophon used in the book may be Intellectual Property Code) His rights
registered trademarks, the ink used in existed from the moment of its creation
producing the book may be covered by a (Section 172 of the Intellectual Property
patent, and the text and design of the Code; Unilever Philippines (PRC) v. Court
book may be covered by copyrighted. of Appeals, 498 SCRA 334, 2006). The
registration of the painting by Bernie
with the National Library did not confer

Copyright (2013) copyright upon him. The registration is

merely for the purpose of completing the
No.IV. Ruby is a fine arts student in a
records of the National Library. (Section
university. He stays in a boarding house
191 of the Intellectual Property Code).
with Bernie as his roommate. During his
free time, Rudy would paint and leave his
finished works lying around the boarding
house. One day, Rudy saw one of his works
– an abstract painting entitled Manila Traffic Copyright; Commissioned Artist (2008)
Jam – on display at the university cafeteria.
No.XVI. In 1999, Mocha warn, an American
The cafeteria operator said he purchased the
musician, had a bit rap single called Warm
painting from Bernie who represented
Warm Honey which he himself composed
himself as its painter and owner
and performed. The single was produced by
a California record company, Galactic
Rudy and the cafeteria operator immediately
Records. Many notice that some passages
confronted Bernie. While admitting that he
from Warm Warm Honey sounded eerily
did not do the painting,. Bernie claimed
similar to parts of Under Hassle, a 1978 hit
ownership of its copyright since he had
song by the British rock and Majesty. A
already registered it in his name with the
copyright infringement suit was filed in the
National Library as provided in the
United States against Mocha Warm by
Intellectual Property Code.
Majesty. It was later settled out of court,
with Majesty receiving attribution as co-
Who owns the copyright to the painting?
author of Warm Warm Honey as well as a
Explain (8%).
share in the royalties.
SUGGESTED ANSWER.
Rudy owns the copyright to the painting
By 2002, Moeha Warm was nearing
because he was the one who actually
bankruptcy and he sold his economic rights
created it. (Section 178.1 of the

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over Warm Warm Honey to Galactic In the case of Mocha Warm and Majesty,
Records for $10,000. who are the attributed co-authors, and in
spite of the sale of the economic right to
In 2008, Planet Films, a Filipino movie Galactic Records, they retain their moral
producing company, commissioned DJ Chef rights to the copyrighted rap, which
Jean, a Filipino musician, to produce an include the right to demand attribution
original re-mix of Warm Warm Honey for to them of the authorship (Sec. 193,
use in one of its latest films, Astig!. DJ Chef IPC).
Jean remixed Warm Warm Honey with a
salsa beat, and interspersed as well a Which respect to DJ Chef Jean, in spite
recital of poetic stanza by John Blake, 1 of his death, and although he was
17th century Scottish poet. DJ Chef Jean commissioned by Planet Films for the
died shortly after submitting the remixed remix, the rule is that the person who so
Warm Warm Honey to Planet Films. commissioned work shall have
ownership of the work, but copyright
Prior to the release of Astig!. Mocha Warm thereto shall remain with creator, unless
learns of the remixed Warm Warm Honey there is a written stipulation to the
and demands that he be publicly identified contrary.
as the author of the remixed song is all the
CD covers and publicity releases of Planet Even if no copyright exist in favor of
Films. poet John Blake, intellectual integrity
requires that the authors of creative
(A) Who are the parties or entities entitled work should properly be credited.
to be credited as author of the remixed
Warm Warm Honey? Reason out your (B) Who are the particular parties or
answers. (3%) entities who exercise copyright over the
SUGGESTED ANSWER: remixed Warm Warm Honey? Explain. (3%)
SUGGESTED ANSWER:
The parties entitled to be credited as
authors of the remixed Warm Warm The parties who exercise copyright or
Honey are Mocha Warm, Majesty, DJ economic rights over the remixed Warm
Chef Jean and John Blake, for the Warm Honey would be Galactic Records
segments that was the product of their and Planet Films. In the case of Galactic
respective intellectual efforts. Records, it bought the economic rights
of Mocha Warm. In the case of Planet

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Films, it commissioned the remixed Eloise may publish the columns without
work. securing authorization from New Media
Enterprises. Under Sec. 172 of the
Intellectual Property Code, original
intellectual creations in the literary and
artistic domain are protected from the
Copyright; Commissioned Work (2008)
moment of their creation and shall

No.XV. Eloise, an accomplished writer, was include those in periodicals and

hired by Petong to write a bimonthly newspapers. Under Sec. 178, copyright

newspaper column for Diario de Manila, a ownership shall belong to the author. In

newly-established newspaper of which case of commissioned work, the person

Petong was the editor-in-chief. Eloise was to who so commissioned work shall have

be paid P1,000 for each column that was ownership of work, but copyright shall

published. In the course of two months, remain with creator, unless there is a

Eloise submitted three columns which, written stipulation to the contrary.

after some slight editing, were printed in

the newspaper. However, Diario de Manila (B) Assume that New Media Enterprises

proved unprofitable and closed only after plans to publish Eloise’s columns in its own

two months. Due to the minimal amounts anthology entitled, ―The Best of Diario de

involved, Eloise chose not to pursue any Manila‖ Eloise wants to prevent the

claim for payment from the newspaper, publication of her columns in that

which was owned by New Media anthology since she was never paid by the

Enterprises. newspaper. Name one irrefutable legal

argument Eloise could cite to enjoin New

Three years later, Eloise was planning to Media Enterprises from including her

publish an anthology of her works, and columns in its anthology. (2%)

wanted to include the three columns that SUGGESTED ANSWER:

appeared in the Diario de Manila in her

Under the IPC, the copyright or
anthology She asks for you legal advice:
economic rights to the columns she
authored pertains only to Eloise. She can
(A) Does Eloise have to secure authorization
invoke the right to either “authorize or
from New Media Enterprises to be able to
prevent” reproduction of the work,
publish her Diario de Manila columns in
including the public distribution of the
her own anthology? Explain fully. (4%)
original and each copy of the work “by
SUGGESTED ANSWER:

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sale or other forms of transfer of protecting electronic documents. What

ownership,” Since this would be the are involved here are text messages, not
effect of including her column in the letter in their ordinary sense. Hence, the
anthology. protection under the copyright law does
not extend to text messages (Section
172, Intellectual Property Code).

Copyright; Infringement (2007)

The messages that Diana and Piolo
No.III. Diana and Piolo are famous
exchanged through the use of messaging
personalities in showbusiness who kept
service do not constitute literary and
their love affair secret. They use a special
artistic works under Section 172 of the
instant messaging service which allows
Intellectual Property Code. They are not
them to see one another’s typing on their
letter under Section 172(d).
own screen as each letter key is pressed.
When Greg, the controller of the service
For copyright to subsist in a “message”,
facility, found out their identities, he kept a
it must qualify as a “work” (Section 172
copy of all the messages Diana and Piolo
Intellectual Property Code). Whether the
sent each other and published them. Is
messages are entitled or not to copyright
Greg liable for copyright infringement?
protection would have to be resolved in
Reason briefly. (5%)
the light of the provision of the
SUGGESTED ANSWER:
Intellectual Property Code.
Yes, Greg is liable for copyright
infringement. Letter are among the
Note: Since the law on this matter is not
works which are protected from the
clear, it is suggested that either of the above
moment of their creation (Section 172,
of the above suggested answers should be
intellectual Property Code; Columbia
given full credit.
Pictures, Inc. v Court of Appeals, 261
SCRA 144 [1996]). The publication of the
letters without the consent of their
writers constitutes infringement of
copyright. Denicola Test (2009)

No.I. (A) The Denicola Test in intellectual

ALTERNATIVE ANSWER
property law states that if design elements
No, Greg is not liable for copyright
of an article reflect a merger of aesthetic
infringement. There is no copyright
and functional considerations, the artistic

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aspects of the work cannot be conceptually

separable from the utilitarian aspects; thus, (A) Monaliza filed a complaint against
the article cannot be copyrighted. Valentino damages based on, among other
SUGGESTED ANSWER: grounds, violation of her intellectual
True. Applying the Denicola Test in property rights. Does she have any cause of
Brandir International, Inc. v.Cascade action? Explain. (2%)
Pacific Lumber Co. (834 F. 2d 1142, SUGGESTED ANSWER:
1988 Copr.L.Dec. P26), the United States Monaliza cannot sue Valentino for
Court of Appeals for the Second Circuit violation of her intellectual property
held that if there is any aesthetic rights, because she was not the one who
element which can be separated from took the pictures (Subsection 178.1 of
the utilitarian elements, then the the Intellectual Property Code). She may
aesthetic element may be copyrighted. sue Valentino instead for violation of her
right to privacy. He surreptitiously took
(Note: It is suggested that the candidate photographs of her and then sold the
be given full credit for whatever answer photographs to a magazine and uploaded
or lack of it. Further, it is suggested that them to his personal blog in the Internet
terms or any matter originating from (Tolentino, Commentaries and
foreign laws or jurisprudence should not Jurisprudence on the Civil Code of the
be asked.) Philippines, Vol. I, 1987 ed., p. 169).

(B) Valentino’s friend Francesco stole the

Infringement; Claims (2010) photographs and duplicated them and sold

them to a magazine publication. Valentino
No.XV. While vacationing in Boracay,
sued Francisco for infringement and
Valentino surreptitiously took photographs
damages. Does Valentino have any cause of
of his girlfriend Monaliza in her skimpy
action? Explain. (2%)
bikini. Two weeks later, her photographs
SUGGESTED ANSWER:
appeared in the Internet and in a national
Valentino cannot sue Francesco for
celebrity magazine.
infringement, because he has already
sold the photographs to a magazine
Monaliza found out that Valentino had sold
(Angeles vs. Premier Productions, Inc., 6
the photographs to the magazine, adding
CAR (2s) 159).
insult to injury, uploaded them to his
personal blog on the Internet.
ALTERNATIVE ANSWER:

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Yes, as the author of the photographs, Lacoste International, the French firm that
Valentino has exclusive economic rights manufactures lacoste apparel and owns the
thereto, which include the rights to Lacoste trademark, decided to cash in on
reproduce, to distribute, to perform, to the universal popularity of the boxing icon.
display, and to prepare derivative works It reprinted the photographs, with the
based upon the copyrighted work. He permission of the newspaper publishers,
sold only the photographs to the and went on a world-wide blitz of print
magazine; however, he still retained commercials in which Sonny is shown
some economic rights thereto. Thus, he wearing a Lacoste shirt alongside the
has a cause of action against phrase ―Sonny Bachao just loves Lacoste.‖
infringement against Francesco.
When Sonny sees the Lacoste
(C) Does Monaliza have any cause of action advertisements, he hires you as lawyer and
against Francesco? Explain. (2%) asks you to sue Lacoste International
SUGGESTED ANSWER: before a Philippine court:
Monaliza can also sue Francesco for
violation of her right to privacy. (A) For trademark Infringement in the
Philippines because Lacoste International
used his image without his permission:
(2%)
SUGGESTED ANSWER:
Infringement; Trademark, Copyright
Sonny Bachao cannot sue for
(2009)
infringement of trademark. The

No.XV. After disposing of his last opponent photographs showing him wearing a

in only two rounds in Las Vegas, the Lacoste shirt were not registered as a

renowned Filipino boxer Sonny Bachao trademark (Pearl & Dean (Phil.), Inc. v.

arrived at the Ninoy Aquino International Shoemart, Inc., 409 SCRA 231 (2003)).

