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Mercantile Law #SJVBAROPS2015

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SUGGESTED ANSWERS TO THE 2014 Islands (BPl) check issued by Baby in the
BAR EXAMINATION QUESTIONS amount of P300,000.00. Upon presentment
IN for payment, the BPI check was dishonored
MERCANTILE LAW because Baby's account from which it was
drawn has been closed. To replace the
I. Carlo and Bianca met in the La dishonored check, Bong indorsed a crossed
Boracay festivities. Immediately, they fell in Development Bank of the Philippines (DBP)
love with each other and got married soon ch6ck issued also by Baby for P300,000.00.
after. They have been cohabiting blissfully Again, the check was dishonored because of
as husband and wife, but they did not have insufficient funds. Ben sued Bong and Baby
any offspring. As the years passed by, Carlo on the dishonored BPI check. Bong
decided to take out an insurance on Bianca's interposed the defense that the BPI check
life for P1,000,000.00 with him (Carlo) as was discharged by novation when Ben
sole beneficiary, given that he did not have a accepted the crossed DBP check as
steady source of income and he always replacement for the BPI check. Bong cited
depended on Bianca both emotionally and Section 119 of the Negotiable Instruments
financially. During the term of the insurance, Law which provides that a negotiable
Bianca died of what appeared to be a instrument is discharged by any other act
mysterious cause so that Carlo immediately which will discharge a simple contract for
requested for an autopsy to be conducted. It the payment of money. Is Bong correct?
was established that Bianca died of a natural (4%)
cause. More than that, it was also
established that Bianca was a transgender all SUGGESTED ANSWER:
along a fact unknown to Carlo. Can Carlo Bong is not correct. His claim that
claim the insurance benefit? (5%) the BPI check was discharged by
novation when Ben accepted the crossed
SUGGESTED ANSWER: DBP check as replacement for the BPI
Yes, Carlo can claim the insurance check is unmeritorious.
benefit. He had insurable interest on Ben's acceptance of the DBP
Bianca's life under Section 10(b] of the check, which replaced the dishonored BPI
Insurance Code as the problem states that check, did not result in novation as there
Carlo always depended on Bianca both was no express agreement to establish
emotionally and financially. The that Bong was already discharged from
insurable interest upon the life of another his liability to pay Ben the amount of
under the aforesaid provision need not be P300,000.00 as payment for the 300 bags
based on kinship or legal obligation to of rice. Novation is never presumed.
give support (see Alvendia, The Law of There must be an express intention to
Insurance in the Philippines, 1968 ed., p. novate. In fact, when the DBP check was
42; Martin, Commentaries and delivered to Ben, the same was also
Jurisprudence on the Philippine indorsed by Bong which shows Bong's
Commercial Laws, vol. 2, 1986 ed., p. 21 ). recognition of the existing obligation to
The fact that their marriage may be void Ben to pay P214,000.00 subject of the
is irrelevant. replaced BPI check.
Moreover, Ben's acceptance of the
II. Bong bought 300 bags of rice from DBP check did not result in any
Ben for P300,000.00. As payment, Bong incompatibility, since the two checks- BPI
indorsed to Ben a Bank of the Philippine and DBP checks- were precisely for the

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purpose of paying the amount of full credit whether they gave any answer
P214,000.00, i.e., the credit obtained from or not.
the purchase of the 300 bags of rice from In any case, the Suggested Answer
Ben. Indeed, there was no substantial is B (a majority vote of the Board of
change in the object or principal Directors and authorized by the vote of
condition of the obligation of Bong as the the stockholders representing at least two-
indorser of the check to pay the amount thirds of the outstanding capital stock;
of P214,000.00. It would appear that Ben Sec. 12, FRIA).
accepted the DBP check to give Bong the
chance to pay his obligation. (Salazar v. J. IV. DC is a unit owner of Medici
Y. Brothers Marketing Corporation, G.R. Condominium located in Pasig City. On
171998, dated October 20, 2010). September 7, 2011, Medici Condominium
Corp. (Medici) demanded from DC payment
III. Under the Financial Rehabilitation for alleged unpaid association dues and
and Insolvency Act (FRIA), the filing of a assessments amounting to Pl95,000.00. DC
petition for voluntary rehabilitation must be disputed the claim, saying that he paid all
approved by: (1%) dues as shown by the fact that he was
previously elected as Director and President
(A) a majority vote of the Board of of Medici. Medici, on the other hand,
Directors and authorized by the claimed that DC's obligation was a carry-
vote of the stockholders over of his obligations to the condominium
representing at least a majority developer, Medici Construction Corporation.
of the outstanding capital stock Consequently, DC was prevented from
(B) a majority vote of the Board of exercising his right to vote and be voted for
Directors and authorized by the during the 2011 election of Medici's Board
vote of the stockholders of Directors. This prompted DC to file a
representing at least two-thirds complaint for damages before the Special
of the outstanding capital stock Commercial Court of Pasig City. Medici
(C) two-thirds vote of the Board of filed a motion to dismiss on the ground that
Directors and authorized by the the court has no jurisdiction over the intra-
vote of the stockholders corporate dispute which the Housing and
representing at least a majority Land Use Regulatory Board (HLURB) has
of the outstanding capital stock exclusive jurisdiction over. Is Medici
(D) two-thirds vote of the Board of correct? (4%)
Directors and authorized by the
vote of the stockholders SUGGESTED ANSWER:
representing at least two-thirds Medici is correct. Using the
of the outstanding capital stock. relationship test and the nature of the
controversy test, it is indubitable that the
RECOMMENDATION: controversy involves intra-corporate
This MCQ is outside the coverage issues. The facts of the problem indicate
of the 2014 Mercantile Law Bar that there was a dispute as to the liability
Examination as the 2014 Syllabus for of DC for condominium dues, as well as
Mercantile Law prepared by the Supreme the right of DC to "to vote and be voted
Court did not include the FRIA. It is for during the 2011 election of Medici's
recommended that all examinees be given Board of Directors". Accordingly,
jurisdiction is with the Special

