Letters of Credit

Q: What is a letter of credit?

A letter of credit (L/C) is an engagement by a bank made at the request of a customer that the bank (issuer) will honor
the draft or other demand for payment upon compliance with the conditions stated in the credit.
Q: What is the nature of a letter of credit?
It is a commercial transaction. It is NOT a negotiable instrument because it does not have all of the requisites of
negotiability.
Q: Who are the parties to a letter of credit?
The original parties are the buyer/importer, the issuing bank, and the seller/beneficiary/exporter. Other parties may
include the advising/notifying bank, the confirming bank, the paying bank, and the negotiating bank.
Buyer/Importer
Issuing Bank
Seller/Beneficiary/Exporter
Advising/Notifying Bank
Confirming Bank
Paying Bank
Negotiating Bank

Procures the L/C and obliges himself to reimburse the issuing bank upon receipt of the
document of title from the seller
The bank which issues the letter of credit and undertakes to pay the seller upon receipt
of the draft/documents of title, and to surrender these documents of title to the buyer
upon reimbursement.
He ships the goods to the buyer and delivers the documents of title to the issuing bank
to recover payment
Bank that conveys to seller existence of credit. Incurs no liability at all
Bank which lends credence to the L/C issued by the lesser known issuing bank. Directly
liable to pay the seller
Bank which Undertakes to encash the drafts drawn by the seller
(optional) bank which buyer may approach to have drafts discounted instead of going to
place of issuing bank to claim payment.

Q: What is the Doctrine of Independence?

In determining compliance with the L/C, bank only needs to examine only the shipping documents presented by the
seller. Bank DOES NOT determine whether the main contract of sale (between the buyer and seller) has been strictly
complied with. Banks deal only with DOCUMENTS and not with goods, services or obligations to which they relate. The
bank has no duty to verify whether the goods described in the L/C actually tallies with what was loaded in the ship.
Q: What is the Fraud Exception Principle?
It is an exception to the Doctrine of Independence, wherein the bank may be enjoined or prevented from paying the
draft when the beneficiary presents documents containing fraudulent representations so that he can draw on the
credit.
Q: What is the Doctrine of Strict Compliance?
It requires that the documents tendered by the seller/beneficiary must strictly conform to the terms of the L/C. the
correspondent bank who accepts a faulty tender of the drafts by the beneficiary may not later recover from the issuing
bank or the buyer and thus acts on its own risk should it accept such drafts.
Q: What are the essential conditions of a letter of credit?
1. That it be issued in favor of a definite person and not to order, 2. It be limited to a fixed and specified amount, or to
one or more undetermined amounts, but within a maximum the limits of which have to be stated exactly.
Q: What is a Standby Letter of Credit?
It is a bank-issued option on a loan involving three parties: the issuing bank, the party requesting, and the beneficiary.

Q: What is an Irrevocable Letter of Credit?

One that obligates the issuing bank to honor drafts drawn in compliance with the credit. It cannot be cancelled nor
modified without the consent of ALL the parties.
Q: What is a Revocable Letter of Credit?
One that can be cancelled any time before payment. It serves as a means of ARRANGING payment, but NOT as a
guarantee of payment.
Q: What is a Draft?
Also called a Bill of Exchange, is an order written by an exporter/seller instructing an importer/buyer to pay a specified
amount of money at a specified time. A trade draft is one where the drawee is the buyer. A bank draft is one where the
drawee is the bank and is usually drawn according to the terms of a letter of credit.
Q: Distinguish a Revolving L/C from a Non-Revolving L/C.
A Non-revolving L/C is one that is valid for one transaction only. A Revolving L/C is one that is valid for several
transactions over a given period of time.
Q: Distinguish a Non-Cumulative from a Cumulative L/C.
A Non-Cumulative L/C is one which any amount not used by the beneficiary during the specified period may not be
drawn against in a later period. A Cumulative L/C is one where undrawn amounts may be carried over to future
periods.

Insurance Law
Q: What is a Contract of Insurance?
It is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage, or liability
arising from an unknown or contingent event. Test: depends on nature of promise, act required to be performed, nature
of agreement.
Q: What are the Elements of a contract of insurance?
1. Insured has insurable interest, 2. Insured is subject to risk of loss by happening of designated peril, 3. Insurer
assumes risk, 4. Assumption of risk is part of general scheme to distribute actual losses among a large group of persons
bearing a similar risk, 5. In consideration of insurers promise, insured pays a premium.
Q: When is a contract of insurance perfected?
Since it is a consensual contract, it is perfected the moment there is a meeting of the minds. Cognition theory
perfected when insured has knowledge of acceptance and approval by insurer of application.
Q: Is a contract of suretyship an insurance contract?
A contract of suretyship is an insurance contract if the surety is doing an insurance business.
Q: What constitutes Doing Insurance Business?
Making/proposing to make: 1. As insurer, any insurance contract, 2. As surety, any contract of suretyship as a vocation,
not as mere incident, 3. Any other insurance business like reinsurance.
Q: What are the characteristics of an insurance contract?

An insurance contract is aleatory, voluntary, executory, synallagmatic, compensatory, a contract uberrimae fides, and
personal. (AVES CUP)
Aleatory

Voluntary
Executory
Synallagmatic
Compensatory
Uberrimae Fides
Personal

Chance is a predominant factor

Q: Boxer who has an accident insurance policy with father as beneficiary, slipped and died
when head hit one of the posts of the boxing ring. Can dad claim?
A: Yes. Boxer who enters the ring does not expect to die. Slipping and head hitting the post is
accidental and covered by the policy. (Aleatory)
Depends on willingness to enter
Insurer promises to pay only when risk attaches
Both parties have RECIPROCAL obligations of equal value to each other
Because generally actual loss or damage only is compensated
A contract of perfect good faith
Binds only the parties to it

Q: What are the different classes of Insurance?

The different classes of insurance are Marine, Fire, Casualty, Suretyship, Life, Compulsory Motor Vehicle Liability
Insurance. (MFC SLC)
Marine

Fire
Casualty
Suretyship
Life

Compulsory Motor
Vehicle Liability
Insurance

Covers: 1. Vessels, goods, freight, cargo, merchandise, profits, money, bottomry and
respondentia
2. Persons or property in connection with marine insurance
3. Precious stones, jewelry, precious metals
4. Bridges, tunnels, piers, docks
A contract by which the insurer for a consideration agrees to indemnify the insured against loss
or damage to property by fire but may include loss by lightning, windstorm, tornado, or
earthquake.
Insurance covering loss or liability arising from accident or mishap, excluding those falling
under other types of insurance as fire or marine
A contractual relation resulting from an agreement whereby one person (surety) engages to
answer for the debt default or miscarriage of another, known as the principal. It is an accessory
obligation, but his liability is direct and absolute. He is solidarily liable with the principal.
An insurance on human life and insurance appertaining thereto or connected therewith.
Includes every contract or pledge for payment of endowments or annuities. Kinds:
Ordinary/General/Ol
Insured pays a specific premium every year until he dies. The policy
d Line
acquires a surrender value after 3 years
Limited Payment
Insured pays premiums for a limited period. If dies within the period,
beneficiary is paid; if outlives period, he does not get anything
Endowment
Insured pays premium for specified period. Outlives period, face
value paid; if not, his beneficiary receives the benefit
Term Insurance
Insured pays once only, and is insured for a specified period. Dies
within period, beneficiary benefits; outlives period, no one benefits.
Industrial Life
Insurance entitling insured to pay premiums weekly or monthly but
the face value is P2,000 or less and the words industrial policy are
printed on the policy
Variable
Any policy or contract on either a group or individual basis issued by
an insurance company providing for benefits or other contractual
payments or values thereunder to vary to reflect investment results
of any segregated portion of the portfolio.
Primarily intended to provide compensation for death/bodily injuries suffered by innocent third
parties or passengers as a result of the negligent operation/use of motor vehicles. The victims
or their dependents are assured of immediate financial assistance, regardless of the financial
capacity of the motor vehicle owners.