Airport met by thousands of hero-

worshipping fans and hundreds of media (B) For copyright infringement because of

photographers. The following day, a colored the unauthorized use of the published

photograph of Sonny wearing a black polo photographs; (2%)and

shirt embroidered with the 2-inch Lacoste SUGGESTED ANSWER:

Crocodile logo appearedon the front page of Sonny Bachao cannot sue for

every Philippine newspaper. infringement of copyright for the

unauthorized use of the photographs

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showing him wearing a Lacoste shirt. Philippines without license to do

The copyright to the photographs belong business, cannot sue or intervene in any
to the newspapers which published them action, it may be sued or proceeded
inasmuch as the photographs were the against before our courts or
result of the performance of the regular administrative tribunal (De Joya v.
duties of the photographers (Subsection Marquez, 481 SCRA 376 (2006)).
173.3 (b), Intellectual Property Code
(IPC)).Moreover, the newspaper
publishers authorized the reproduction
of the photographs (Section 177,
Patent: Non-Patentable; Method of
Intellectual Property Code).
Diagnosis & Treatment (2010)

(C) For injunction in order to stop Lacoste No.XIX. Dr. Nobel discovered a new method
International from featuring him in their of treating Alzheimer’s involving a special
commercials. (2%) method of diagnosing the disease, treating
it with a new medicine that has been
Will these actions prosper? Explain. discovered after long experimentation and
SUGGESTED ANSWER: field testing, and novel mental isometric
The complaint for injunction to stop exercises. He comes to you for advice on
Lacoste International from featuring him how he can have his discoveries protected.
in its advertisements will prosper. This Can he legally protect his new method of
is a violation of subsection 123, 4(c) of diagnosis, the new medicine, and the new
the IPC and Art.169 in relation to method of treatment? If no, why? If yes,
Art.170 of the IPC. how? (4%)

(D) Can Lacoste International validly invoke SUGGESTED ANSWER:

the defense that it is not a Philippine Dr. Nobel can be protected by a patent
company and, therefore, Philippine courts for the new medicine as it falls within
have no jurisdiction? Explain. (2%) the scope of Sec. 21 of the Intellectual
SUGGESTED ANSWER: Property Code (Rep. Act No. 8293, as
No. Philippine courts have jurisdiction amended). But no protection can be
over it, if it is doing business in the legally extended to him for the method
Philippines. Moreover, under Section of diagnosis and method of treatment
133 of the Corporation Code, while a which are expressly non-patentable (Sec.
foreign corporation doing business in the 22, Intellectual Property Code).

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Intellectual Property Code (Section 122

of the Intellectual Property Code).
Trademark; Unfair Competition (2010)

No.XVIII. For years, Y has been engaged in (B) Suppose the shoes are covered by a

the parallel importation of famous brands, Philippine patent issued to the owner, what

including shoes carrying the foreign brand would your answer be? Explain. (2%)
MAGIC. Exclusive distributor X demands SUGGESTED ANSWER:

that Y cease importation because of his A patent for a product confers upon its

appointment as exclusive distributor of owner the exclusive right of importing

MAGIC shoes in the Philippines. the product (Subsection 71.1 of the

Intellectual Property Code). The

Y counters that the trademark MAGIC is importation of a patented product

not registered with the Intellectual Property without the authorization of the owner
Office as a trademark and therefore no one of the patent constitutes infringement of

has the right to prevent its parallel the patent (Subsection 76.1 of the

importation. Intellectual Property Code). X can

prevent the parallel importation of such

(A) Who is correct? Why? (2%) shoes by Y without its authorization.

SUGGESTED ANSWER:
X is correct. His rights under his
exclusive distributorship agreement are
property rights entitled to protection. Letters of Credit
The importation and sale by Y of MAGIC
shoes constitute unfair competition (Yu Independence Principle (2010)
v. Court of Appeals, 217 SCRA 328
No.XVII. The Supreme Court has held that
(1993)). Registration of the trademark is
fraud is an exception to the ―independence
not necessary in case of an action for
principle‖ governing letters of credit.
unfair competition (Del Monte
Explain this principle and give an example
Corporation v. Court of Appeals, 181
of how fraud can be an exception. (3%)
SCRA 410 (1990)).
SUGGESTED ANSWER:
The “independence principle” posits that
ALTERNATIVE ANSWER:
the obligations of the parties to a letter
Y is correct. The rights in a trademark
of credit are independent of the
are acquired through registration made
obligations of the parties to the
validly in accordance with the

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underlying transaction. Thus, the liabilities, outstanding as of the date of the

beneficiary of the letter of credit, which filing of the Petition. XYC Company is a
is able to comply with the documentary holder of an irrevocable Standby Letter of
requirements under the letter of credit, Credit which was previously procured by
must be paid by the issuing or ABC Company in favor of XYC Company to
confirming bank, notwithstanding the secure performance of certain obligations.
existence of a dispute between the In the light of the Order issued by the
parties to the underlying transaction, Court.
say a contract of sale of goods where the
buyer is not satisfied with the quality of (b) Explain the nature of Letters of Credit as

the goods delivered by the seller. The a financial devise. (5%)