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Commercial Court of Pasig City, not with reimbursement of the value of the lost
the Housing and Land Use Regulatory vehicle under the insurance policy. Jack re
Board (Medical Plaza Makati fused to pay claiming that there is no theft as
Condominium Corp. v. Cullen, G.R. Jess gave Silat lawful possession of the car.
181416, November 11, 2013). Is Jack correct? (4%)
V. A corporation organized under the
Corporation Code commences to have SUGGESTED ANSWER:
corporate existence and juridical personality Jack Insurance is not correct. Ric
and is deemed incorporated: (1%) Silat was merely given physical possession
of the car. He did not have juridical
(A) from the date the application for possession over the same. It is also
incorporation is filed with the apparent that the taking by Silat of the
Securities and Exchange car of Jess is without the consent or
Commission (SEC) authotity of the latter. Thus, the act of
(B) from the date the SEC issues a Silat in depriving Jess of his car, soon
certificate of incorporation after the transfer of physical possession of
under its official seal the same to him, constitutes theft under
(C) thirty (30) days after the date the the insurance policy that is compensable.
application for incorporation is (Paramount Insurance v. Spouses
filed with the SEC Remondeulaz, G.R. 173773, November 28,
(D) thirty (30) days after the date the 2012).
SEC issues a certificate of
incorporation under its official VII. Jinggy went to Kluwer University
seal (KU) in Germany for his doctorate degree
(Ph.D.). He completed his degree with the
SUGGESTED ANSWER: highest honors in the shortest time. When he
(B) from the date the SEC issues a came back, he decided to set-up his own
certificate of incorporation under its graduate school in his hometown in
official seal; Sec. 19, Corporation Code). Zamboanga. After seeking free legal advice
from his high-flying lawyer-friends, he
VI. On May 26, 2014, Jess insured with learned that the Philippines follows the
Jack Insurance (Jack) his 2014 Toyota territoriality principle in trademark law, i.e.,
Corolla sedan under a comprehensive motor trademark rights are acquired through valid
vehicle insurance policy for one year. On registration in accordance with the law.
July I, 2014, Jess' car was unlawfully taken. Forthwith, Jinggy named his school the
Hence, he immediately reported the theft to Kluwer Graduate School of Business of
the Traffic Management Command (TMC) Mindanao and immediately secured
of the Philippine National Police (PNP), registration with the Bureau of Trademarks.
which made Jess accomplish a complaint KU did not like the unauthorized use of its
sheet as part of its procedure. In the name by its top alumnus no less. KU sought
complaint sheet, Jess alleged that a certain your help. What advice can you give KU?
Ric Silat (Silat) took possession of the (4%)
subject vehicle to add accessories and
improvements thereon. SUGGESTED ANSWER:
However, Silat failed to return the subject I can advise KU to file a petition to
vehicle within the agreed 3-day period. As a cancel the registration of the name
result, Jess notified Jack of his claim for "Kluwer" Graduate School of Business of

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Mindanao" ("KGSBM") with the Bureau (B) Industrial Life Insurance
of Trademarks. (C) Motor Vehicle Liability
The petition could be anchored on Insurance
the following facts: Kluwer University is (D) Life Insurance
the owner of the m1me "Kiuwer." Jinggy
registered the trademark in bad faith. He SUGGESTED ANSWER:
came to know of the trademark because (C) (Motor Vehicle Liability
he went to Kluwer University in Germany Insurance)
for his doctorate degree. KU is the owner Note: The correct term to use in
of the name "Kluwer" and has the sole (C) is "compulsory motor vehicle liability
right to register the same. Foreign marks insurance" (Chapter VI, Insurance Code)
that are not registered are still accorded rather than "motor vehicle liability
protection against infringement and/or insurance."
unfair competition under the Paris
Convention for the Protection of IX. On February 21, 2013, Barrack
Industrial Property. Both the Philippines entered into a contract of insurance with
and Germany are signatories to the Paris Matino Insurance Company (Matino)
Convention. Under the said Convention, involving a motor vehicle. The policy
the trademark of a national or signatory obligates Marino to pay Barrack the amount
to the Paris Convention is entitled to its of Six Hundred Thousand Pesos
protection in other countries that are also (P600,000.00) in case of loss or damage to
signatories to the Convention without said vehicle during the period covered,
need of registering the trademark. which is from February 26, 2013 to
The petition could also be based on February 26, 2014.
the fact, if it were proven by KU, that On April 16, 2013, at about 9:00
"Kluwer" is a well-known mark and a.m., Barrack instructed his driver, JJ, to
entitled to protection as KU and KGSBM bring the motor vehicle to a nearby autoshop
belong to the same class of services, i.e., for tune-up. However, JJ no longer returned
Class 41 (education and entertainment). and despite diligent efforts to locate the said
KU must also prove that a competent vehicle, the efforts proved futile.
authority of the Philippines has Resultantly, Barrack promptly notified
designated "Kluwer" to be well known Matino of the said loss and demanded
internationally and in the Philippines. payment of the insurance proceeds of
Finally, the petition could also be P600,000.00. In a letter dated July 5, 2013.
based on the fact, if it were proven by KU, Matino denied the claim, reasoning as stated
that "Kluwer" is a trade name that KU in the contract that "the company shall not
has adopted and used before its use and be liable for any malicious damage caused
registration by .Jinggy. (Ecole de Cuisine by the insured, any member of his family or
Manille {Cordon Bleu of the Philippines}, by a person in the insured's service. Is
Inc. v. Renaud Cointreau & Cie and Le Matino correct in denying the claim? (4%)
Cordon Bleu Int'l., B.V., G.R. 185830,
June 5, 2013). SUGGESTED ANSWER:
Matino Insurance is not correct in
VIII. As a rule, an insurance contract is denying the claim. The loss of the motor
consensual and voluntary. The exception is vehicle is not excluded under the
in the case of: (1%) insurance policy as the loss was due to
(A) Inland Marine In surance theft, not malicious damage. The