Q: What is a mutual life insurance corporation?

It is a cooperative that promotes the welfare and mutual benefit of its own member-policyholders. They receive their
insurance at cost while reasonably and properly guarding and maintain the stability and solvency of the company.

Q: What past event may be insured?

A past event the happening or non-happening of which is unknown to the parties at the time of the perfection of the
contract may be insured against.
Q: What is Insurable Interest?
It is every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured.
Q: What is Insurable Interest in Life?
It is the interest which a person has in his life or the interest which he may have in the lives of other persons: 1. On whom
he depends wholly or in part for education or support, 2. Under legal obligation to him to pay money, to deliver property,
or to render service, 3. Upon whose life any estate or interest vested in him depends.
Q: When should insurable interest in life exist?
It should exist at the time insurance is taken.
Q: May an office insure the life of its manager with a provision that the proceeds shall be paid to the company and heirs in
equal proportions?
Yes, because it has an insurable interest on the services of the manager as his death or illness would materially and
injuriously affect the corporation.
Q: X took an insurance policy on the life of his girlfriend, who died. Can X claim?
No. A person does not have an insurable interest in the life of another who is a mere friend, friendship alone does not fall
under any one of the three categories.
Q: What is insurable interest in property?
It is every interest in property whether real or personal or any relation thereto, or liability in respect thereof, of such a
nature that the contemplated peril might directly cause damage to the insured.
Q: What may insurable interest in property consist of?
It may consist of 1. An existing interest, 2. An inchoate interest founded on an existing interest, and 3. An expectancy
coupled with an existing interest in that out of which the expectancy arises.
Q: What is Double Insurance?
Double Insurance exists where the same person is insured by several insurers separately in respect to the same subject
and interest. Requisites: 1. The person insured is the same, 2. There are 2 or more insurers insuring separately, 3. There
is identity of subject matter, 4. Identity of interest insured, 5. Identity of the risk/peril insured against
Q: What is the nature of the liability of the several insurers in double insurance?
The insurers are deemed co-insurers. Each one is bound to contribute ratably to the loss in proportion to the amount for
which he is liable under his contract.
Q: What is Reinsurance?
A contract by which an insurer procures a third person to insure him against loss or liability by reason of such original
insurance

Q: Distinguish double insurance and Reinsurance

Double insurance
Involves the same interest
The insurer remains in such capacity
The insured in the first contract is a party in interest in the
second contract

Reinsurance
An insurance of different interests
The insurer becomes an insured in relation to the reinsurer
The original insured has no interest in the reinsurance
contract

Q: What is the Premium in insurance contracts?

It is the consideration paid to an insurer for undertaking to indemnify the insured against a specified peril.
Q: what is the principle of cash to carry?
Said principle requires payment of the premium before the contract of insurance can be valid and binding. This is because
the insurer, upon issuance of the policy, is immediately exposed to liability for the risks insured against, so it is entitled to
be paid for extending protection immediately upon exposure.
Q: name at least 3 instances when an insured is entitled to a return of the premium paid.
The insured is entitled to a return of the WHOLE premium: 1. If the thing insured was never exposed to the risks insured
against, 2. When the contract is voidable due to the fraud or misrepresentation of the insurer, 3. When the insurer never
incurred a liability.
Q: what is a Cover Note?
It is a temporary insurance coverage. It is valid for 60 days unless extended or renewed upon approval of the Insurance
Commission. No separate premium, apart from that paid on the policy, is required for the issuance of the cover note. The
policy should be issued within 60 days after issuance of the cover note.
Q: What is Concealment?
It is a neglect to communicate that which a party knows and ought to communicate to the other party. It is a negative act
and the insurer has no duty to verify, he only needs to prove it exists. Requisites: 1. The matter concealed must be
material, 2. There must be an obligation for the insured to reveal the concealed matter, 3. Other party has no means to
ascertain, 4. No warranty exists.
Q: When is a fact material?
When knowledge of such fact would have affected the decision of the insurer to enter into the contract in estimating the
risk or in fixing the premium.
Q: What is a Representation?
It is an oral or written statement of a fact or condition, affecting the risk, made by the insured to the insurer tending to
INDUCE the insurer to assume the risk.
Q: What is a warranty?
A statement or promise by the insured set forth in the policy itself or incorporated in it by proper reference, the untruth or
nonfulfillment of which renders the policy VOIDABLE by the insurer, whether he was in fact prejudiced or not. It may be
express, implied, affirmative (asserts existence of a fact), or promissory (the insured stipulates that certain facts or
conditions shall exist).
Q: What is a condition?
One that is intended to secure for the insurer the best obtainable evidence of the fact of loss and amount of any loss.

Q: What is the effect of concealment or misrepresentation or breach of warranty or condition?

The injured party is entitled to RESCIND the policy in case of concealment or misrepresentation or breach of a warranty
or condition.
If the breach is fraudulent, the insurer is freed from liability from the start as the contract is void ab initio. If there is no
fraud, the insurer is freed from the contract the moment the breach occurs and is entitled to retain the premiums
corresponding to the period up to the time of the breach.
Q: What are the prerequisites to recovery for loss in Insurance?
There must be Notice of Loss and Proof of Loss. Notice must be immediately given unless delay is waived by the
insurer. Proof must be given according to the best evidence obtainable.
Q: What is the effect of payment by insurer to the assured of the indemnity?
It operates as a subrogation, or an equitable assignment of all remedies the assured may have against the third party
who caused the damage. The right of subrogation attaches upon payment by the insurer of the insurance claims of the
assured. As subrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the
assured may have against the wrongdoer who caused the damage.
Q: What is the Incontestability Clause?
In life insurance policies, the insurer cannot invoke the material misrepresentation of the insured to rescind the contract
after the lapse of TWO YEARS from the date the policy became effective because of the incontestability clause.
Trust Receipts Law
Q: What is a Trust Receipt Transaction?
A trust receipt transaction between an entruster and an entrustee whereby the entruster and entrustee, who owns or
holds absolute title or security interest over certain specified goods, documents or instruments. Releases the same to
the possession of the entrustee upon the latters execution and delivery to the etruster
Q: What are the rights of the entruster?
a. To receive the proceeds of the sales of the goods, etc. released under a trust receipt to the entrustee to the extent
of the amount owing to the entruster
b. To the return of the said good, etc. case they could not be sold
c. To cancel the trust in case the entrustee defaults, take possession of the goods, etc., and sell the same at public or
private sale
Q: Who is the entrustee and what are his obl
An entrustee is the person having or taking possession of goods, documents or instruments under s trust receipt
transaction, and any successor in interest of such person for the purpose or purposes specified in a trust receipt.
He is obliged to:
a. To hold the goods etc. in trust for the entruster and to dispose of them strictly I accordance with the terms of the
trust receipt
b. To receive the proceeds of the sale of the good, etc. in trust for the entruster and o turn over the same to the
entruster to the extent of the amount owing to the entruster
c. To insure the goods for their total value against loss from fire, theft, pilferage or other casualties
d. To keep the goods, etc. or the proceed thereof, whether in money or whatever form, separate and capable of
identification as property of the entruster
e. To return the goods, etc. to the entruster in case they could not be sold or upon demand of the entruster.
Q: What can be instituted against an entrustee corporation which failed to turn over the proceeds of the sale, or to
return unsold goods, and who shall be liable?