Supreme Court in Transfield Philippines,

SUGGESTED ANSWER:
Inc. v. Luzon Hydro Corporation, 443
SCRA 307 (2004) for the first time A letter of credit is a financial device
declared that fraud is an exception to developed by merchants as a convenient
the independence principle. For and relatively safe mode of dealing with

instance, if the beneficiary fraudulently sales of goods to satisfy the seemingly

presents to the issuing or confirming irreconcilable interests of a seller, who
bank documents that contain material refuses to part with his goods before he
facts that, to his knowledge, are untrue, is paid, and a buyer, who wants to have
then payment under the letter of credit control of the goods before paying. To
may be prevented through a court break the impasse, the buyer may be

injunction. required to contract a bank to issue a

letter of credit in favor of the seller so
that, by virtue of the letter of credit, the

Letter of Credit (2012) issuing bank can authorize the seller to

draw drafts and engage to pay them
No.I. ABC Company filed a Petition for upon their presentment simultaneously
Rehabilitation with the Court. An Order with the tender of documents required
was issued by the Court, (1) staying by the letter of credit. The buyer and the
enforcement of all claims, whether money seller agree on what documents are to be
or otherwise against ABC Company, its presented for payment, but ordinarily
guarantors and sureties not solidarily liable they are documents of title evidencing
with the company; and (2) prohibiting ABC or attesting to the shipment of the goods
Company from making payments of its to the buyer. Once the credit is

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established, the seller ships the goods to Letter of Credit; Liabilities of a

the buyer and in the process secures the Confirming and Notifying Bank (2008)
required shipping documents or
No.I. X Corporation entered into a contract
documents of title. To get paid, the
with PT Construction Corp. for the latter to
seller executes a draft and present it
construct and build a sugar mill with six (6)
together with the required documents to
months. They agreed that in case of delay,
the issuing bank. The issuing bank
PT Construction Corp. will pay X
redeems draft and pays cast to the seller
Corporation P100,000 for every day of
if it finds that the documents submitted
delay. To ensure payment of the agreed
by the seller conform with what the
amount of damages, PT Construction Corp.
letter of credit requires. The bank then
secured from Atlantic Bank a confirmed
obtains possession of the documents
and irrevocable letter of credit which was
upon paying the seller. The transaction
accepted by X Corporation in due time. One
is completed when the buyer reimburses
week before the expiration of the six (6)
the issuing bank and acquires the
month period, PT Construction Corp.
documents entitling him to the goods.
requested for an extension of time to deliver
Under this arrangement, the seller gets
claiming that the delay was due to the fault
paid only if he delivers the documents of
of X Corporation. A controversy as to the
title over the goods, while the buyer
cause of the delay which involved the
acquires the said documents and control
workmanship of the building ensued. The
over the goods only after reimbursing
controversy remained unresolved. Despite
the bank. (Bank of America NT & SA v.
the controversy, X Corporation presented a
CA, et al., G.R. No. 105395, December
claim against Atlantic Bank by executing a
10,1993) However, letters of credit are
draft against the letter of credit.
also used in non-sale settings where they
serve to reduce the risk of non- (A) Can Atlantic Bank refuse payment due
performance. Generally, letters of credit to the unresolved controversy? Explain.
in non-sale settings have come to be (3%)
known as standby letters of credit. SUGGESTED ANSWER:
(Transfield Philippines, Inc. v. Luzon No, Atlantic Bank cannot refuse payment
Hydro Corporation, et al., G.R. No. to the unresolved controversy between
146717, November 22,2004) the two companies. The Bank is
solidarily liable to pay based on the
terms and conditions of the Letter of
Credit. In FEATI Bank v. Court of

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Appeals, G.R. No.94209, 30 April 1991, The types of average are particular and
the Court held that an irrevocable letter general (Article 808 of the Code of
of credit is independent of the contract Commerce). Particular averages include
between the buyer-applicant and the all expenses and damages caused to the
seller-beneficiary. vessel or to the cargo which did not
inure to the common benefit and profit
(B) Can X Corporation claim directly from of all the persons interested in the
PT Construction Corp.? Explain. (3%) vessel and the cargo (Article 809 of the
SUGGESTED ANSWER: Code of Commerce). General averages
include all damages and expenses which
Yes, X Corporation can claim directly
are deliberately caused to save the
from PT Construction Corp. The
vessel, its cargo, or both at the same
irrevocable letter of credit was merely a
time, from a real and known risk (Article
security arrangement that did not
811 of the Code of Commerce).
replace the main contract between the
two companies. In FEATI Bank c. CA,
G.R. No. 94209, 30 April 1991, opening a
letter of credit does not involve a
specific appropriation of money in favor Barratry (2010)
of the beneficiary. It only signifies that
No.XIII. (B) What is ―barratry‖ in marine
the beneficiary may draw funds up to the
insurance? (2%)
designated amount. It does not mean
SUGGESTED ANSWER:
that a particular sum of money has been
Barratry is any willfull misconduct in the
specifically reserved of held in trust.
part of the master or crew in pursuance
of some unlawful or fraudulent purpose
without the consent of the owner and to
the prejudice of the interest of the
owner (Roque v. Intermediate Appellate
Court, supra).
Maritime Commerce

Averages: Types (2010)

No.XVI. (B) What are the types of averages

in marine commerce (3%)
SUGGESTED ANSWER:

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Carriage of Goods; Deviation; Liability entitles him to compensation or

(2009) indemnification from the shipowner and
the owners of the cargoes saved by the
No.VII. Global Transport Services, Inc.
jettison.
(GTSI) operates a fleet of cargo vessels
plying interisland routes. One of its vessels,
ALTERNATIVE ANSWER:
MV Dona Juana, left the port of Manila for
The jettison resulted to a particular
Cebu laden with,among other goods,
average loss because the damage was due
10,000 television sets consigned to
to the fault of the captain.
Romualdo, a TV retailer in Cebu.