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"malicious damage" clause under the holders filed an Opposition and Motion to
policy is not applicable but rather the Exclude Planholders from Stay Order on the
"theft clause. Thus, the provision under ground that planholders are not creditors as
the policy that "the company shall not be they (planholders) have a trust relationship
liable for any malicious damage caused by with PA. Are the planholders correct? (4%)
the insured, any member of his family or
by a person in the insured's service" is RECOMMENDATION:
not applicable. (Alpha Insurance and The MCQ is outside the coverage
Surety Co. v. Castor, G.R. 198174, of the 2014 Mercantile Law Bar
September 2, 2003). Examination as the 2014 Syllabus for
Mercantile Law prepared by the Supreme
X. A person is said to have an insurable Court does not include the Supreme
interest in the subject matter insured where Court Rules of Procedure on Corporate
he has a relation or connection with, or Rehabilitation. It is recommended that all
concern in it that he will derive pecuniary examinees be given full credit whether
benefit or advantage from its preservation. they gave any answer or not.
Which among the following subject matters In any case, the Suggested Answer
is not considered insurable? (1%) is that the plan holders are not correct.
(A) A partner in a firm on its future Section 6 of the Supreme Court Interim
profits Rules of Procedure on Corporate
(B) A general creditor on debtor's Rehabilitation of 2000 (which was
property amended and replaced by the Rules of
(C) A judgment creditor on debtor's Procedure on Corporate Rehabilitation of
property 2009) do not provide that a claim a rising
(D) A mortgage creditor on debtor's from a pre-need contract is an exception
mortgaged property to the power of the trial court to stay
enforcement of all claims if the court
SUGGESTED ANSWER: finds the petition for rehabilitation to be
(B) (a general creditor on debtor's sufficient in form and substance. (Abrera,
property) et al. v. Barza, et al., G.R. 171681,
September 11, 2009).
XI. PA Assurance (PA) was incorporated
in 1980 to engage in the sale of preneed XII. To constitute a quorum for the
educational plans. It sold open-ended transaction of corporate business, only a
educational plans which guaranteed the majority of the number of Board of
payment of tuition and other fees to Directors is required: (1%)
planholders irrespective of the cost at the (A) as fixed by the corporate by-laws
time of availment. It also engaged in the sale (B) as fixed in the articles of
of fixed value plans which guaranteed the incorporation
payment of a pre-determined amount to (C) actually serving in the board
planholders. In 1982, PA was among the (D) actually serving in the board but
countrys top corporations. However, it constituting a quorum
subsequently suffered financial difficulties.
On September 8, 2005, PA filed a SUGGESTED ANSWER:
Petition for Corporate Rehabilitation before (B) (as fixed in the articles of
the Regional Trial Court (RTC) of Makati incorporation; Sec. 25, Corporation
City. On October 17, 2005, ten (10) plan Code).

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not properly created and, therefore, its
RECOMMENDATION: acts are invalid. Section 35 of the
If the examinee answers A (as fixed Corporation Code requires that at least
by the corporate by-laws), the examinee three members of an Executive
should be given full credit. The required Committee be directors of the
quorum for a meeting of the Board of corporation. In the problem, only
Directors, under general corporate Member Sarah L (who is a director as she
practice, is indicated in the By-laws and is the President) and Member Juan Riles
not in the Articles of Incorporation. This (who is clearly identified in the problem
practice is supported by the fact that both as a director) are directors of Soei
Sections 14 (Contents of articles on Corporation. Member Jane L is not
incorporation) and 15 (Form of articles identified as a director. As the Executive
on incorporation) of the Corporation Committee in the problem was not
Code (particularly, Section 15) do not properly created it could not act at all as
require mention of the quorum at the minimum quorum would be three. As
meetings of the Board in the Articles of stated earlier, the Executive Committee
Incorporation. lacks one qualified member.
If the Executive Committee were
XIII. Pursuant to its By-Laws, Soei properly organized and a quorum were
Corporation's Board of Directors created an present, all the actions taken by the
Executive Committee to manage the affairs Executive Committee in the problem,
of the corporation in between board except the declaration of Pl0.00 per share
meetings. The Board of Directors appointed cash dividend, would have been valid. The
the following members of the Executive distribution of cash dividends to the
Committee: the President, Sarah L; the Vice- shareholders may not be delegated by the
President, Jane L; and, a third member from Board of Directors to the Executive
the board, Juan Riles. On December 1, 2013, Committee pursuant to Section 35 of the
the Executive Committee, with Sarah L and Corporation Code.
Jane L present, met and decided on the
following matters: XIV. On September 25, 2013, Danny
1. Purchase of a delivery van for use Marcial (Danny) procured an insurance on
in the corporation's retail his life with a face value of P5,000,000.00
business; from RN Insurance Company (RN), with his
2. Declaration and approval of the wife Tina Marcial (Tina) as sole beneficiary.
13th month bonus; On the same day, Danny issued an undated
3. Purchase of an office check to RN for the full amount of the
condominium unit at the Fort; and premium. On October 1, 2013, RN issued
4. Declaration of P10.00 per share the policy covering Danny's life insurance.
cash dividend. On October 5, 2013, Danny met a tragic
accident and died. Tina claimed the
Are the actions of the Executive insurance benefit, but RN was quick to deny
Committee valid? (4%) the claim because at the time of Danny's
death, the check was not yet encashed and
SUGGESTED ANSWER: therefore the premium remained unpaid.
All the actions taken by the Is RN correct? Will your answer be
Executive Committee in the problem are the same if the check is dated October 15,
not valid. The Executive Committee was 2013? (4%)

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(See the case of Malayan Insurance Co.,
SUGGESTED ANSWERS: Inc. vs. Arnaldo, et al., G.R. L-67835,
To the first question (Is RN October 12, 1987, where the Court held
correct?) that the insurer could no longer claim
RN Insurance is not correct. The forfeiture of the insured's rights because
facts of the case show that Danny it held the check used to pay the premium
procured insurance on his life on on a fire insurance policy for an
September 25, 2013, with his wife Tina as unreasonable time; see also the comments
beneficiary, and that on the same day, i.e., of Justice Jose C. Vitug (ret.) in his book,
September 25, 2013, he issued an undated Commercial Laws and Jurisprudence,
check to RN for the full amount of the 2006, Vol. I, p. 250, that "[payment x x x
premium. Since the undated check was by means of a check or note, accepted by
issued to RN on September 25, 2013, it the insurer, bearing a date prior to the
will be considered dated as of the same loss, assuming an availability of funds
day, i.e., September 25, 2013 pursuant to thereof, would be sufficient even if it
Section 17 (c) of the Negotiable remains uncashed at the time of the loss.
Instruments Law. The facts also show The subsequent effects of encashment (or
that RN Insurance issued the policy on impairment by the fault of the creditor)
Danny's life on October 1, 2013 and that or of legal compensation under Articles
Danny died in an accident on October 5, 1278-1279, in relation to Article 1249 of
2013. the Civil Code, would retroact to the date
RN Insurance denied the claim of of the mercantile instrument and its
Tina because at the time of Danny's acceptance by the creditor."]
death, the check was not yet encashed To the second question (Will your
and, therefore, the premium remained answer be the same if the check is dater!
unpaid. Presumably, RN Insurance is October 15, 2013).
relying on the second paragraph of My answer would not be the same
Article 1249 of the Civil Code which if the check were dated October 15, 2013.
states that the "delivery of promissory This answer assumes that Danny was the
notes payable to order, or bills of one who dated the check and, therefore,
exchange or other mercantile documents what he issued was a postdated check.
shall produce the effect of payment only The payment of a promissory note or a
when they have been cashed, or when postdated check at a stated maturity
through the fault of the creditor they have subsequent to the loss, assuming that
been impaired." there was no estoppel (e.g., written
Whose fault was it that the check acknowledgment of the receipt of
was not encashed? Certainly not Danny premium), is insufficient to put the
or Tina. RN Insurance had the check as insurance into effect. (Vitug, Commercial
early as September 25, 2013 and could Laws and Jurisprudence, 2006, Vol. I, p.
have encashed the check before the death 250)
of Danny an October 5, 2013. The If it were RN Insurance who dated
problem did not indicate that there was the check October 15, 2013, then my
any problem with the check, e.g., that it answer would be the same as my answer
was not adequately funded. RN Insurance to the first question.
was at fault and Tina should not be
denied the proceeds of the policy. XV. A, B, C, D, and E were members of
the 2003-2004 Board of Directors of FLP

