Mercantile Law Questions Bar 2010

Mercantile Law Questions Bar 2010 (with some notes & answers)

I

Briefly describe the following types of banks: (2% each)

A. universal bank

B. commercial bank

C. thrift bank

D. rural bank

E. cooperative bank

1.UNIVERSAL BANKS - PRIMARILY GOVERNED BY THE GENERAL BANKING LAW (GBL), CAN EXERCISE THE POWERS OF AN INVESTMENT HOUSE AND INVEST IN NON- ALLIED ENTERPRISES AND HAVE THE HIGHEST CAPITALIZATION REQUIREMENT.

2.COMMERCIAL BANKS - ORDINARY BANKS GOVERNED BY THE GBL WHICH HAVE A LOWER CAPITALIZATION REQUIREMENT THAN UNIVERSAL BANKS AND CAN NEITHER EXERCISE THE POWERS OF AN INVESTMENT HOUSE NOR INVEST IN NON-ALLIED ENTERPRISES.

3.THRIFT BANKS - THESE ARE A) SAVINGS AND MORTGAGE BANKS; B) STOCK SAVINGS AND LOAN ASSOCIATIONS; C) PRIVATE DEVELOPMENT BANKS, WHICH ARE PRIMARILY GOVERNED BY THE THRIFT BANKS ACT (R.A. 7906).

4.RURAL BANKS - MANDATED TO MAKE NEEDED CREDIT AVAILABLE AND READILY ACCESSIBLE IN THE RURAL AREAS ON REASONABLE TERMS AND WHICH ARE PRIMARILY GOVERNED BY THE RURAL BANKS ACT OF1992( RA 7353).

5.COOPERATIVE BANKS - THOSE BANKS ORGANIZED WHOSE MAJORITY SHARES ARE OWNED AND CONTROLLED BY COOPERATIVES PRIMARILY TO PROVIDE FINANCIAL AND CREDIT SERVICES TO COOPERATIVES. IT SHALL INCLUDE COOPERATIVE RURAL BANKS. THEY ARE GOVERNED PRIMARILY BY THE COOPERATIVE CODE (RA 6938).

II

A. How do you characterize the legal relationship between a

commercial bank and its safety deposit box client? (2%)

SAFETY DEPOSIT BOXES – LESSOR-LESSEE RELATIONSHIP. THE RELATION BETWEEN A BANK RENTING OUT SAFETY DEPOSIT BOXES AND ITS CUSTOMER WITH RESPECT TO THE CONTENTS OF THE BOX IS THAT OF A BAILOR AND BAILEE . THE BAILMENT FOR HIRE AND MUTUAL BENEFIT HAS BEEN ADOPTED IN THIS JURISDICTION. IT CANNOT BE CONSIDERED AS A CONTRACT OF LEASE BECAUSE THE FULL POSSESSION AND CONTROL OF THE SAFETY DEPOSIT BOX IS NOT GIVEN TO THE RENTERS (SIA VS. CA, 222SCRA 24 [1993)

B. Is a stipulation in the contract for the use of a safety deposit

box relieving the bank of liability in connection with the use

thereof valid? (2%)

NO. ANY STIPULATION EXEMPTING THE DEPOSITARY FROM ANY LIABILITY ARISING FROM LOSS ON ACCOUNT OF FRAUD, NEGLIGENCE WOULD BE VOID FOR BEING CONTRARY TO PUBLIC POLICY (CA-AGRO DEVT VS. CA, 219 SCRA 426, MARCH 5, 1993).

C. Differentiate “bank deposits” from “deposit substitutes.”

(2%)

DEPOSIT-NO SECURITY GIVEN TO GUARANTEE REPAYMENT; THE DEPOSITOR RELIES ON THE STABILITY AND REPUTATION OF THE BANK.

DEPOSIT SUBSTITUTE-GUARANTEED BY CERTIFICATES AND OTHER INSTRUMENTS. (HANDBOOK ON BANK DEPOSITS, A. VIRAY, 1998 ED.)