(B) Against whom does Romualdo have a

When the vessel was about ten nautical
cause of action for indemnity of his lost TV
miles away from Manila, the ship captain
sets? Explain. (3%)
heard on the radio that a typhoon which, as
announced by PAG-ASA, was on its way out
SUGGESTED ANSWER;
of the country, had suddenly veered back
Romualdo has a cause of action for his
into Philippine territory, the captain
lost TV sets against the shipowner and
realized that MV Dona Juana would
the owners of the cargoes saved by the
traverse the storm’s path, but decided to
jettison. The jettison of the TV sets
proceed with the voyage. True enough, the
resulted in a general average loss,
vessel sailed into the storm. The captain
entitling Romualdo to indemnity for the
ordered the jettison of the 10, 000 television
lost TV sets.
sets, along with some other cargo, in order
to lighten the vessel and make it easier to
steer the vessel out of the path of the
typhoon. Eventually, the vessel, with its
crew intact, arrived safely in Cebu. Carriage of Goods; Implied Warranty;
Liability (2010)
(A) Will you characterize the jettison of
No.XIII. Paulo, the owner of an ocean-going
Romualdo’s TV sets as an average? If so,
vessel, offered to transport the logs of
what kind of an average, and why? If not,
Constantino from Manila to Nagoya.
why not? (3%)
Constantino accepted the offer, not
SUGGESTED ANSWER:
knowing that the vessel was manned by an
The jettison of Romualdo’s TV sets
irresponsible crew with deep-seated
resulted in a general average loss, which
resentments against Paolo, their employer.

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(Roque v. Intermediate Appellate Court,

Constantino insured the cargo of logs 139 SCRA 596 [1985]).
against both perils of the sea and barratry.
The logs were improperly loaded on one
side, thereby causing the vessel to tilt on
one side. On the way to Nagoya, the crew Carriage of Goods; Indemnity; Jettisoned
unbolted the sea valves of the vessel Goods (2010)
causing water to flood the ship hold. The
No.XVI. An importer of Christmas toys
vessel sank.
loaded 100 boxes of Santa Claus talking
dolls aboard a ship in Korea bound for
Constantino tried to collect from the
Manila. With the intention of smuggling
insurance company which denied liability,
one-half of his cargo, he took a bill of lading
given the unworthiness of both the vessel
for only 50 boxes. On the voyage to Manila,
and its crew.
50 boxes were jettisoned to save the more
precious cargo.
Constantino countered that he was not the
owner of the vessel and he could therefore
(A) Is the importer entitled to receive any
not be responsible for conditions about
indemnity for average? Explain. (2%)
which he was innocent.
SUGGESTED ANSWER:
The importer is not entitled to receive
(A) Is the insurance company liable? Why or
any indemnity for average. In order that
why not? (3%)
the goods jettisoned may be included in
SUGGESTED ANSWER:
the general average and the owner be
The insurance company is not liable,
entitled to indemnity, it is necessary
because there is an implied warranty in
that their existence on board be proven
every marine insurance that the ship is
by means of the bill of lading (Article
seaworthy whoever is insuring the cargo,
816 of the Code of Commerce).
whether it be the ship-owner or not.
There was a breach of warranty, because
the logs were improperly loaded and the
crew was irresponsible. It is the
obligation of the owner of the cargo to
look for a reliable common carrier which
keeps its vessel in seaworthy condition

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COGSA; Prescription of Claims/Action Liability; Loss; Fortuitous Event (2008)

(2010)
No.IX. On October 30, 2007, M/V Pacific, a
No.XII. AA entered into a contract with BB Philippine registered vessel owned by Cebu
for the latter to transport ladies wear from Shipping Company (CSC), sank on her
Manila to France with transshipment via voyage from Hong Kong to Manila. Empire
Taiwan. Somehow the goods were not Assurance Company (Emprie) is the insurer
loaded in Taiwan on time, hence, these of the lost cargoes loaded on board the
arrived in France ―off-season.‖ AA was only vessel which were consigned to Debenhams
paid for one half the value by the buyer. Company. After it indemnified Debenhams,
Empire as subrogee filed an action for
AA claimed damages from BB. BB invoked damages against CSC.
prescription as a defense under the
Carriage of Goods by Sea Act Considering (A) Assume that the vessel was seaworthy.
the ―loss of value‖ of the ladies wear as Before departing, the vessel was advised by
claimed by AA, is BB’s defense tenable? theJapanese Meteorological Center that it
Explain. (3%) was safe to travel to its destination. But
SUGGESTED ANSWER: while at sea, the vessel received a report of
The defense of BB is not tenable. The a typhoon moving within its general path.
one-year prescriptive period in the To avoid the typhoon, the vessel changed
Carriage of Goods Sea Act applies only in its course. However, it was still at the fringe
case the goods were not delivered or of the typhoon when it was repeatedly hit
were delivered in a damaged or by huge waves, were saved three (3) who
deteriorated condition. It does not apply perished. Is CSC liable to empire? What
to damages as a result of delay in the principle of maritime law is applicable?
delivery of the goods. The prescription of Explain. (3%)
the action is governed by Article 1144 of SUGGESTED ANSWER:
the Civil Code, which provides for a
The common carrier incurs no liability
prescriptive period of ten years in case
for the loss of the cargo during a
of actions based on a written contract
fortuitous event, because the following
(Mitsui O.S.K. Lines Ltd. v. Court of
circumstances were present: (1) the
Appeals, 287 SCRA 366 (1998)).
typhoon was the cause of the cargo loss;
(2) the carrier did not contribute to the
loss; and (3) the carrier exercised
extraordinary diligence in order to