Estafa under Article 315 (b) of the Revised Penal Code, may be instituted. Under the Trust receipts law, when a violation
or offense is committed by a corporation, partnership, association or other juridical entities, the penalty provided shall be
imposed the directors, officers, employees or other officials or persons therein responsible for the offense.
Q: What remedies are available for violations of the Trust Receipts Law?
a. File Estafa charges (Ng v. People)
b. Demand of deficiency of the amount covered by the trust receipt ( Landl v Metrobank)
File for damages as acquittal in Estafa does not dissolve civil liability (Vintola vs Insular Bank)

NEGOTIABLE INSTRUMENTS
KINDS OF NEGOTIABLE INSTRUMENTS
Q: X executed an instrument, requiring A to pay P500,000 on June 15, 2014 to B.
a) Differentiate a promissory note from a bill of exchange.
b) Is the instrument in this case a promissory note or a bill of exchange?
A:
a) A promissory note is a promise, while a bill of exchange is an order. In a promissory note, payment is to be made by the
maker; in a bill of exchange, payment is to be made by the person to whom it is addressed.
b) The instrument is a bill of exchange. A bill of exchange is an unconditional order in writing, addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, at a fixed or
determinable future time, a sum certain in money to order or to bearer. Here, the instrument is addressed to A, requiring
him to pay a sum certain in money at a fixed date to B. Hence, the instrument is a bill of exchange.
COMPLETION AND DELIVERY
Q:
X executed an instrument, indorsed in blank. However, X did not sign this instrument. Later, B placed his name on
the blank; eventually, B sued X for the amount appearing on the instrument. X raised the defense that the instrument was
non-negotiable; B countered with the argument that it was one payable to bearer. Decide.
A: X cannot be held liable to B under the instrument. B's argument is untenable; a non-negotiable instrument is not
converted into a negotiable one by the mere fact that it is indorsed in blank. In this case, the instrument was not signed by
X as maker. Hence, it is non-negotiable, and B cannot sue him for the amount due thereunder notwithstanding the fact
that it had been indorsed in blank.
Q:
X filed a claim against the estate of Y, based on a promissory note. X alleged that the note was executed by Y
during his lifetime and delivered to B's law office. Rule on X's claim.
A:
X's claim cannot be allowed. NIL 16 states that every contract on a negotiable instrument is incomplete and
revocable until delivery for the purpose of giving effect thereto. In this case, no such delivery was made to X. In view of
the absence of delivery, the same cannot be the basis of a claim against Y's estate.
Q:
X executed a promissory note, payable to bearer and complete in its formalities. A stole the note from X, and gave
the same to B. Thereafter, B gave the note to C. C thereafter sued X. X raised the defense that the instrument had never
been delivered to A. C, on the other hand, argued that he was a holder in due course.
Is X's contention correct?
A: No; X's defense is untenable. Non-delivery of a complete instrument is a personal defense that cannot be raised
against a holder in due course. In this case, the promissory note was complete, although not delivered to A. C was a
holder in due course. Therefore, X cannot raise the defense of non-delivery against C.
SIGNATURE

Q: X sold goods under the trade name, B. He executed a promissory note, payable to C, and signed thereon B. C sued
X for the amount due under the promissory note. X disowned the check, pointing out that he did not sign it under his
name. Rule on X's contention.
A: X's argument is untenable. NIL 18 states that one who signs in a trade or assumed name will be liable to the same
extent as if he had signed in his own name. In this case, X signed the instrument under his trade name, B. Therefore, X
is liable for the amount due under the promissory note, notwithstanding his name did not appear thereon.
Q: X entered into a business transaction with Y, whereunder the latter would deliver goods to the former. X made
representations to Y to the effect that the latter ought to course his goods through B. Later, B signed a promissory note
with X's name, indicating thereon that he was doing so under the authority of X. B then issued the instrument in favor of Y.
Y sued X for the amount due under the promissory note. Can Y be held liable thereon?
A: Yes; X can be held liable for the amount due under the promissory note. NIL 20 states that where the instrument
contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, or in a
representative capacity, he is not liable on the instrument if he was duly authorized. In this case, the instrument was
signed by B and contained words indicating that he was doing so under the authority of X. Moreover, X represented B to Y
as his agent; therefore, X can be held liable under the instrument signed by B.
Q: X executed a promissory note payable to A or his order. A indorsed the instrument to B, a minor. Thereafter, B indorsed
the instrument to C. C eventually sued X for the amount due under the promissory note. X raised the defense that B was a
minor. Decide.
A: B's defense is untenable. NIL 22 states that the indorsement or assignment of the instrument by a corporation or by
an infant passes the property therein, notwithstanding that from want of capacity the corporation or infant may incur no
liability thereon. Hence, although B is a minor, his indorsement transferred title thereto to C. Thus, C can sue X for the
amount due under the note.
Q: A issued a promissory note, payable to the order of B. B specially indorsed the note to C. D stole the note from C and
forged the latter's signature thereon. D then sold the note to E, who indorsed the same to F, a holder in due course.
a) Distinguish real defenses from personal defenses.
b) Is forgery a real defense or a personal defense?
c) Suppose that F should sue C upon the note; can the latter be held liable therefor?
d) Suppose that F should sue A or B upon the note; can the latter be held liable therefor?
A:
a) A real defense is one that is available against all holders, even ones in due course. A personal defense is one that is
available only against holders not in due course.
b) Forgery is a real defense. NIL 23 states that when a signature is forged or made without authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature unless
the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.
c) C cannot be held liable to F under the note. NIL 23 states that a forged signature is wholly inoperative, and no right to
enforce payment thereof against any party thereto can be acquired through or under such signature unless the party
against whom it sought to enforce such right is precluded from setting up the forgery or want of authority. In this case, C's
signature was forged on the instrument by D. Hence, C's signature is wholly inoperative, and F cannot enforce payment
thereunder.
d) Neither A nor B can be held liable under the note. Forgery is a real defense that is available even against holders in due
course. In this case, F acquired title to the note through C's forged signature. Hence, even granting that F was a holder in
due course, A and B can avoid liability by raising the defense of forgery against F.
CONSIDERATION
Q:
A and B executed a contract with C, whereby they were granted the use of the latter's 'system of collections'.
Subsequently, A and B executed the following promissory note:
For and in consideration of a K and agreement entered into this day with us by C, whereby we are entitled to the use of
said company's system of collections, we hereby, for value received, promise to pay to said C, or order xxx the sum of one
hundred fifty pesos xxx we hereby acknowledge the receipt of a true copy of this entire agreement.
Thereafter, C indorsed the note in favor of D.
D then sued A and B for payment under the note. A and B raised the defense that the instrument was nonnegotiable, particularly in view of the fact that it made mention of the contract between A, B and C. Rule on this defense.