D. Why are banks required to maintain reserves against their

deposits and deposit substitutes? State one of three purposes

for these reserves. (2%)

UNDER THE NEW CENTRAL BANK ACT (RA 7653), SECTION 94. RESERVE REQUIREMENTS. — IN ORDER TO CONTROL THE VOLUME OF MONEY CREATED BY THE CREDIT OPERATIONS OF THE BANKING SYSTEM, ALL BANKS OPERATING IN THE PHILIPPINES SHALL BE REQUIRED TO MAINTAIN RESERVES AGAINST THEIR DEPOSIT LIABILITIES.

III

Ozamis Paper Corporation secured loans from ABC

Universal Bank in the aggregate principal amount of P100 million,

evidenced by several promissory notes, and secured by a

continuing guaranty of its principal stockholder Menandro

Marquez; a pledge of Marquez’s shares in the corporation valued

at P45 million; and a real estate mortgage over certain parcels of

land owned by Marquez.

The corporation defaulted and the bank extra-judicially

foreclosed on the real estate mortgage. The bank, which was the

sole bidder for P75 million, won the award.

A. Can the bank sue Marquez for the deficiency of P25 million?

Explain. (2%)

B. If the bank opts to file an action for collection against the

corporation, can it afterwards institute a real action to

foreclose the mortgage? Explain. (2%)

C. Can the bank foreclose on the pledged shares of Marquez

and recover the deficiency from the corporation? Explain.

(2%)

IV

Andante Realty, a marketing company that promotes and

facilitates sales of real property through leverage marketing,

solicits investors who are required to be a Business Center Owner

(BCO) by paying an enrollment fee of $250. The BCO is then

entitled to recruit two other investors who pay $250 each. The

BCO receives $90 from the $250 paid by each of his recruits and is

credited a certain amount for payments made by investors through

the initial efforts of his Business Center. Once the accumulated

amount reaches $5,000, the same is used as down payment for the

real property chosen by the BCO.

A. Does this multi-level marketing scheme constitute an

“investment contract” under the Securities Regulation Code?

Define an “investment contract.” (2%)

INVESTMENT CONTRACTS AS SECURITIES IS AN INVESTMENT IN A COMMON VENTURE, PREMISED ON AREASONABLE EXPECTATION OF PROFITS TO BE DERIVED FROMTHE ENTREPRENEURIAL OR MANAGERIAL EFFORTS OF OTHERS (PEOPLE VS. PETRALBA, 439 SCRA 159 [SEPT. 27,2004])

B. What procedure must be followed under the Securities

Regulation Code to authorize the sale or offer for sale or

distribution of an investment contract? (2%)

UNDER SRC CHAPTER III, REGISTRATION OF SECURITIES, SEC 8. REGISTER IT WITH THE SEC.

SEC. 8. REQUIREMENT OF REGISTRATION OF SECURITIES. –

8.1. SECURITIES SHALL NOT BE SOLD OR OFFERED FOR SALE OR DISTRIBUTION WITHIN THE PHILIPPINES, WITHOUT A REGISTRATION STATEMENT DULY FILED WITH AND APPROVED BY THE COMMISSION. PRIOR TO SUCH SALE, INFORMATION ON THE SECURITIES, IN SUCH FORM AND WITH SUCH SUBSTANCE AS THE COMMISSION MAY PRESCRIBE, SHALL BE MADE AVAILABLE TO EACH PROSPECTIVE PURCHASER.

8.2. THE COMMISSION MAY CONDITIONALLY APPROVE THE REGISTRATION STATEMENT UNDER SUCH TERMS AS IT MAY DEEM NECESSARY.

8.3. THE COMMISSION MAY SPECIFY THE TERMS AND CONDITIONS UNDER WHICH ANY WRITTEN COMMUNICATION, INCLUDING ANY SUMMARY PROSPECTUS, SHALL BE DEEMED NOT TO CONSTITUTE AN OFFER FOR SALE UNDER THIS SECTION.

8.4. A RECORD OF THE REGISTRATION OF SECURITIES SHALL BE KEPT IN A REGISTER OF SECURITIES IN WHICH SHALL BE RECORDED ORDERS ENTERED BY THE COMMISSION WITH RESPECT TO SUCH SECURITIES. SUCH REGISTER AND ALL DOCUMENTS OR INFORMATION WITH RESPECT TO THE SECURITIES REGISTERED THEREIN SHALL BE OPEN TO PUBLIC INSPECTION AT REASONABLE HOURS ON BUSINESS DAYS.