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Corporation. At the election for the 2004- noted that 25,000 sheets were damaged and
2005 Board of Directors, not one of them in bad order. The entire shipment was turned
was elected. They filed in court a derivative over to the custody of ATI, the arrastre
suit on behalf of FLP Corporation against operator, on January 21, 2011 for storage
the newly-elected members of the Board of and safekeeping, pending its withdrawal by
Directors. They questioned the validity of the consignee's authorized customs broker,
the election as it was allegedly marred by RVM.
lack of quorum, and prayed for the On January 26 and 29, 2011, the
nullification of the said election. The 2004- subject shipment was withdrawn by RVM
2005 Board of Directors moved to dismiss from the custody of ATI. On January 29,
the complaint because the derivative suit is 2011, prior to the withdrawal of the last
not proper. Decide. (4%) batch of the shipment, a joint inspection of
the cargo was conducted per the Request for
SUGGESTED ANSWER: Bad Order Survey (RBO) dated January 28,
The position taken by the 2004- 2011. The examination report showed that
2005 Board of Directors is correct. The 30,000 sheets of steel were damaged and in
derivative suit is not proper. The bad order.
members of the 2003-2004 Board of NA Insurance paid LT Corporation
Directors of FLP Corporation are the the amount of P30,000,000.00 for the 30,000
injured parties, not FLP Corporation, as sheets that were damaged, as shown in the
their rights to vote and to be voted upon Subrogation Receipt dated January 13, 2013.
were directly affected by the election of Thereafter, NA Insurance demanded
the new set of directors. (Legaspi Towers reparation against ATI for the goods
300, Inc., et al. v. Muer, et al., G.R. damaged in its custody, in the amount of
170783, June 18, 2012). P5,000,00.00. ATI refused to pay claiming
that the claim was already barred by the
XVI. In intellectual property cases, statute of limitations. ATJ alleged that the
fraudulent intent is not an element of the Carriage of Goods by Sea Act (COGSA)
cause of action except in cases involving: applies in this case since the goods were
(1%) shipped from a foreign port to the
(A) trademark infringement Philippines. NA Insurance claims that the
(B) copyright infringement COGSA does not apply, since ATI is not a
(C) patent infringement shipper or carrier. Who is correct? (5%)
(D) unfair competition

SUGGESTED ANSWER: SUGGESTED ANSWER:


(D) (unfair competition) NA Insurance is correct. The
Carriage of Good by Sea Act (Act No.
XVII. On December 1, 2010, Kore A 521) applies only to carriers or ships. A
Corporation shipped from South Korea to "carrier", under Section 1(a ) of the
LT Corporation in Manila some 300,000 COGSA, "includes the owner or th
sheets of high-grade special steel. The charterer who enters into a contract of
shipment was insured against all risks by NA carriage with a shipper", while a "ship"
Insurance (NA). The carrying vessel arrived is defined under Section l(d) as "any
at the Port of Manila on January 10, 2011. vessel used for the carriage of goods by
When the shipment was discharged, it was sea ." The COGSA does not apply to ATI

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as it is neither a "carrier" nor a "ship", Under the foregoing circumstances,
much less a "shipper." It is simply an which is the proper test to be applied
arrastre operator. Moreover, the COGSA Holistic or Dominancy Test? Decide. (4%)
does not .mention that an arrastre opera
tor may invoke the prescriptive period of SUGGESTED ANSWER:
one' year; hence, it does not cover the Considering the facts given and
arrastre operator. (Insurance Co. of North the arguments of the parties, the
America v. Asian Terminals, Inc., G.R. dominancy test is the proper test to apply.
180784, February 15, 2012; Insurance Co. Thus, the appropriation and use of the
of North America v. Phil. Ports Terminal, letter "S" by Inter-Pacific on its rubber
G.R. L-6420, July 18, 1955). shoes constitutes an infringement of the
trademark of Skechers.
XVIII. Skechers Corporation sued Inter- The essential element of
Pacific for trademark infringement, claiming infringement under the Intellectual
that Inter-Pacific used Skechers' registered Property Code is that the infringing mark
"S logo mark on InterPacific's shoe is likely to cause confusion. In
products without its consent. Skechers has determining similarity and likelihood of
registered the trademark "SKECHERS" and confusion, jurisprudence has developed
the trademark "S" (with an oval design) with teststhe Dominancy Test and the
the Intellectual Property Office (IPO). Holistic or Totality Test. The Dominancy
In its complaint, Skechers points out Test focuses on the similarity of the
the following similarities: the color scheme prevalent or dominant features of the
of the blue, white and gray utilized by competing trademarks that might cause
Skechers. Even the design and "wave-like" confusion, mistake, and deception in the
pattern of the mid-sole and outer sole of mind of the purchasing public.
Inter-Pacific's shoes are very similar to Duplication or imitation is not necessary;
Skechers' shoes, if not exact patterns neither is it required that the mark sought
thereof". On the side of InterPacific's shoes, to be registered suggest an effort to
near the upper part, appears the stylized "S imitate. Given more consideration are the
placed in the exact location as that of the aural and visual impressions created by
stylized "S" the Skechers shoes. On top of the marks on the buyers of goods, giving
the "tongue" of both shoes, appears the little weight to factors like prices, quality,
stylized "S" in practically the same location sales outlets, and market segments.
and size. In contrast, the Holistic or Totality
In its defense, Inter-Pacific claims Test necessitates a consideration of the
that under the Holistic Test, the following entirety of the marks as applied to the
dissimilarities are present: the mark "S" products, including the labels and
found in Strong shoes is not enclosed in an packaging, in determining confusing
"oval design"; the word "Strong" is similarity. The discerning eye of the
conspicuously placed at the backside and observer must focus not only on the
insoles; the hang tags labels attached to the predominant words, but also on the other
shoes bear the word "Strong" for features appearing on both labels so that
InterPacific and "Skechers U.S.A." for the observer may draw conclusion on
Skechers; and, Strong shoes are modestly whether one is confusingly similar to the
priced compared to the costs of Skechers other.
shoes. Relative to the question on
confusion of marks and trade names,