A:
The defense is untenable. NIL 3 states that an unqualified order or promise to pay is unconditional within the
meaning of the NIL though coupled with:
(1) an indication of a particular fund out of which reimbursement is to be made, or a particular account to be debited with
the amount; or
(2) a statement of the transaction which gives rise to the instrument.
In this case, the promissory note merely mentioned the contract between A, B and C which gave rise to the instrument.
Therefore, its negotiability was not affected by said statement; the promise thereunder is unconditional, notwithstanding
such statement.
Q:
A was the acting president of X Bank. He was also interested in starting a lumber business. A had three accounts:
a personal one and one held as treasurer with X Bank, and one held as treasurer of the lumber business, with Y Bank.
A withdrew P10k from the personal account with X Bank. A thereafter withdrew P10k from the account with Y
Bank, resulting in an overdraft of P8.7k.
Subsequently, A procured Z Bank to execute a note payable to X Bank. Z received no value for the note.
Moreover, A and Z agreed that the note was for the purpose of the latter lending its name to the former.
A deposited the note with X Bank. X then sued Z Bank upon the note. Z Bank raised the defense that X Bank had
notice through A that it executed the note as an accommodation party.
a) What is an accommodation party?
b) Rule on Z Bank's defense.
A:
a) An accommodation party is one who signs the instrument as maker, drawer, acceptor, or indorser without receiving
value therefor, and for the purpose of lending his name to some other person.
b) Z Bank's defense is untenable. NIL 29 states that an accommodation party is liable on the instrument to a holder for
value, notwithstanding that such holder, at the time of taking the instrument, knew him to be only an accommodation party.
In this case, Z Bank signed the note as maker, without receiving value therefor, and for the purpose of lending its name to
A. Z Bank is therefore an accommodation party. But the mere fact that X Bank had notice of Z Bank's status as
accommodation party does not bar recovery thereon.
NEGOTIATION
Q: Distinguish negotiation from assignment.
A:
Negotiation takes place when a negotiable instrument is transferred from one person to another in such manner
as to constitute the transferee as holder thereof. An assignment, on the other hand, is a mere transfer of rights or interests
without constituting the assignee as a 'holder' as defined under the NIL.
Negotiation gives rise to the availability of defenses under the NIL, such as forgery. Such defenses are not
available in case of assignment.
Q: Explain the two methods of negotiation.
A:
The two methods of negotiation are indorsement and delivery. Indorsement consists of the signature of the
indorser, usually on the back of the instrument. It has a dual significance. First, it constitutes the transfer or sale of the
instrument to the indorsee or transferee. Second, it signifies the agreement of the indorser to answer for the amount
represented by the instrument, in case of default of the primary party (generally the maker).
Delivery applies to a bearer instrument. One who negotiates by delivery does not warrant that he will pay in case
the primary party fails to pay.
Q: Explain the different kinds of indorsements.
A:
There are two general classifications for indorsements: special or blank, and restrictive, qualified or conditional.
The former classification has to do with the future method of negotiation; future negotiation is by further indorsement,
when the indorsement is special, while future negotiation is by delivery, when the indorsement is in blank. The latter
involves the scope of the liability assumed by the indorser. The liability of the indorser is merely that of assignor in a
qualified indorsement. The liability of the indorser is both as assignor and as indorser in an unqualified indorsement.
Q: Mr. A makes an order instrument in favor of Mr. B. Mr. B indorses the instrument in blank. Thereafter, the instrument is
specially indorsed by Mr. C in favor of Mr. D.
a) Is the instrument payable to bearer?
b) How can Mr. D negotiate the instrument?

A:
a) The instrument was converted from an order instrument to a bearer one upon the indorsement thereof in blank.
However, its subsequent special indorsement by Mr. C in favor of Mr. D reconverted the same into an order instrument.
b) Under NIL 34, an instrument specially indorsed may only be further negotiated by way of indorsement. Thus, Mr. D (as
special indorsee) may only negotiate the same by way of indorsement. Although 40 states that a bearer instrument
specially indorsed may still be negotiated by delivery, the said proviso is inapplicable considering that, at common law, it
must be construed as to be referring to an instrument originally bearable. Thus, an order instrument later converted into a
bearer one by virtue of an indorsement in blank falls beyond the scope of 40. Furthermore, the last indorsement is NOT
in blank, as provided under NIL 9, (e).
RIGHTS OF THE HOLDER
Q: What are the rights of the holder in due course?
A:
(1) to hold the instrument free from any defect of title of prior parties, and free from defenses available to prior parties
among themselves; and
(2) to enforce payment of the instrument for the full amt thereof against all parties liable thereon
Q:
A and B signed two notes as accomodation indorsers for X Company. The proceeds were originally intended for
payment of brewery supplies. A diverted the notes; one such note was indorsed to Y Bank as collateral security for a
promissory note which he earlier issued in the Bank's favor.
A and B incurred in default, prompting the Bank to sue upon the notes. A and B argued that Y Bank was not a
holder in due course.
Is Y Bank a holder in due course in this case?
A:
A holder in due course is a holder who has taken the instrument under the following conditions:
(1) That it is complete and regular upon its face;
(2) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if
such was the fact;
(3) That he took it in good faith and for value; and
(4) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the
person negotiating it.
In this case, Y Bank accepted the note as consideration of the debt owed by the indorser, A. This makes Y Bank a holder
for value, and therefore a holder in due course.
Q:
X issued a promissory note in favor of A Company. A deposited the note with B Bank. Several additional deposits
were made by A with B; several withdrawals were also made. Eventually, B Bank sued X; X contended that B was not a
holder for value.
Was X a holder for value in this case?
A:
Yes; X was a holder for value in this case. In the case of Merchants' National Bank v. Sta. Maria Sugar, it was held
that first debits must be charged against the first credits. Applying said rule, the note must be deemed in consideration of
the first amounts withdrawn by A in the series of transactions that had taken place from the moment that the note was
deposited with B. Therefore, B was a holder for value as to the note. B can thus sue upon the note.
LIABILITIES OF PARTIES
Q: Who are the parties primarily liable? Who are the parties secondarily liable?
A:
The parties primary liable are those who, by the terms of the instrument, are absolutely liable to pay the same.
These are the maker of a promissory note and the acceptor of a bill.
The parties secondarily liable are those who are required to pay in case of dishonor after presentment made
before the primary parties. These are the indorsers of both a note and a bill, and the drawer of a bill.
Q:
A issues a promissory note in favor of B, a minor. B indorses the note in favor of C. C indorses in favor of D. D
sues A upon the note, but the latter raises the defense of B's minority.
Is A liable to D under the promissory note?
A:
Yes; A is liable to D under the promissory note. NIL 22 states that title to property under the instrument passes,
although the minor or corporation incurs no liability thereon. NIL 60 states that the maker of a promissory note warrants