8.5. THE COMMISSION MAY AUDIT THE FINANCIAL STATEMENTS, ASSETS AND OTHER INFORMATION OF A FIRM APPLYING FOR REGISTRATION OF ITS SECURITIES WHENEVER IT DEEMS THE SAME NECESSARY TO INSURE FULL DISCLOSURE OR TO PROTECT THE INTEREST OF THE INVESTORS AND THE PUBLIC IN GENERAL.

C. What are the legal consequences of failure to follow this

procedure? (2%)

V

Venezia is a famous international fashion chain with outlets

in Makati, Ortigas, and Manila. It has complied with the

minimum capitalization required under the Retail Trade

Nationalization Act and carries on retail business worth more than

$3 million for each of its outlets. As its Manila outlet is not doing

very well, it decides to sell all of its business there consisting of

remaining inventory, furniture and fixtures and other assets to its

competitor.

A. Venezia’s Manila outlet constitutes one-third (1/3) of its total

business. Should it comply with the requirements of the Bulk

Sales Law? Why or why not? (2%)

NO. THE SALE IS NOT ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE BUSINESS.

B. If instead of selling its Manila outlet, Venezia merely

mortgages its assets there, would it need to comply with the

requirements of the Bulk Sales Law? (2%)

NO. ALTHOUGH THE BULK SALES LAW COVERS MORTGAGES, THE MORTAGE IS STILL NOT ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE BUSINESS.

UNDER THE BULK SALES LAW,

SEC. 2. SALE AND TRANSFER IN BULK. — ANY SALE, TRANSFER, MORTGAGE OR ASSIGNMENT OF A STOCK OF GOODS, WARES, MERCHANDISE, PROVISIONS, OR MATERIALS OTHERWISE THAN IN THE ORDINARY COURSE OF TRADE AND THE REGULAR PROSECUTION OF THE BUSINESS OF THE VENDOR, MORTGAGOR, TRANSFEROR, OR ASSIGNOR, OR SALE, TRANSFER, MORTGAGE OR ASSIGNMENT OF ALL, OR SUBSTANTIALLY ALL, OF THE BUSINESS OR TRADE THERETOFORE CONDUCTED BY THE VENDOR, MORTGAGOR, TRANSFEROR, OR ASSIGNOR, OR OF ALL, OR SUBSTANTIALLY ALL, OF THE FIXTURES AND EQUIPMENT USED IN AND ABOUT THE BUSINESS OF THE VENDOR, MORTGAGOR, TRANSFEROR, OR ASSIGNOR, SHALL BE DEEMED TO BE A SALE AND TRANSFER IN BULK, IN CONTEMPLATION OF THIS ACT: PROVIDED, HOWEVER, THAT IF SUCH VENDOR, MORTGAGOR, TRANSFEROR OR ASSIGNOR, PRODUCES AND DELIVERS A WRITTEN WAIVER OF THE PROVISIONS OF THIS ACT FROM HIS CREDITORS AS SHOWN BY VERIFIED STATEMENTS, THEN, AND IN THAT CASE, THE PROVISIONS OF THIS SECTION SHALL NOT APPLY.

C. What are the legal consequences of a failure to comply with

the requirements of the Bulk Sales Law? (2%)

UNDER THE BULK SALES LAW, SEC. 11. ANY PERSON VIOLATING ANY PROVISION OF THIS ACT SHALL, UPON CONVICTION THEREOF, BE PUNISHED BY IMPRISONMENT NOT LESS THAN SIX MONTHS, NOR MORE THAN FIVE YEARS, OR FINED IN SUM NOT EXCEEDING FIVE THOUSAND PESOS, OR BOTH SUCH IMPRISONMENT AND FINE, IN THE DISCRETION OF THE COURT.