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jurisprudence has noted two (2) types of Guetze decided to incorporate his business
confusion, viz.: (1) confusion of goods in Binondo, Manila. He asked his wife and
(product confusion), where the ordinarily three (3) children to act as incorporators
prudent purchaser would be induced to with one (l) share of stock each, while he
purchase one product in the belief that he owned 999.996 shares of the 1,000,000
was purchasing the other; and (2) shares of the capital stock. (6%)
confusion of business (source or origin (A) Assuming all other requirements
confusion), where, although the goods of are met, should the Securities and
the parties are diffcrent, the product, the Exchange Commission (SEC)
mark of which registration is applied for accept or reject the Articles of
by one party, is such as might reasonably Incorporation? Why?
be assumed to originate with the (B) Being the control freak and
registrant of an earlier product, and the micro-manager that he is, Guetze
public would then be deceived either into asked you his astute legal
that belief or into the belief that there is adviser if he can serve as
some connection between the two parties, Chairman of the Board of
though inexistent. Directors, as President, and as
Applying the Dominancy Test to General Manager of the
the problem, we find that the use of the corporation, all at the same time.
stylized "S" by Inter-Pacific in its Strong Please advise Guetze.
rubber shoes infringes on the mark (C) Assuming the corporation has
already registered by Skechers with the been properly registered, may the
IPO. While it is undisputed that stylized Articles of Incorporation now be
"S" of Skechers is within an oval design, amended to reduce the number of
the dominant feature of the trademark is directors to two (2) Guetze and
the stylized "S,'' as it is precisely the his wife to reflect the real
stylized ''S" which catches the eye of the owners of the shares of stock?
purchaser. Thus, even if Inter-Pacific did
not use an oval design, the mere fact that SUGGESTED ANSWERS:
it used the same stylized "S", the same (A) The Securities and Exchange
being the dominant feature of the Commission (SEC) should
trademark of Skechers, already reject the Articles of
constitutes infringement under the incorporation. Only two of the
Dominancy Test. (Skechers, U.S.A., Inc. v. incorporators are resident of
Inter Pacific Industrial Trading Corp., et the Philippines. Section 10 of
al., G.R. 164321 , November 30, 2006 the Corporation Code requires
[decision reconsidering and setting aside that a majority of the
the original decision in the case]). incorporators be residents of
the Philippines.
XIX. Guetze and his wife have three (3) (B) Guetze can serve as Chairman
children: Neymar, 25, who is now based in of the Board of Directors, and
Rio de Janeiro, Brazil; Mueller, 23, who has President and General
migrated to Munich, Germany; and James, Manager of the corporation, all
21, who resides in Bogota, Colombia. at the same time. This is
Neymar and Mueller have since renounced allowed by, and is not covered
their Philippine citizenship in favor of their by the prohibition in, Section
country of residence. Nearing 70 years old, 25 of the Corporation Code.

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(C) The Articles of Incorporation removal of the insured property to any
may not be amended to reduce building or place required the consent of
the number of directors to two. Ilocano. Any transfer effected by PAM,
Under Section 14 of the Inc. without Ilocano's consent (as is the
Corporation Code, the number case here) would free the latter from any
of directors shall not be less liability. (Malayan Insurance Company,
than five. Inc. v. PAPCO, Ltd., G.R. 200784, August
7, 2013).
XX. On May 13, 1996, PAM, Inc.
obtained a P15,000,000.00 fire insurance XXI. On July 3, 1993, Delia Sotero
policy from Ilocano Insurance covering its (Sotero) took out a life insurance policy
machineries and equipment effective for one from Ilocos Bankers Life insurance
(1) year or until May 14, 1997. The policy Corporation (Ilocos Life) designating
expressly stated that the insured properties Creencia Aban (Aban), her niece, as her
were located at "Sanyo Precision Phils. beneficiary. Ilocos Life issued Policy No.
Building, Phase III, Lots 4 and 6, Block 15, 747, with a face value of P100,000.00, in
PEZA, Rosario, Cavite." Before its Sotero's favor on August 30, 1993, after the
expiration, the policy was renewed on "as requisite medical examination and payment
is" basis for another year or until May 13, of the premium.
1998. The subject properties were later On April 10, 1996, Sotero died.
transferred to Pace Factory also in PEZA. Aban filed a claim for the insurance
On October 12, 1997, during the effectivity proceeds on July 9, 1996. Ilocos Life
of the renewed policy, a fire broke out at the conducted an investigation into the claim
Pace Factory which totally burned the and came out with the following findings:
insured properties. 1. Sotero did not personally apply for
The policy forbade the removal of insurance coverage, as she was
the insured properties unless sanctioned by illiterate.
Ilocano. Condition 9(c) of the policy 2. Sotero was sickly since 1990.
provides that "the insurance ceases to attach 3. Sotero did not have the financial
as regards the property affected unless the capability to pay the premium on
insured, before the occurrence of any loss or the policy.
damage, obtains the sanction of the 4. Sotero did not sign the application
company signified by endorsement upon the for insurance.
policy x x x (c) if the property insured is 5. Ahan was the one who filed the
removed to any building or place other than insurance application and
in that which is herein stated to be insured." designated herself as the
PAM claims that it has substantially beneficiary.
complied with notifying Ilocano through its
sister company, the RBC, which, in fact, For the above reasons and claiming
referred PAM to Ilocano for the insurance fraud, Ilocos Life denied Aban's claim on
coverage. Is Ilocano liable under the policy? April 16, 1997, but refunded the premium
(4%) paid on the policy. (6%)