the payee's capacity to indorse. In this case, A is the maker of a promissory note payable to B. In so executing the note, A
warranted B's capacity to indorse. Therefore, A cannot raise the defense of B's minority.
PRESENTMENT FOR PAYMENT
Q: X issued a promissory note in favor of A. A sued X upon the note. X raised the defense that A had yet to present the
note before him for payment. Is the contention correct.
A: No; X is incorrect. NIL 70 states that presentment for payment is not necessary to charge the person primarily liable
on the instrument.
Q: X issued a promissory note in favor of A. A indorsed the note in favor of B. B thereafter sued A upon the note. Decide.
A: A cannot sue B upon the note. Indorsers of a promissory note are secondary parties. They cannot be proceeded
against until the note is presented before the maker for payment, and dishonored. In this case, B has yet to present the
note before X for payment. Hence, A, as indorser, cannot be proceeded against by B as of yet.
Q: When is presentment for payment dispensed with?
A:
(1) where after the exercise of reasonable diligence presentment as required by this Act cannot be made;
(2) where the drawee is a fictitious person; and
(3) by waiver of presentment, express or implied
Q: When is an instrument dishonored by non-payment?
A:
(1) if it is duly presented for payment and payment is refused or cannot be obtained; or
(2) presentment is excused and the instrument is overdue and unpaid
NOTICE OF DISHONOR
Q: To whom must notice of dishonor be given?
A:
(1) the drawer;
(2) each indorser; and
(3) any drawer or indorser to whom such notice is not given is discharged
Q: Who may give notice of dishonor?
A:
Notice may be given by or on behalf of the holder or by or on behalf of any party to the instrument who might be
compelled to pay it to the holder, and who, upon taking it up, would have a right to reimbursement from the party to whom
the notice is given.
Q: What is the effect of notice of dishonor
Where notice is given by or on behalf of the holder, it inures to the benefit of all subsequent holders and all prior
parties who have a right of recourse against the party to whom it is given.
Where notice is given by or on behalf of a party entitled to give notice, it inures to the benefit of the holder and all
parties subsequent to the party to whom notice is given.
Q: What is the required form of the notice of dishonor?
A:
The notice may be in writing or merely oral and may be given in any terms which sufficiently identify the
instrument, and indicate that it has been dishonored by non-acceptance or non-payment. It may in all cases be given by
delivering it personally or through the mails.
Q: When may notice of dishonor be waived?
A:
Notice of dishonor may be waived either before the time of giving notice has arrived or after the omission to give
due notice, and the waiver may be expressed or implied.
Q: When is notice of dishonor dispensed with?
A:
Notice of dishonor is dispensed with when, after the exercise of reasonable diligence, it cannot be given to or
does not reach the parties sought to be charged.
DISCHARGE

Q: How is a negotiable instrument discharged?

A:
A negotiable instrument is discharged:
(1) By payment in due course by or on behalf of the principal debtor;
(2) By payment in due course by the party accommodated, where the instrument is made or accepted for his
accommodation;
(3) By the intentional cancellation thereof by the holder;
(4) By any other act which will discharge a simple contract for the payment of money;
(5) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.
Q: When are secondary parties discharged?
A:
(1) By any act which discharges the instrument;
(2) By the intentional cancellation of his signature by the holder;
(3) By the discharge of a prior party;
(4) By a valid tender or payment made by a prior party;
(5) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is
expressly reserved;
(6) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce
the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such
party is expressly reserved.
Q: What is the right of a party who discharges the instrument?
A:
Where the instrument is paid by a party secondarily liable thereon, it is not discharged; but the party so paying it is
remitted to his former rights as regard all prior parties, and he may strike out his own and all subsequent indorsements
and against negotiate the instrument, except:
(1) Where it is payable to the order of a third person and has been paid by the drawer; and
(2) Where it was made or accepted for accommodation and has been paid by the party accommodated.
Q: Explain the concept of renunciation by a holder of a negotiable instrument.
A:
The holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity.
An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the
instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without
notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon.
MATERIAL ALTERATION
Q: X issued a note, which was guaranteed by A and B. The note was transferred to the Y Bank of Commerce. Y Bank
sued upon the guarantee. A and B interposed the defense of material alteration, i.e. that maker's wife signed the
instrument after execution and delivery of the guarantee. Is the contention correct?
A: Yes; the contention is correct. Signature by maker's wife after issuance changes number of parties to the instrument; it
is therefore material.
ACCEPTANCE
Q: What is acceptance as defined under the NIL?
It is an acceptance completed by delivery or notification.
Q: What are the formal requisites of acceptance?
A:
(1) must be in writing;
(2) must be signed by drawee; and

(3) and must not express that performance shall be made by any other manner than payment of money.
Q: When is a drawee allowed to accept the bill of exchange?
A: A drawee is allowed to accept the bill of exchange within 24 hours after presentment.
PRESENTMENT FOR ACCEPTANCE
Q: When is presentment for acceptance required?
A:
(1) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to
fix the maturity of the instrument; or
(2) Where the bill expressly stipulates that it shall be presented for acceptance; or
(3) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.
In no other case is presentment for acceptance necessary in order to render any party to the bill liable.
Q: What is the effect of failure to make presentment?
A: It results in the release of the drawer and indorser.
Q: When is a bill treated as dishonored by non-acceptance?
A:
(1) When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or can not be
obtained; or
(2) When presentment for acceptance is excused and the bill is not accepted.
CHECKS
Q: Define a check
A: A check is a bill of exchange drawn on a bank payable on demand.
Q: What are the different kinds of checks?
A cashier's or manager's check is one drawn by a bank on itself, and its issuance has the effect of acceptance.
The bank may be held primarily liable as the maker of a note.
A memorandum check is one where the word memorandum or memo is written across its face, signifying that
the drawer will pay the holder absolutely, without the need of presentment. It is drawn on a bank and thus has the same
effect as an ordinary check. If passed to a third person, it will be valid in his hands like any other check. Although it need
not be presented at the bank, if it is so presented, it is generally accepted by the bank.
A traveler's check is a negotiable instrument upon which the holder's signature ust appear twice on the
instrument: first when it is issued, and again when it is cashed. It is used by travelers as the safest and most convenient
substitute for money.
Q: When must a check be presented for payment? What is the effect of delay in presentment?
A: It must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay.

Transportation Law
What are common carriers?
Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. (Art. 1732, Civil
Code of the Philippines)
Distinguish common carrier from a private carrier
A common carrier is distinguished from a private carrier wherein the carriage is generally undertaken by special
agreement and it does not hold itself out to carry goods for the general public. The distinction is significant in the sense
that the rights and obligations of the parties to a contract of private carriage are governed principally by their stipulations,
not by the law on common carriers.

Carriage of Goods

What is extraordinary diligence in a contract of carriage of goods?