VI

A. What contractual stipulations are required in all technology

transfer agreements? (2%)

(5) MANDATORY PROVISIONS. THE FOLLOWING PROVISIONS SHALL BE INCLUDED IN VOLUNTARY LICENSE CONTRACTS: (QUOTED FROM SEC. 88, CHAPTER IX, PART II OF THE INTELLECTUAL PROPERTY CODE) (A) THAT THE LAWS OF THE PHILIPPINES SHALL GOVERN THE INTERPRETATION OF THE SAME AND IN THE EVENT OF LITIGATION, THE VENUE SHALL BE THE PROPER COURT IN THE PLACE WHERE THE LICENSEE HAS ITS PRINCIPAL OFFICE; (B) CONTINUED ACCESS TO IMPROVEMENTS IN TECHNIQUES AND PROCESSES RELATED TO TECHNOLOGY SHALL BE MADE AVAILABLE DURING THE PERIOD OF THE TECHNOLOGY TRANSFER ARRANGEMENT; (C) IN THE EVENT THE TECHNOLOGY TRANSFER ARRANGEMENT SHALL PROVIDE FOR ARBITRATION, THE PROCEDURE OF ARBITRATION OF THE ARBITRATION LAW OF THE PHILIPPINES OR THE ARBITRATION RULES OF THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW (UNCITRAL) OR RULES OF CONCILIATION AND ARBITRATION OF THE INTERNATIONAL CHAMBER OF COMMERCE (ICC) SHALL APPLY AND THE VENUE OF ARBITRATION SHALL BE THE PHILIPPINES OR ANY NEUTRAL COUNTRY;

B. Enumerate three (3) stipulations that are prohibited in

technology transfer agreements. (3%)

(3) PROHIBITED CLAUSES. THE FOLLOWING PROVISIONS SHALL BE DEEMED PRIMA FACIE TO HAVE AN ADVERSE EFFECT ON COMPETITION AND TRADE: (QUOTED FROM SEC. 87, CHAPTER IX, PART II OF THE INTELLECTUAL PROPERTY CODE) (A) THOSE WHICH IMPOSE UPON THE LICENSEE THE OBLIGATION TO ACQUIRE FROM A SPECIFIC SOURCE CAPITAL GOODS, INTERMEDIATE PRODUCTS, RAW MATERIALS, AND OTHER TECHNOLOGIES, OR OF PERMANENTLY EMPLOYING PERSONNEL INDICATED BY THE LICENSOR; (B) THOSE PURSUANT TO WHICH THE LICENSOR RESERVES THE RIGHT TO FIX THE SALE OR RESALE PRICES OF THE PRODUCTS MANUFACTURED ON THE BASIS OF THE LICENSE; (C) THOSE THAT CONTAIN RESTRICTIONS REGARDING THE VOLUME AND STRUCTURE OF PRODUCTION; (D) THOSE THAT PROHIBIT THE USE OF COMPETITIVE TECHNOLOGIES IN A NON-EXCLUSIVE TECHNOLOGY TRANSFER ARRANGEMENT; (E) THOSE THAT ESTABLISH A FULL OR PARTIAL PURCHASE OPTION IN FAVOR OF THE LICENSOR; (F) THOSE THAT OBLIGATE THE LICENSEE TO TRANSFER FOR FREE TO THE LICENSOR THE INVENTIONS OR IMPROVEMENTS THAT MAY BE OBTAINED THROUGH THE USE OF THE LICENSED TECHNOLOGY; (G) THOSE THAT REQUIRE PAYMENT OF ROYALTIES TO THE OWNERS OF PATENTS FOR PATENTS WHICH ARE NOT USED; (H) THOSE THAT PROHIBIT THE LICENSEE TO EXPORT THE LICENSED PRODUCT UNLESS JUSTIFIED FOR THE PROTECTION OF THE LEGITIMATE INTEREST OF THE LICENSOR SUCH AS EXPORTS TO COUNTRIES WHERE EXCLUSIVE LICENSES TO MANUFACTURE AND/OR DISTRIBUTE THE LICENSED PRODUCT(S) HAVE ALREADY BEEN GRANTED; (I) THOSE WHICH RESTRICT THE USE OF THE TECHNOLOGY SUPPLIED AFTER EXPIRATION OF TECHNOLOGY TRANSFER ARRANGEMENT, EXCEPT IN CASES OF EARLY TERMINATION OF TECHNOLOGY TRANSFER ARRANGEMENT DUE TO REASON(S) ATTRIBUTABLE TO THE LICENSEE; (J) THOSE WHICH REQUIRE PAYMENTS FOR PATENTS AND OTHER INDUSTRIAL PROPERTY RIGHTS AFTER THEIR EXPIRATION, TERMINATION ARRANGEMENT; (K) THOSE WHICH REQUIRE THAT THE TECHNOLOGY RECIPIENT SHALL NOT CONTEST THE VALIDITY OF ANY PATENTS OF THE TECHNOLOGY SUPPLIER; (L) THOSE WHICH RESTRICT THE RESEARCH AND DEVELOPMENT ACTIVITIES OF THE LICENSEE DESIGNED TO ABSORB AND ADAPT THE TRANSFERRED TECHNOLOGY TO LOCAL CONDITIONS OR TO INITIATE RESEARCH AND DEVELOPMENT PROGRAMS IN CONNECTION WITH NEW PRODUCTS, PROCESSES OR EQUIPMENT; (M) THOSE WHICH PREVENT THE LICENSEE FROM ADAPTING THE IMPORTED TECHNOLOGY TO LOCAL CONDITIONS, OR INTRODUCING INNOVATION TO IT, AS LONG AS IT DOES NOT IMPAIR THE QUALITY STANDARDS PRESCRIBED BY THE LICENSOR; (N) THOSE WHICH EXEMPT THE LICENSOR FROM LIABILITY FOR NON-FULFILLMENT OF HIS RESPONSIBILITIES UNDER THE TECHNOLOGY TRANSFER ARRANGEMENT AND/OR LIABILITY ARISING FROM THIRD PARTY SUITS BROUGHT ABOUT BY THE USE OF THE LICENSED PRODUCT OR THE LICENSED TECHNOLOGY; AND (O) OTHER CLAUSES WITH EQUIVALENT EFFECTS.