SUGGESTED ANSWER: (A) May Sotero validly designate her


Ilocano Insurance is not liable niece as beneficiary?
under the policy. By the clear and express
condition in the renewed policy, the

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(B) May the incontestability period holders are absolutely
set in even in cases of fraud as protected from unwarranted
alleged in this case? denial of their claims or delay
(C) Is Aban entitled to claim the in the collection of insurance
proceeds under the policy? proceeds occasioned by
allegations of fraud,
concealment, or
misrepresentation by insurers,
SUGGESTED ANSWERS: claims which may no longer be
(A) Yes, Sotero may validly set up after the two-year
designate her niece as period expires as ordained
beneficiary. The same is not under the law.
prohibited under the Thus, the self-regulating
Insurance Code or any other feature of Section 48 lies in the
law pertinent to the problem. fact that both the insurer and
(B) Yes, the incontestability period the insured are given the
applies even in cases of fraud assurance that any dishonest
as claimed in this problem. scheme to obtain life
Note that the findings are insurance would be exposed,
those of the insurer and these and attempts at unduly
were made in an investigation denying a claim would be
conducted unilaterally by the struck down. Life insurance
insurer more than 3 years policies that pass the statutory
after the policy was taken out two-year period are essentially
by Sotero. These findings may treated as legitimate and
very well be dismissed as self- beyond question, and the
serving considering the individuals who wield them
incontestability clause set out are made secure by the
in Section 48 of the Insurance thought that they will be paid
Code. promptly upon claim. In this
Section 48 regulates both manner, Section 48
the actions of the insurers and contributes to the stability of
prospective takers of life the insurance industry.
insurance. It gives insurers Section 48 prevents a
enough time to inquire situation where the insurer
whether the policy was knowingly continues to accept
obtained by fraud, annual premium payments on
concealment, or life insurance, only to later on
misrepresentation; on the deny a claim on the policy on
other hand, it forewarns specious claims of fraudulent
scheming individuals that concealment and
their attempts at insurance misrepresentation, such as
fraud would be timely what obtains in the instant
uncoveredthus deterring case. Thus, instead of
them from venturing into such conducting at the first
nefarious enterprise. At the instance an investigation into
same time, legitimate policy the circumstances

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surrounding the issuance of (C) Yes, Aban is entitled to claim
the insurance policy which the proceeds under the policy
would have timely exposed the as beneficiary for the same
supposed flaws and reasons adduced in (B) above.
irregularities attending it as it
now professes, Ilocos Life XXII. Paul George Pua (Pua) filed a
appears to have turned a blind complaint for a sum of money against the
eye and opted instead to spouses Benito and Caroline James
continue collecting the (Spouses James). In the complaint, Pua
premiums on the policy. For prayed that the defendants pay Pua the
nearly three years, petitioner amount of P8,500,000.00, covered by a
collected the premiums and check. Pua asserts that defendants owed him
devoted the same to its own a sum of money way back in 1988 for which
profit. It cannot now deny the the Spouses James gave him several checks.
claim when it is called to These checks, however, had all been
account. Section 48 must be dishonored and Pua has not been paid the
applied to it with full force amount of the loan plus the agreed interest.
and effect. In 1996, (he Spouses James approached Pua
Insurers may not be to get the computation of their liability
allowed to delay the payment including the 2% compounded interest. After
of claims by filing frivolous bargaining to lower the amount of their
cases in court, hoping that the liability, the Spouses James gave Pua a
inevitable may be put off for postdated check bearing the discounted
years or even decades by amount of P8,500;000.00. Like the 1988
the pendency of these checks, the drawee bank likewise
unnecessary court cases. In dishonored this check. To prove his
the meantime, they benefit allegations, Pua submitted the original
from collecting the interest copies of the 17 checks issued by Caroline
and/or returns on both the in 1988 and the check issued in 1996,
premiums previously paid by Manilatrust Check No. 750. The Spouses
the insured and the insurance James, on the other hand, completely denied
proceeds which should the existence of the debt asserting that they
otherwise go to their had never approached Pua to borrow money
beneficiaries. The business of in 1988 or in 1996. They assert, instead, that
insurance is a highly regulated Pua is simply acting at the instance of his
commercial activity in the sister, Lilian, to file a false charge against
country, and is imbued with them using a check left to fund a gambling
public interest. An insurance business previously operated by Lilian and
contract is a contract of Caroline. Decide. (5%)
adhesion that must be
construed liberally in favor of SUGGESTED ANSWER:
the insured and strictly I will decide in favor of Pua and
against the insurer in order to against the Spouses James.
safeguard the [formers] A check is evidence of
interest. (Manila Bankers Life indebtedness and proof of an obligation.
Insurance Corp. v. Aban, G.R. It can be used in lieu of and for the same
175666, July 29, 2013) purpose as a promissory note. In other