It is that extreme measure of care and caution which persons of unusual prudence and circumspection observe for
securing and preserving their own property or rights. This exacting standard imposed on common carriers in a contract of
carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the
goods have been lodged for shipment. Thus, in case of loss of the goods, the common carrier is presumed to have been
at fault or to have acted negligently. This presumption of fault or negligence, however, may be rebutted by proof that the
common carrier has observed extraordinary diligence over the goods.
What is the time frame for the duty of the common carrier to exercise extraordinary diligence?
The exercise of extraordinary diligence lasts from the time the goods are unconditionally placed in the possession of, and
received by, the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them. Loadmasters Customs Services, Inc. vs. Glodel Brokerage
Corporation and R & B Insurance Corporation; G.R. No. 179446, January 10, 2011.
When does the common carriers presumption of negligence arise?
A common carrier is presumed to have been negligent if it fails to prove that it exercised extraordinary vigilance over the
goods it transported. When the goods shipped are either lost or arrived in damaged condition, a presumption arises
against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it
liable.
To overcome the presumption of negligence, the common carrier must establish by adequate proof that it exercised
extraordinary diligence over the goods. It must do more than merely show that some other party could be responsible for
the damage.
Carriage of Passengers
A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all the circumstances (Art. 1755)
When does a common carrier in a contract of carriage of passengers presumed to be negligent?
In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence. (Article 1756, Civil Code of the Philippines)
What is the duration of the liability of a common carrier in a contract of carriage of passengers?
Commencement: From the moment the person who purchases the ticket (or token or card) presents himself at the
proper place and in a proper manner to be transported with a bona fide intent to ride the coach (Vda. De Nunca
vs. Manila Railroad Co., 13 SCRA 249)
Termination: Until the passenger has, after reaching his destination, (1) safely alighted; or (2) had a reasonable
opportunity to leave the carriers premises
Is an operator of a school bus a common carrier?
Yes. The operator of a school bus service is a common carrier in the eyes of the law. He is bound to observe extraordinary
diligence in the conduct of his business. He is presumed to be negligent when death occurs to a passenger. His liability
may include indemnity for loss of earning capacity even if the deceased passenger may only be an unemployed high
school student at the time of the accident. Spouses Teodorico and Nanette Perea v. Spouses Nicolas and Teresita L.
Zarate, et al.; G.R. No. 157917. August 29, 2012.
When does a contract of carriage with an airline arise?
When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage
arises. The passenger then has every right to expect that he be transported on that flight and on that date. If he does not,
then the carrier opens itself to a suit for a breach of contract of carriage. Northwest Airlines, Inc. vs. Spouses Edward
J. Heshan and Neilia L. Heshan, et al., G.R. No. 179117, February 3, 2010.

COGSA

Requisites:
1.
2.
3.
4.

Contracts for carriage of goods

By sea
To and from Philippine ports
In foreign trade

What governs the right and obligations of common carriers in a Contract of Carriage of Goods by Sea?
In all matters not regulated by the Civil Code, the rights and obligations of common carriers are governed by the Code of
Commerce and special laws. Thus, the Carriage of Goods by Sea Act supplements the Civil Code by establishing a
provision limiting the carriers liability in the absence of a shippers declaration of a higher value in the bill of lading.
Unsworth Transportation International (Phils.), Inc. vs. Court of Appeals and Pioneer Insurance and Surety
Corporation, G.R. No. 166250, July 26, 2010.
What is the prescription on claims for loss of, or damage to, cargoes sustained during transit under the Carriage
of Goods by Sea?
Under Section 3 (6) of the Carriage of Goods by Sea Act, notice of loss or damages must be filed within three days of
delivery.
Under the same provision, however, a failure to file a notice of claim within three days will not bar recovery if a suit is
nonetheless filed within one year from delivery of the goods or from the date when the goods should have been delivered.
Inasmuch as neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the
Carriage of Goods by Sea Act (COGSA) which provides for a one-year period of limitation on claims for loss of, or
damage to, cargoes sustained during transit may be applied suppletorily to the case at bar. Wallem Philippines
Shipping, Inc. vs. S.R. Farms, Inc., G.R. No. 161849, July 9, 2010.

Liability under COGSA:

1. Maximum of $500 per package or, if not shipped in packages, per customary freight unit (e.g. metric ton)
2. Nature and value of goods may be declared by shipper and inserted in bill of lading; declaration is prima facie
evidence and not conclusive on carrier
3. Shipper and carrier may agree on another maximum amount, but not more than the amount of damage actually
sustained

What is the relationship between the consignee and the arrastre operator akin to?
It is akin to that existing between the consignee and/or the owner of the shipped goods and the common carrier, or that
between a depositor and a warehouseman.
Does the limitation on recovery for damages apply if the value of the cargo shipment is communicated to the
arrastre operator?
No. Having been duly informed of the actual invoice value of the merchandise under its custody and having received
payment of arrastre charges based thereon, the arrastre operator cannot therefore insist on a limitation of its liability under
the contract to less than the value of each lost cargo. What is essential is knowledge beforehand of the extent of the risk
to be undertaken by the arrastre operator, as determined by the value of the property committed to its care. This defines
its responsibility for loss of or damage to such cargo and ascertains the compensation commensurate to such risk
assumed. Asian Terminals, Inc. vs. Daehan Fire and Marine Insurance Co., Ltd., G.R. No. 171194, February 4, 2010.

What is a bill of lading?

A bill of lading is a written acknowledgement of the receipt of goods and an agreement to transport and to deliver them at
a specified place to a person named or on his or her order. It operates both as a receipt and as a contract. It is a receipt
for the goods shipped and a contract to transport and deliver the same as therein stipulated.

As a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight, dimensions,
identification marks, condition, quality, and value.
As a contract, it names the contracting parties, which include the consignee; fixes the route, destination, and freight rate
or charges; and stipulates the rights and obligations assumed by the parties. Unsworth Transportation International
(Phils.), Inc. vs. Court of Appeals and Pioneer Insurance and Surety Corporation, G.R. No. 166250, July 26, 2010

What is a freight forwarder?

The term freight forwarder refers to a firm holding itself out to the general public (other than as a pipeline, rail, motor, or
water carrier) to provide transportation of property for compensation and, in the ordinary course of its business, (1) to
assemble and consolidate, or to provide for assembling and consolidating, shipments, and to perform or provide for breakbulk and distribution operations of the shipments; (2) to assume responsibility for the transportation of goods from the
place of receipt to the place of destination; and (3) to use for any part of the transportation a carrier subject to the federal
law pertaining to common carriers. Unsworth Transportation International (Phils.), Inc. vs. Court of Appeals and Pioneer
Insurance and Surety Corporation, G.R. No. 166250, July 26, 2010.

What is the liability of a freight forwarder?

A freight forwarders liability is limited to damages arising from its own negligence, including negligence in choosing the
carrier; however, where the forwarder contracts to deliver goods to their destination instead of merely arranging for their
transportation, it becomes liable as a common carrier for loss or damage to goods. A freight forwarder assumes the
responsibility of a carrier, which actually executes the transport, even though the forwarder does not carry the
merchandise itself. Unsworth Transportation International (Phils.), Inc. vs. Court of Appeals and Pioneer Insurance and
Surety Corporation, G.R. No. 166250, July 26, 2010.

Law on Secrecy of Bank Deposits

What is the purpose?
-

To give encouragement to the people to deposit their money in banking institutions

To discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the
economic development of the country.