C. Can an article of commerce serve as a trademark and at the

same time enjoy patent and copyright protection? Explain

and give an example. (2%)

VII

Union Mines, Inc. has total assets of P60 million with 210

stockholders holding at least 100 shares each.

The company has two principal stockholders, ABC which

owns 60% of the shares of stock, and XYZ which owns 17%.

ABC in turn is owned to the extent of 21.31% by Acme, Inc.;

29.69% by Golden Boy, Inc.; 9% by XYZ; and the rest by

individual stockholders.

None of the parties is a publicly-listed company.

XYZ now proposes to buy Acme’s and Golden Boy’s shares

in ABC, which would give it direct control of ABC and indirect

control of Union Mines.

Is the proposed acquisition by XYZ subject to the mandatory

tender offer rule? Why or why not? What is a tender offer and

when is it mandatory? (5%)

SRC RULE 19.1.1

G. TENDER OFFER MEANS A PUBLICLY ANNOUNCED INTENTION BY A PERSON ACTING ALONE OR IN CONCERT WITH OTHER PERSONS (HEREINAFTER REFERRED TO AS “PERSON”) TO ACQUIRE EQUITY SECURITIES OF A PUBLIC COMPANY AS DEFINED IN SRC RULE 3.

H. TENDER OFFER MATERIALS MEANS: (I) THE BIDDER’S FORMAL OFFER, INCLUDING ALL THE MATERIAL TERMS AND CONDITIONS OF THE TENDER OFFER AND ALL AMENDMENTS THERETO; (II) THE RELATED TRANSMITTAL LETTER (WHEREBY SECURITIES OF THE TARGET COMPANY WHICH ARE SOUGHT IN THE TENDER OFFER MAY BE TRANSMITTED TO THE BIDDER OR ITS DEPOSITORY) AND ALL AMENDMENTS THERETO; AND (III) PRESS RELEASES, ADVERTISEMENTS, LETTERS AND OTHER DOCUMENTS PUBLISHED BY THE BIDDER OR SENT OR GIVEN BY THE BIDDER TO SECURITY HOLDERS WHICH, DIRECTLY OR INDIRECTLY, SOLICIT, INVITE OR REQUEST TENDERS OF THE SECURITIES BEING SOUGHT IN THE TENDER OFFER.