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words, a check functions more than a check in the amount of P1,020,000.00 which
promissory note since it not only contains was subsequently dishonored upon
an undertaking to pay an amount of presentment due to "Stop Payment."
money but is an order addressed to a Pura issued the check because her
bank and partakes of a representation son, Freddie, attracted by a huge discount of
that the drawer has funds on deposit P220,000.00, purchased a Foton Blizzard
against which the check is drawn, 4x2 from Foton. The term of the transaction
sufficient to ensure payment upon its was Cash-on-Delivery and no downpayment
presentation to the bank. A check, the was required. The car was delivered on May
entries of which are in writing, could 14, 1997, but Freddie failed to pay upon
prove a loan transaction. Thus, under the delivery. Despite nonpayment, Freddie took
Negotiable Instruments Law, every possession of the vehicle.
negotiable instrument is deemed prima Pura was eventually acquitted of the
.facie to have been issued for a valuable charge of violating B.P. 22 but was found
consideration, and every person whose civilly liable for the amount of the check
signature appears thereon to have become plus legal interest. Pura appealed the
a party for value. (Pua v. Spouses Benito decision as regards the civil liability,
Tiong, G.R. 198660, October 23, 2013). claiming that there was no privity of
contract between Foton and Pura. No civil
XXIII. What vote is needed to consider liability could be adjudged against her
every decision to be a valid corporate act? because of her acquittal from the criminal
(1%) charge. It was Freddie who was civilly liable
(A) a majority of the directors to Foton, Pura claimed. Pura added that she
present at the meeting could not be an accommodation party either
(B) two-thirds of the directors because she only came in after Freddie
present at the meeting failed to pay the purchase price, or six (6)
(C) a majority of the directors months after the execution of the contract
present at the meeting at which between Foton and Freddie. Her liability
there is a quorum was limited to her act of issuing a worthless
(D) two-thirds of the directors check, but by her acquittal in the criminal
present at the meeting at which charge, there was no more basis for her to be
there is a quorum held civilly liable to Foton. Pura's act of
issuing the subject check did not, by itself,
SUGGESTED ANSWER: assume the obligation of Freddie to Foton or
(C) (a majority of the directors automatically make her a party to the
present at the meeting at which there is a contract. Is Pura liable? (5%)
quorum; Sec. 25, Corporation Code)
SUGGESTED ANSWER:
XXIV. A criminal complaint for violation of Pura is liable to Foton Motors
B.P. 22 was filed by Foton Motors (Foton), because it sold a car to her son and was a
an entity engaged in the business of car holder for value of the check issued in its
dealership, against Pura Felipe (Pura) with favor by Pura. Any person criminally
the Office of the City Prosecutor of Quezon liable for felony is also civilly liable. Thus,
City. The Office found probable cause to her acquittal in the criminal charge does
indict Pura and filed an information before not carry with it extinction of her civil
the Metropolitan Trial Court (MeTC) of liability unless the extinction proceeds
Quezon City, for her issuance of a postdated from a declaration in a final judgment

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that the fact from which the civil might an alter ego, there is no need for a finding of
arise did not exist. (People v. Maniego, fraud or illegality before the doctrine of
G.R. L-30910, February 27, 1987). piercing the veil of corporate fiction can be
More specifically, Pura is liable as applied. The RTC ratiocinated that being one
an accommodation party. Under Section and the same entity in the eyes of the law,
29 of the Negotiable Instruments Law, an the service of summons upon D-Securities
accommodation party is one who has has bestowed jurisdiction over both the
signed the instrument as maker, drawer, parent and wholly-owned subsidiary. Is the
acceptor, or indorser, without receiving RTC correct? (4%)
value therefor, and for the purpose of
lending his name to some other person. SUGGESTED ANSWER:
Such a person is liable on the instrument The RTC is not correct. As FB is a
to a holder for value, notwithstanding separate entity and was never made a
such holder, at the time of taking the party to the case, the judgment sought to
instrument, knew him to be only an be enforced against D-Securities cannot
accommodation party. be made against its parent company, FB.
Pura's liability existed although Piercing the corporate veil based on the
Pura issued the check after the delivery of alter ego theory requires the concurrence
the car. Under Section 25 of the of three elements: (1) control of the
Negotiable Instruments Law, an corporation by the stockholder or parent
antecedent or pre-existing debt corporation, (2) fraud or fundamental
constitutes value and is deemed such unfairness imposed on the plaintiff, and
whether the instrument is payable on (3) harm or damage caused to the
demand or at a future time. plaintiff by the fraudulent or unfair act of
the corporation. The absence of all these
XXV. In an action for collection of a sum elements in the problem prevents the
of money, the Regional Trial Court (RTC) of piercing of the corporate veil.
Makati City issued a decision finding D- The absence of any one of these
Securities. Inc. liable to Rehouse elements prevents piercing the corporate
Corporation for P10,000,000.00. veil. In applying the instrumentality or
Subsequently, the writ of execution was alter ego doctrine, the courts are
issued but returned unsatisfied because D- concerned with reality and not form, with
Securities had no more assets to satisfy the how the corporation operated and the
judgment. Rehouse moved for an Alias Writ individual defendant's relationship to that
of Execution against Fairfield Bank (FB), operation. Hence, all three elements
the parent company of D-Securities. FB should concur for the alter ego doctrine to
opposed the motion on the grounds that it is be applicable.
a separate entity and that it was never made Mere ownership by a single stockholder
a party to the case. The RTC granted the or by another corporation of all or nearly
motion and issued the Alias Writ of all of the capital stock of a corporation is
Execution. In its Resolution, the not of itself sufficient ground for
RTC relied on the following facts: 499,995 disregarding the separate corporate
out of the 500,000 outstanding shares or personality. Neither is the existence of
stocks of D-Securities are owned by FB; FB interlocking directors, corporate officers
had actual knowledge of the subject matter and shareholders enough justification to
of litigation as the lawyers who represented pierce the veil of corporate fiction in the
D-Securities are also the lawyers of FB. As

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absence of fraud or other public policy this, a Stay Order was issued by the RTC on
considerations. October 27, 2003.
To justify treating the sole On the other hand, NB caused the
stockholder or holding company as recording of the Sheriff's Certificate of Sale
responsible, it is not enough that the on December 3, 2003 with the Register of
subsidiary is so organized and controlled Deeds of Cabanatuan City. NB executed an
as to make it "merely an instrumentality, Affidavit of Consolidation of Ownership
conduit or adjunct" of its stockholders. It and had the same annotated on the title of
must further appear that to recognize DMP. Consequently, the Register of Deeds
their separate entities would aid in the cancelled DMP's title and issued a new title
consummation of a wrong. in the name of NB on December 10, 2003.
Control, by itself, does not mean NB also filed on March 17, 2004 an
that the controlled corporation is a mere Ex-Parte Petition for Issuance of Writ of
instrumentality or a business conduit of Possession before the RTC of Cabanatuan
the mother company. Even control over City. After hearing, the RTC issued on
the financial and operational concerns of September 6, 2004 an Order directing the
a subsidiary company does not by itself Issuance of the Writ of Possession, which
call for disregarding its corporate fiction. was issued on October 4, 2004.
There must be a perpetuation of fraud DMP claims that all subsequent actions
behind the control or at least a fraudulent pertaining to the Cabanatuan property
or illegal purpose behind the control in should have been held in abeyance after the
order to justify piercing the veil of Stay Order was issued by the rehabilitation
corporate fiction. Such fraudulent intent court. Is DMP correct? (4%)
is lacking in this case. (Pacific Rehouse
Corporation v. CA, et al., G.R. 199687, RECOMMENDATION:
March 24, 2014). This problem is outside the
coverage .of the 2014 Mercantile Law Bar
XXVI. DMP Corporation (DMP) obtained a Examination as the 2014 Syllabus for
loan of P20 million from National Bank Mercantile Law prepared by the Supreme
(NB) secured by a real estate mortgage over Court does not include the Supreme
a 63,380-square-meter land situated in Court Rules of Procedure on Corporate
Cabanatuan City. Due to the Asian Rehabilitation. It is recommended that all
Economic Crisis, DMP experienced examinees be given full credit whether
liquidity problems disenabling it from they gave any answer or not.
paying its loan on time. For that reason, NB In any case, the Suggested Answer
sought the extrajudicial foreclosure of the is that DMP is not correct. Since the
said mortgage by filing a petition for sale on foreclosure of DMP's mortgage and the
June 30, 2003. On September 4, 2003, the issuance of the certificate of sale in NB's
mortgaged property was sold at public favor were done prior to the appointment
auction, which was eventually awarded to of a Rehabilitation Receiver and the Stay
NB as the highest bidder. That same day, the Order, all the actions taken with respect
Sheriff executed a Certificate of Sale in to the foreclosed mortgage property
favor of NB. which were subsequent to the issuance of
On October 21, 2003, DMP filed a the Stay Order were not affected by the
Petition for Rehabilitation before the Stay Order. Thus, after the redemption
Regional Trial Court (RTC). Pursuant to period expired without DMP redeeming
the foreclosed property, NB becomes the