Prohibited Acts:
-

The deposits/investments in bonds may not be examined, inquired or looked into by any person, government official,
bureau or office
It shall be unlawful for any official or employee of a banking institution to disclose to any person other than those
mentioned in Section two hereof any information concerning said deposits.

What are the deposits considered as of an absolutely confidential nature

-

All deposits of whatever nature with banks or banking institutions in the Philippines
Including investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities

Exceptions:
-

Upon written permission of the depositor

In cases of impeachment
Upon order of a competent court in cases of bribery or dereliction of duty of public officials
In cases where the money deposited or invested is the subject matter of the litigation.

Garnishment of Deposits; Including Foreign Deposits

The prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its being
garnished to insure satisfaction of a judgment. Indeed there is no real inquiry in such a case, and if existence of the
deposit is disclosed the disclosure is purely incidental to the execution process.

INTELLECTUAL PROPERTY CODE

Q. What are the intellectual property rights that should be registered?
Trademarks= ANY visible sign capable of distinguishing the goods (trademarks) or services (service
marks) of an enterprise must be registered
Patents= Techinical Solution of a problem in any field of human activity which is new (novel invention) and
industrially applicable must be registered
Copyrights= an intangible incorporeal right to certain Literary, Artistic, scholarly, scientific works.
Q. What is the difference between the three?
Trademarks
Patents
Copyrights
Applicability
Goods and services of an enterprise (as
To any technical solution of
Literary, Artistic, Scholarly and
to distinguish it from others)
a problem in any field of
Scientific works
human activity which is
novel, inventive and
industrially applicable
Requirement
Registrable and within 3 years from
Novelty, inventive step and
Originality and expression
s
application declaration of actual use
industrially applicable
Term

10 years subject to indefinite renewal for

periods of 10 years each

20 years from filing date of

application

How created
Where
registered
What NEED
NOT be
registered

Valid registration
Intellectual Property office

First to file system

Intellectual property office

GENERIC terms for goods and

services
Characteristics of goods like
quality or quantity
CUSTOMARY sign in everyday
language
Color itself

What are the

SPECIFIC
RULES
applicable
ONLY to each

1. Declaration of actual use 3

years from filing of date of
application is necessary. No more
prior use before filing.
2. Proof of actual use within one
year from the 5th year of
registration

Scientific theories
and discoveries
Contrary to public
order or morality
Aesthetic creations
Methods for
treatment of human
body
Plant varieties

Prejudicial
disclosureright to the invention
covered by the patent
arises alone from the
application date. Ergo, if the
inventor
voluntarily
discloses it, such as by

During Authors lifetime and for

50 years after his death
In Joint ownership, during the
lifetime of the last surviving
author and for 50 years from
the making
In Applied art, it is for 25 years
from date of making
Photographic and audio-visual
work for 50 years from
publication and if unpublished,
50 yrs from making
From the moment of creation
National Library

Method
Idea
Procedure
Principle
Operation
System
Format of television
game show is NOT
subject to a copyright
(Joaquin v. Drilon 28
jan, 99/ 302 scra 225)
1. If the work is sold
or transferred , the
heirs are still
entitled to 5% of
royalties (sec200,
IPC)
2. Commissioned
work, ownership=

Infringement

Remedy for
infringement

Use by others without the

registrants consent of a reproduction
or colorable imitation of his
trademark, tradename or service
mark with the purpose of causing to
misled the public that such goods or
services are those of registrant.

Damages, injuction,
impounding and destruction
of goods.

offering it for sale, the world

is free to copy and use it
with impunity.
Ideas once disclosed to
public without protection of
a valid patent are subject to
appropriation.

to the person who

commissioned the
work,
Copyright= to the
creator
UNLESS there is a
written stipulation
to the contrary
(sec 178.4 IPC)

The making, using offering

for sale selling or importing
of a patented product or a
product obtained directly on
indirectly from patented
process or the use of a
patented process without
the authorization of the
patentee constitutes patent
infringement
Civil action for damages,
injunction,
receive
reasonable
royalty
if
damages cannot be readily
ascertained or inadequate
and destruction

A copy of
substantial
portions of a
copyrighted work

damages,
injunction,
impounding of
sales invoices and
other documents
evidencing sales
and destruction of
goods. Right to file
will prescribed in 2
years.

Q. What is fair use principle?

There is no infringement of copyright for criticism, comment, news reporting and teaching including multiply
copies for classroom purposes.
Q. What is the difference of original work vis--vis derivative work?
Derivative works are dramtizations, translation adaptation abridgement arrangements and other alterations of
literary or artistic works or collection of literary scholarly or artistic works and compilation of data and other materials of the
original work, which are original by reason of the selection, coordination or arrangement of their contents.
Q. Are works of the government copyrightable?
NO. however prior government approval shall be necessary for exploitation of such work for profit, which may
among other things, require payments of royalties but no prior approval or conditions shall be required for statues rules,
regulations speeches, lectures sermons etc pronounced read and rendered in public. Nevertheless, author of these
speeches etc shall have exclusive right of making a collection of his work.
Q. Is utility model patentable?
.No. Under RA 8293, sec.109.3 can no longer be patented, it can only be registered for 7 years after date of filing
of the application without possibility of renewal. A utility model is a technical solution to a problem in any field of human
activity which is new and industrially applicable. There is no inventive step
What are the tests of patent infringement?
Economic interest test when the process-discoverers economic interest are compromised
Literal infringement test if one makes uses or sells an item that contains all the elements of the patent claim. It is
satisfied by exactness rule which states that the item is used and sold conforming to exactly to the patent claim and to
addition rule which use exactly the same elements added with other different element.
Doctrine of equivalents
Q. What is doctrine of equivalents?
It provides that infringement takes place when a device appropriates prior invention by incorporating innovative
concept and although with some modification and change performs substantially the same function in the substantially the
same way to achieve substantially the same result(Smith v. Court of Appeals)