SRC RULE 19.1.2. MANDATORY TENDER OFFERS

A. EXCEPT AS PROVIDED IN PARAGRAPH 3 BELOW, A PERSON IS REQUIRED TO MAKE A TENDER OFFER FOR EQUITY SHARES OF A PUBLIC COMPANY IN AN AMOUNT EQUAL TO THE NUMBER OF SHARES THAT THE PERSON INTENDS TO ACQUIRE IN THE FOLLOWING CIRCUMSTANCES:

I. THE PERSON INTENDS TO ACQUIRE FIFTEEN PERCENT (15%) OR MORE OF THE EQUITY SHARES OF A PUBLIC COMPANY PURSUANT TO AN AGREEMENT MADE BETWEEN OR AMONG THE PERSON AND ONE OR MORE SELLERS;

II. THE PERSON INTENDS TO ACQUIRE THIRTY PERCENT (30%) OR MORE OF THE EQUITY SHARES OF A PUBLIC COMPANY WITHIN A PERIOD OF 12 MONTHS; OR

III. THE PERSON INTENDS TO ACQUIRE SHARES THAT WOULD RESULT IN OWNERSHIP OF MORE THAN FIFTY PERCENT (50%) OF THE EQUITY SHARES OF A PUBLIC COMPANY.

B. A PERSON SHALL BE PRESUMED TO HAVE THE INTENT THAT WOULD MANDATE THE MAKING OF A TENDER OFFER PURSUANT TO PARAGRAPH (A) ABOVE WHEN THE PERSON, RESPECTIVELY:

I. ACQUIRES 15% OR MORE OF THE EQUITY SHARES OF A PUBLIC COMPANY PURSUANT TO AN AGREEMENT MADE BETWEEN OR AMONG THE PERSON AND THE SELLER OR SELLERS;

II. ACQUIRES 30% OR MORE OF THE SHARES OF A PUBLIC COMPANY WITHIN A PERIOD OF 12 MONTHS; OR

III. ACQUIRES SHARES THAT RESULT IN OWNERSHIP OF MORE THAN FIFTY PERCENT (50%) OF THE EQUITY SHARES OF A PUBLIC COMPANY.

VIII

Marlon deposited with LYRIC Bank a money market

placement of P1 million for a term of 31 days. On maturity date,

one claiming to be Marlon called up the LYRIC Bank account

officer and instructed him to give the manager’s check

representing the proceeds of the money market placement to

Marlon’s girlfriend Ingrid.

The check, which bore the forged signature of Marlon, was

deposited in Ingrid’s account with YAMAHA Bank. YAMAHA

Bank stamped a guaranty on the check reading: “All prior

endorsements and/or lack of endorsement guaranteed.”

Upon presentment of the check, LYRIC Bank funds the

check. Days later, Marlon goes to LYRIC Bank to collect his

money market placement and discovers the foregoing transactions.

Marlon thereupon sues LYRIC Bank which in turn files a

third-party complaint against YAMAHA Bank. Discuss the

respective rights and liabilities of the two banks. (5%)

IX

Your client Dianne approaches you for legal advice on

putting up a medium-sized restaurant business that will specialize

in a novel type of cuisine. As Dianne feels that the business is a

little risky, she wonders whether she should use a corporation as

the business vehicle, or just run it as a single proprietorship. She

already has an existing corporation that is producing meat

products profitably and is also considering the alternative of

simply setting up the restaurant as a branch office of the existing

corporation.

A. Briefly explain to your client what you see as the legal

advantages and disadvantages of using a separate

corporation, a single proprietorship, or a branch of an

existing corporation for the proposed restaurant business.

(3%)

B. If you advise your client to use a corporation, what officer

positions must the corporation at least have? (2%)

C. What particular qualifications, if any, are these officers

legally required to possess under the Corporation Code?

(2%)

X

To secure a loan of P10 million, Mario mortgaged his

building to Armando. In accordance with the loan arrangements,

Mario had the building insured with First Insurance Company for

P10 million, designating Armando as the beneficiary.