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minimize the attendant damage before, the full extent of the claims of the cargo
during and after the typhoon (See owners (Aboitiz Shipping v. New India
Fortune Express v. CA, Caorong. G.R. No. Assurance Company, G.R. No. 156978,
119756, 18 March 1999; Yobido v. CA, 02 May 2006).
G.R. No. 113003, 17 October 1997;
Gathalian v. Delim, G.R. No. L-56487, 21 (C) Assume the facts in question (b). Can
October 1991). the heirs of the three (3) crew members who
perished recover from CSC? Explain fully.
Under Art. 587 of Code of Commerce, in (3%)
case of maritime transactions, the SUGGESTED ANSWER:
liability of the owner of the vessel is
Yes, because the crew members died
limited to the vessel itself. Since the
while performing their assigned duties,
vessel of CSC was seaworthy at the time
aggravated by the failure of the ship
it sank, the CSC is not liable to Empire
owner to ensure that the vessel is
under the maritime principle that the
seaworthy. Workmen’s compensation has
obligations of the owner of a vessel are
been classified by jurisprudence as an
hypothecary in nature.
exception to the hypothecary nature of
maritime commerce, Abueg v. San Diego,
(B) Assume the vessel was not seaworthy as
77 Phil. 730 (1948), especially in this
in fact its hull had leaked, causing flooding
case where the vessel was not seaworthy
in the vessel. Will you answer be the same?
at the time it sank.
Explain. (2%)
SUGGESTED ANSWER:

When the vessel is not seaworthy, it is

an exception to the hypothecary
principle in maritime commerce. To Negotiable Instruments Law
limit its liability to the amount of the
Checks: Forged Checks; Liability of
insurance proceeds, the carrier has the
Drawee Bank (2008)
burden of proving that the
No.V. Pancho drew a check to Bong and
unseaworthiness of its vessel was not
Gerard jointly, Bong indorsed the check
due to its fault or negligence. The failure
and also forged Gerard’s indorsement . The
to discharge such a heavy burden
payor bank paid the check and charged
precludes application of the limited
Pancho’s account for the amount of the
liability rule and the carrier is liable to

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check. Gerard received nothing from the Checks; Liability; Drawer and Drawee
payment. Bank (2010)
No.VIII. Marlon deposited with LYRIC Bank
(A) Pancho asked the payor bank to recredit
a money market placement of P1 million for
his account. Should the bank comply?
tern of 31 days. On Maturity date, one
Explain fully. (3%)
claiming to be Marlon called up the LYRIC
SUGGESTED ANSWER:
Bank account officer and instructed him to

Yes, Sec. 41 of the NIL provides that all give the manager’s check representing the

payees or indorsees who are not partners proceeds of the money market placement to

must indorse jointly, unless the one Marlon’s girlfriend Ingrid.

indorsing has authority to endorse for

the others. Since the signature of Gerard The check, which bore the forged signature

was forged, then the endorsement by of Marlon, was deposited in Ingrid’s

Bong was wholly inoperative. The Bank account with YAMAHA Bank. YAMAHA

is under strict liability to pay to the Bank stamped a guaranty on the check

order of payee. Payment under a forged reading: ―All prior endorsements and/or

endorsement is not to the drawer’s lack of endorsement guaranteed.‖

order, and consequently, the drawee

bank must bear the loss as against the Upon presentment of the check, LYRIC

drawer (Associated Bank v. CA, G.R. Nos. Bank funds the check. Days later, Marlon

107382 and 107612, 31 January 1996). goes to LYRIC Bank to collect his money
market placement and discovers the
(B) Based on the facts, was Pancho as
foregoing transactions.
drawer discharged on the instrument?
Why? (2%)
Marlon thereupon sues LYRIC Bank which
SUGGESTED ANSWER:
in turn files a third-party complaint against

No. The payee Gerard can recover as he YAMAHA Bank. Discuss the respective

still retains his claim on the debt of rights and liabilities of the banks. (5%)

Pancho.
SUGGESTED ANSWER:
Since the money market placement of
Marlon is in the nature of a loan to Lyric
Bank, and since he did not authorize the
release of the money market placement
to Ingrid, the obligation of Lyric Bank to

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him has not been paid. Lyric Bank still the ASSIGNOR unconditionally and
has the obligation to pay him. irrevocably agrees to pay the same,
assuming the liability to pay by way of
Since Yamaha Bank indorsed the check penalty, three percent of the total amount
bearing the forged indorsement of unpaid, for the period of delay until the
Marlon and guaranteed all indorsements, same is fully paid.”
including the forged indorsement, when
it presented the check to Lyric Bank, it When the checks became due, BFC
should be held liable to it. deposited them for collection, but the
drawee banks dishonored all the checks for
However, since the issuance of the check one of the ff. reasons: ―account closed,‖
was attended with the negligence of ―payment stopped,‖ ―account under
Lyric Bank, it should share the loss with garnishment, ―or ―insufficiency of funds.‖
Yamaha Bank on a fifty percent basis BFC wrote Gaudencio notifying him of the
(Allied Banking Corporation v. Lim Sio dishonored checks, and demanding
Wan, 549 SCRA 504 (2008)). payment of the loan. Because Gaudencio
did not pay, BFC filed a collection suit.