Q. What is voluntary licensing vis--vis compulsory licensing?

Voluntary licensing is the grant by the patent owner to a third person of the right to exploit a patented invention while a
compulsory licensing is the grant of the director of legal affairs of a license to exploit a patented invention even without the
agreement of the patent owner in favor of any person who has shown his capability to exploit the invention under certain
circumstances.
Q. Who own the right to patent when two or more persons separately filed an application for the same invention?
If two or more persons have made the invention separately and independently of each other, the right to the
patent shall belong to the person who first filed an application for such invention.
Q. What is unfair competition?
It is the employment of deception or any other means contrary to good faith by which a person shall pass off
goods manufactured by him or in which he deals, or his business, or services, for those of another who has already
established goodwill for his similar good, business or services or any acts calculated to produce the same result.
(mcdonalds v. L.C Big mak, 437 scra 10)
The essential elements of of an action for unfair competition are, confusing similarity in the general appearance of
the goods and intent to deceive the public and defraud a competitor
There is no unfair competition under sec. 168, IPC where the person did NOT pass off the subject goods as that
of another.
The test of unfair competition is whether certain goods have been intentionally clothed with an appearance to
deceive the ordinary purchaser exercising due diligence. There must be fraudulent intent to pass off ones goods as
those of another.
The remedies for unfair competition are civil action for damages, injunction, impounding of sales invoices and
other documents evidencing sales and destruction of goods found to be infringing and all paraphernalia.
Q. Is Unfair completion the same as infringement?
NO. the differences are as follows:
Infringement
Unfair competition
Necessity of fraud
Not essential, mere use of a
Fraudulent intent to pass off goods as
similar trademark likely to
those of another
mislead the public is sufficent
Cause of action
Unauthorized use of a registered Passing of ones goods as those of another
trademark
merchant
Registration of trademark
Prerequisite
Not required
Class of goods involved
Must be of similar goods
Need NOT be of same class
Q. What are the settled doctrines in trademarks?
Doctrine of secondary meaning = doctrine of distinctiveness of trademarks and name. - when a long time
EXCLUSIVE and CONTINUOUS use of a mark or name which is unregistrable for being geographical, descriptive or a
surname such that the mark or name has lost its primary meaning and it becomes associated in the public mind with
particular goods entitles the user to have said name or mark registered in the register of trademarks, trade names and
service marks.
Test of dominancy - focuses on the similarity of the competing trademarks which might cause confusion
or deception
Holistic Test mandates that the entirety of the marks in question must be considered in determining
confusing similarity.
Idem sonans rule similarity of sounds or pronunciation alone cannot be applied
Q. What is the theory of dilution under the unfair competition?
It is a new rule envisaged under the IPC. It prohibits registration of a mark when the following condtions occur:
The mark is identical with ir confusingly similar to or constitutes a translation of a well-known mark registered in
the Philippines
It covers goods or services which are not similar to those with respect to which registration is applied for
The use of mark is likely to cause damage to the owner of the registered mark
The public may or had actually been deceived or misled as to the source of the goods,
Q. What is Technology Transfer Arrangement?
It refers to contracts or agreements involving transfer of systematic knowledge for the manufacture of a product,
application of a process, or rendering of service including management contracts; and transfer, assignments, or licensing
of all forms of intellectual property rights, including licensing of computer software except computer software developed
for mass market.

Q: What is the Policy of the Foreign Investment Act?

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To attract, promote and welcome productive investments from foreign individuals, partnerships,
corporations, and governments (including political subdivisions) in activities which significantly contribute
to national industrialization and socioeconomic development to the extent is allowed in such activity by
the Constitution and relevant laws;
To significantly expand livelihood and employment opportunities for Filipinos;
To enhance economic value of farm products;
To promote the welfare of Filipino consumers;
To expand the scope, quality and volume of exports and their access to foreign markets; and/or
To transfer relevant technologies in agriculture, industry and support services.
To supplement to Filipino capital and technology in those enterprises serving mainly the domestic market.

GR: No restrictions on extent of foreign ownership of export enterprises. In domestic market enterprises,
foreigners can invest as much as one hundred percent (100%) equity.
E: In areas included in the negative list.
Q: What is a Foreign Investment under the FIA?
A foreign investment is an equity investment made by a non-Philippine national in the form of foreign exchange and/or
other assets actually transferred to the Philippines and duly registered with the Central Bank which shall assess and
appraise the value of such assets other than foreign exchange.
Q: What is doing business in the Philippines under the FIA?
1. soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches;
2. appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the
country for a period or periods totalling one hundred eighty (180) days or more;
3. participating in the management, supervision or control of any domestic business, firm, entity or corporation in the
Philippines; and
4. any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that
extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business organization:
It does not include the following:
1. mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business,
and/or the exercise of rights as such investor;
2. having a nominee director or officer to represent its interests in such corporation;
3. appointing a representative or distributor domiciled in the Philippines which transacts business in its own name
and for its own account.
Q: What is an export enterprise under the FIA?
An export enterprise is one which produces goods for sale, or renders services to the domestic market entirely or if
exporting a portion of its output fails to consistently export at least sixty percent (60%) thereof.
Q: What are allowed registration requirements of investments on Non-Philippine Nationals
Without need of prior approval, a non-Philippine national and not otherwise disqualified by law may upon registration with
the SEC, or with the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the DTI in the case of single
proprietorships, do business or invest in a domestic enterprise up to 100% of its capital, unless participation of nonPhilippine nationals in the enterprise is prohibited or limited to a smaller percentage by existing law and/or limited to a
smaller percentage by existing law and/or under the provisions of this Act.
The SEC or BTRCP, as the case may be, shall not impose any limitations on the extent of foreign ownership in an
enterprise additional to those provided in this Act: Provided, however, That any enterprise seeking to avail of incentives
under the Omnibus Investment Code of 1987 must apply for registration with the BOI, which shall process such
application for registration in accordance with the criteria for evaluation prescribed in said Code: Provided, finally, That a

non-Philippine national intending to engage in the same line of business as an existing joint venture in his application for
registration with SEC.
Q: What are allowed Foreign Investments under the FIA?
Export Enterprises
Those whose products and services do not fall within Lists A and B of the Foreign Investment Negative List
provided under Section 8 hereof is allowed up to one hundred percent (100%) ownership.
Export enterprises which are non-Philippine nationals shall register with BOI and submit the reports that may be
required. BOI shall advise SEC or BTRCP, as the case may be, of any export enterprise that fails to meet the
export ratio requirement. The SEC or BTRCP shall thereupon order the non-complying export enterprise to
reduce its sales to the domestic market to not more than 40% of its total production; failure to comply with such
SEC or BTRCP order, without justifiable reason, shall subject the enterprise to cancellation of SEC or BTRCP
registration, and/or the penalties provided in Section 14 hereof.
Domestic Enterprises
Non-Philippine nationals may own up to one hundred percent (100%) of domestic market enterprises unless
foreign ownership therein is prohibited or limited by existing law or the Foreign Investment Negative List under
Section 8 hereof.
Q: What are those included in the Foreign Investment Negative List?
a) List A, reserved to Philippine nationals by mandate of the Constitution and specific laws.
b) List B, areas of activities and enterprises pursuant to law:
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defense-related activities, requiring prior clearance and authorization from Department of National
Defense (DND) to engage in such activity, such as manufacture, repair, storage and/or distribution of
firearms, ammunition, lethal weapons, military ordnance, explosives, pyrotechnics and similar materials;
unless specifically authorized, with a substantial export component, to a non-Philippine national by the
Secretary of National Defense; or

have implications on public health and morals, such as the manufacture and distribution of dangerous
drugs; all forms of gambling; nightclubs, bars, beerhouses, dance halls; sauna and steambath houses
and massage clinics.

Small and medium-sized domestic market enterprises with paid-in equity capital less than the equivalent
of five hundred thousand US dollars (US$500,000) are reserved to Philippine nationals, unless they
involve advanced technology as determined by the Department of Science and Technology. Export
enterprises which utilize raw materials from depleting natural resources, with paid-in equity capital of less
than the equivalent of five hundred thousand US dollars (US$500,000) are likewise reserved to Philippine
nationals.

Amendments to List B may be made upon recommendation of the Secretary of National Defense, or the
Secretary of Health, or the Secretary of Education, Culture and Sports, indorsed by the NEDA, or upon
recommendation motu propio of NEDA, approved by the President, and promulgated by Presidential
Proclamation.

c) List C, areas of investment in which existing enterprises already serve adequately the needs of the economy
and the consumer and do not require further foreign investments, as determined by NEDA applying the criteria,
approved by the President and promulgated in a Presidential Proclamation.