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absolute owner of the property and it was liable therefor. If you are the judge, how will
within its right to ask for the you decide the case? (4%)
consolidation of title and the issuance of
new title in its name as a consequence of SUGGESTED ANSWER:
ownership; thus, it is entitled to the I will decide the case in favor of
possession and enjoyment of the property. ELP Insurance. Even if CGM, Inc. is not
(Equitable PCI Bank, Inc. v. DNG Realty privy to the contract between FCL Corp.
and Development Corporation, G.R. and ELP Insurance, it is still liable for the
168672, August 8, 2010). loss of the subject cargo. Article 2207 of
the Civil Code states that if the plaintiff's
XXVII. ELP Insurance, Inc. issued property has been insured and he has
Marine Policy No. 888 in favor of FCL received indemnity from the insurance
Corp. to insure the shipment of 132 bundles company for injury or loss arising out of
of electric copper cathodes against all risks. the wrong or breach of contract
Subsequently, the cargoes were shipped on complained of, the insurance company
board the vessel "M/V Menchu" from Leyte shall be subrogated to the rights of the
to Pier 10, North Harbor, Manila. insured against the wrong-doer or the
Upon arrival, FCL Corp. engaged person who has violated the contract,
the services of CGM, Inc. for the release and which in this case is CGM. Since ELP
withdrawal of the cargoes from the pier and Insurance is subrogated to the rights of
the subsequent delivery to its FCL Corp. to the extent of the amount it
warehouses/plants in Valenzuela City. The paid to the latter under the marine
goods were loaded on board twelve (12) insurance contract, it has the right to seek
trucks owned by CGM, Inc., driven by its reimbursement from CGM, Inc. for
employed drivers and accompanied by its breach of contract and/or tort
employed truck helpers. Of the twelve (12) (Loadmasters Customs Services, Inc. v.
trucks en route to Valenzuela City, only Glodel Brokerage Corporation and R&B
eleven (11) reached the destination. One (l) Insurance Corporation, G.R. No. 179446,
truck, loaded with eleven (11) bundles of January 10, 2011).
copper cathodes, failed to deliver its cargo.
Because of this incident, FCL Corp. XXVIII. Which of the following
filed with ELP Insurance, Inc. a claim for instruments is negotiable if all the other
insurance indemnity in the amount of requirements of negotiability are met? (1%)
Pl,500,000.00. After the requisite (A) A promissory note with promise
investigation and adjustment, ELP to pay out of the U.S. Dollar
Insurance, Inc. paid FCL Corp. the amount account of the maker in XYZ
of P1,350,000.00 as insurance indemnity. Bank
ELP Insurance, Inc., thereafter, filed (B) A promissory note which
a complaint for damages against CGM, Inc. designates the U.S. Dollar
before the Regional Trial Court (RTC), currency in which payment is to
seeking reimbursement of the amount it had be made
paid to FCL Corp. for the loss of the subject (C) A promissory note which
cargo. CGM, Inc. denied the claim on the contains in addition a promise to
basis that it is not privy to the contract paint the portrait of the bearer
entered into by and between FCL Corp. and (D) A promissory note made payable
ELP Insurance. Inc., and hence, it is not to the order of Jose Cruz or
Josefa Cruz

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(c) The amount and
SUGGESTED ANSWER: substantiality of the portion
B (a promissory note which used in relation to the
designates the U.S. Dollar currency in copyrighted work as a
which payment is to he made) or D (a whole; and
promissory note made payable to the (d) The effect of the use upon
order of Jose Cruz or Josefa Cruz). the potential market for or
value of the copyrighted
XXIX. KK is from Bangkok, Thailand. She work.
studies medicine in the Pontifical University
of Santo Tomas (UST). She learned that the Applying the above-listed factors
same foreign books prescribed in UST are to the problem, KK's importation of the
40-50% cheaper in Bangkok. So she ordered books and their sale locally clearly show
50 copies of each book for herself and her the unfairness of her use of the books,
classmates and sold the books at 20% less particularly the adverse effect of her price
than the price in the Philippines. XX, the discounting on the business of XX.
exclusive licensed publisher of the books in
the Philippines, sued KK for copyright
infringement. Decide. (4%)

SUGGESTED ANSWER:
KK is liable for infringement of
copyright. XX, as exclusive licensed
publisher, is entitled, within the scope of
the license, to all the rights and remedies
that the licensor has with respect to the
copyright (Sec. 180, Intellectual Property
Code, as amended by Republic Act No.
10372).
The importation by KK of 50
copies of each foreign book prescribed in
UST and selling them locally at 20% less
than their respective prices in the
Philippines is subject to the doctrine of
fair use set out in Section 185.1 of the
Intellectual Property Code. The factors to
be considered in determining whether the
use made of a work is fair use shall
include:
(a) The purpose and character
of the use, including
whether such use is of a
commercial nature or is for
non-profit educational
purposes;
(b) The nature of the
copyrighted work;

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