In his defense, Gaudencio contended that

Checks; Notice of Dishonor (2009) (a) BFC did not give timely notice of
No.XII. Gaudencio, a store owner, obtained dishonor (of the checks); and (b)
a P1-million loan from Bathala Financing considering that the checks were duly
Corporation (BFC). As security, Gaudencio indorsed, BfC should proceed against the
executed a ―Deed of Assignment of drawers and the indorsers of the checks.
Receivables.‖ Assigning fifteen checks
received from various customers who Are Gaudencio’s defenses tenable? Explain.
bought merchandise from his store. The (5%)
checks were duly indorsed by Gaudencio’s
customers. SUGGESTED ANSWER:
No. Gaudencio’s defenses are untenable.
The Deed of Assignment contains the ff. The cause of action of BFC was really on
stipulation: the contract of loan, with the checks
merely serving as collateral to secure the
―If, for any reason, the receivables or any payment of the loan. By virtue of the
part thereof cannot be paid by the obligors, Deed of Assignment which he signed,

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Gaudencio undertook to pay for the the east the following morning to welcome
receivables if for any reason they cannot the day.
be paid by the obligors (Velasquez v. (Sgd.) Antonio Reyes
Solidbank Corporation, 550 SCRA 119
(2008)). Explain each requirement of negotiability
present or absent in the instrument. (8%)
SUGGESTED ANSWER:
The instrument contains a promise to
Forgery; Liabilities; Drawee Bank (2009) pay and was signed by the maker,
No.XI. (E) ―A bank is bound to know its Antonio Reyes (Section 1(a) of Negotiable
depositor’s signature‖ is an inflexible rule in Instruments Law).
determining the liability of a bank in forgery
cases. The promise to pay is unconditional
SUGGESTED ANSWER: insofar as the reference to the setting of
False. In cases of forgery, the forger the sun in the west in the evening and
may not necessarily be a depositor of the its rising in the east in the morning are
bank, especially in the case of a drawee concerned. These are certain to happen
bank. Yet in many cases of forgery, it is (Section 4(c) of Negotiable Instruments
the drawee that is held liable for the Law). The promise to pay is conditional,
loss. because the money will be taken from a
particular fund, BPI Account No. 1234
(Section 3 of Negotiable Instruments
Law).
Negotiability (2013)
No.I. Antonio issued the following The Instrument contains a promise to
instrument: pay a sum certain in money,
August 10, 2013 P100,000.00 (Section (b) of Negotiable
Makati City Instruments Law).
P1OO,OOO,OO
Sixty days after date, I promise to pay The money is payable at a determinable
Bobby or his designated representative the future time, sixty days after August 10,
sum of ONE HUNDRED THOUSAND PESOS 2013 (Section 4(a) of Negotiable
(P100,000.00) from my BPI Acct. No. 1234 Instruments Law).
if, by this due date, the sun still sets in the
west to usher in the evening and rises in

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The instrument is not payable to order there are no 90-day treasury bills
or to bearer (Section 1(d) of Negotiable (although there are 91-day, 182-day, and
Instruments Law). 364-days bills); second the promise does
not specify whether the so-called
“interest rate” is that established at the

Negotiability (2012) primary market (where new T-bills are

sold for the first time by the Bureau of
No.IV. Indicate and explain whether the Treasury) or at the secondary market
promissory note is negotiable or non- (where T-bills can be bought and sold
negotiable. after they have been issued in the
primary market).; and third, T-bills are
(A) I promise to pay A or bearer conventionally quoted in terms of their
Php100,000.00 from my inheritance which discount rate, rather than their interest
I will get after the death of my father. (2%) rate. They do not pay any interest
directly; instead, they are sold at a
SUGGESTED ANSWER:
discount of their face value and this
“earn” by selling at face value upon
Not negotiable. There is no
maturity. (See, among other,
unconditional promise to pay a sum
www.treasury.gov.ph/govsec/aboutsec.h
certain in money (Sec. 1 [b], NIL) as the
tml)
promise is to pay the amount out of a
particular fund, i.e., the inheritance
(C) I promise to pay A or bearer the sum of
from the father of the promisor(Sec. 3,
Php100,000 if A passes the 2012 bar
NIL).
exams. (2%)

(B) I promise to pay A or bearer Php100,000

SUGGESTED ANSWER:
plus the interest rate of ninety (90) – day
treasury bills. (2%) Not negotiable. The promise to pay is
subject to a condition, i.e., that A will
SUGGESTED ANSWER:
pass the 2012 bar exams (Sec.1[b],NIL).

Not negotiable. There is no

(D) I promise to pay A or bearer the sum of
unconditional promise to pay a sum
Php100.000 on or before December 30,
certain in money. The promise to pay
2012. (2%)
“the interest rate of ninety (90)-day
treasury bills” is vague because, first, SUGGESTED ANSWER:

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Negotiable. It conforms fully with the constitute a defect of title (Section 55,
requirements of negotiability under Negotiable Instruments Law).
Section 1, NIL.
(B) Does S have a cause of action against R
(E) I promise to pay A or bearer the sum of in case of dishonor by the drawee bank?
Php100,000. (2%)

SUGGESTED ANSWER:
SUGGESTED ANSWER:
No, s does not have a cause of action
against R in case of dishonor of the
Negotiable. It conforms fully with the
check by the drawee bank. S is not a
requirements of negotiability under
holder in due course, thus, R can raise
Section 1,NIL. It is payable on demand
the defense that the check was issued
because the note does not express a time
for an illegal consideration (Section 58,
for its payment(Sec.7[b], NIL).
Negotiable Instruments Law).

(C) It S negotiated the check to T, who

accepted it in good faith and for value, may
Negotiable Instruments; Illicit/Illegal R be held secondarily liable by T?
Consideration (2007)
Reason Briefly in (a), (b) and (c).
No.I. R issued a check for P1m which he
used to pay S for killing his political enemy.
SUGGESTED ANSWER:
(10%)
Yes, R may be held secondarily liable by
T who took the check in good faith and
(A) Can be the check be considered a
for value. T is a holder in due course. R
negotiable instrument?
cannot raise the defense of illegality of
the considerarion, because T took the
SUGGESTED ANSWER:
check fre from the defect of title of S
Yes, the check can be considered a
(Section 57, Negotiable Instrumets Law).
negotiable instrument even if it was
issued to pay S to kill his political
enemy. The validity of the consideration
is not one of the requisites of a
negotiable instruments (Section 1,
Negotiable Instruments Law.) it merely

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Negotiable Instruments; Illicit/Illegal No. the illicit cause or consideration

Consideration; Lawful Dishonor (2009) does not adversely affect the
negotiability of the bill, especially in the
No.VI. Lorenzo drew a bill of exchange in
hands of a holder in due course. Under
the amount of P100, 000.00 payable to
Sec. 1 of the Negotiable Instruments law,
Barbara or order, with his wife, Diana, as
the bill of exchange is a negotiable
drawee. At the time the bill was drawn.
instrument. Every negotiable instrument
Diana was unaware that Barbara is
is deemed prima facie to have been
Lorenzo’s paramour.
issued for valuable consideration, and
every person whose signature appears
Barbara then negotiated the bill to her
thereon is deemed to have become a
sister, Elena, who paid for it for value, and
party thereto for value (Sec. 24,
who did not know who Lorenzo was. On
Negotiable Instruments Law).
due date, Elena presented the bill to Diana
for payment, but the latter promptly
dishonored the instrument because, by
then, Diana had already learned of her
husband’s dalliance. Negotiable Instruments: Incomplete,
Delivered; Doctrine: Comparative
(A) Was the bill lawfully dishonored by Negligence (2008)
Diana? Explain. (3%)
No.IV. AB Corporation drew a check for
payment to XY Bank. The check was given
SUGGESTED ANSWER:
to an officer of AB Corporation who was
instructed deliver it to XY Bank. Instead ,
No, the bill was not lawfully dishonored
the officer intending to defraud the
by Diana. Elena, to whom the instrument
Corporation, filled up the check by making
was negotiated, was a holder in due
himself as the payee and delivered it to XY
course inasmuch as she paid value
Bank for deposit to his personal account.
therefore in good faith.
XY Bank debited AB Corporation’s account.
AB Corporation came to know of the
(B) Does the illicit cause or consideration
officer’s fraudulent act after he absconded.
adversely affect the negotiability of the bill?
AB Corporation asked XY Bank to recredit
Explain. (3%)
its amount. XY Bank refused.

SUGGESTED ANSWER:

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(A) If you were the judge, what issues would 5,000.00 five days after his pet dog, Sparky,
you consider relevant to resolve the case? dies. Signed Y.‖ is a negotiable instrument.
Explain. (3%) SUGGESTED ANSWER:
SUGGESTED ANSWER: True. The document is subject to a term
and not a condition. The dying of the
The filling up by the officer of his name
dog is a day which is certain to come.
as payee does not constitute forgery, and
Therefore, the order to pay is
contemplates a mechanically incomplete
unconditional, in compliance with
but delivered instrument. Under Sec. 14
Section 1 of the Negotiable Instruments
of the NIL, in order to enforce an
Law (NIL).
incomplete but delivered instrument
against a prior party, it must be filled-up
(Note: This answers presumes that there
strictly in accordance with the authority
is a drawee)
given. The doctrine of comparative
negligence provides that AB Corp. is
deemed negligent for having issued the
check with a blank payee section that
facilitated the fraud; it should be AB
Parties; Holder in Due Course (2012)
Corp. that must bear the loss, and not
XY Bank.
No.III. X borrowed money from Y in the

(B) How would you decide the case? amount of Php1Million and as payment,

Explain. (2%) issued a check. Y then indorsed the check

SUGGESTED ANSWER: to his sister Z for no consideration. When Z

deposited the check to her account, the
I would fin AB Corp. liable for its check was dishonored for insufficiency of
negligence in delivering an incomplete funds.
instrument to XY Bank (Sec. 14, NIL).
(A) Is Z a holder in due course? Explain
your answer. (5%)

SUGGESTED ANSWER:
Negotiable Instruments: Subject to a
Term (2009) Z is not a holder in due course. She did
not give any valuable consideration for
No.XI. (D) A document, dated July 15, 2009
the check. To be a holder in due course,
that reads: ―Pay to X or order the sum of
the holder must have taken the check in

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