Armando also took an insurance on the building upon his

own interest with Second Insurance Company for P5 million.

The building was totally destroyed by fire, a peril insured

against under both insurance policies. It was subsequently

determined that the fire had been intentionally started by Mario

and that in violation of the loan agreement, he had been storing

inflammable materials in the building.

A. How much, if any, can Armando recover from either or both

insurance companies? (2%)

B. What happens to the P10 million debt of Mario to Armando?

Explain. (3%)

XI

Enrique obtained from Seguro Insurance Company a

comprehensive motor vehicle insurance to cover his top of the line

Aston Martin. The policy was issued on March 31, 2010 and, on

even date, Enrique paid the premium with a personal check

postdated April 6, 2010.

On April 5, 2010, the car was involved in an accident that

resulted in its total loss.

On April 10, 2010, the drawee bank returned Enrique’s check

with the notation “Insufficient Funds.” Upon notification, Enrique

immediately deposited additional funds with the bank and asked

the insurer to redeposit the check.

Enrique thereupon claimed indemnity from the insurer. Is

the insurer liable under the insurance coverage? Why or why

not? (3%)

XII

AA entered into a contract with BB for the latter to transport

ladies wear from Manila to France with transhipment via Taiwan.

Somehow the goods were not loaded in Taiwan on time, hence,

these arrived in France “off-season.” AA was only paid for onehalf

(1/2) the value by the buyer.

AA claimed damages from BB. BB invoked prescription as a

defense under the Carriage of Goods by Sea Act. Considering the

“loss of value” of the ladies wear as claimed by AA, is BB’s

defense tenable? Explain. (3%)

XIII

Paolo, the owner of an ocean-going vessel, offered to

transport the logs of Constantino from Manila to Nagoya.

Constantino accepted the offer, not knowing that the vessel was

manned by an irresponsible crew with deep-seated resentments

against Paolo, their employer.

Constantino insured the cargo of logs against both perils of

the sea and barratry. The logs were improperly loaded on one side,

thereby causing the vessel to tilt on one side. On the way to

Nagoya, the crew unbolted the sea valves of the vessel causing

water to flood the ship hold. The vessel sank.

Constantino tried to collect from the insurance company

which denied liability, given the unworthiness of both the vessel

and its crew.

Constantino countered that he was not the owner of the

vessel and he could therefore not be responsible for conditions

about which he was innocent.

A. Is the insurance company liable? Why or why not? (3%)

B. What is “barratry” in marine insurance? (2%)

BARRATRY IN MARINE INSURANCE MEANS FRAUD BY A MASTER OR CREW AT THE EXPENSE OF THE OWNERS OF THE SHIP OR ITS CARGO.

XIV

When OCCIDENTAL Bank folded up due to insolvency,

Manuel had the following separate deposits in his name: P200,000

in savings deposit; P250,000 in time deposit; P50,000 in a current

account; P1 million in a trust account; and P3 million in money

market placement. Under the Philippine Deposit Insurance

Corporation Act, how much could Manuel recover? Explain.

(2%)

XV

While vacationing in Boracay, Valentino surreptitiously took

photographs of his girlfriend Monaliza in her skimpy bikini. Two

weeks later, her photographs appeared in the Internet and in a

national celebrity magazine.

Monaliza found out that Valentino had sold the photographs

to the magazine and, adding insult to injury, uploaded them to his

personal blog on the Internet.

A. Monaliza filed a complaint against Valentino for damages

based on, among other grounds, violation of her intellectual

property rights. Does she have any cause of action? Explain.

(2%)

B. Valentino’s friend Francesco stole the photographs and

duplicated them and sold them to a magazine publication.

Valentino sued Francesco for infringement and damages.

Does Valentino have any cause of action? Explain. (2%)

C. Does Monaliza have any cause of action against Francesco?

Explain. (2%)

XVI

An importer of Christmas toys loaded 100 boxes of Santa

Claus talking dolls aboard a ship in Korea bound for Manila.

With the intention of smuggling one-half of his cargo, he took a

bill of lading for only 50 boxes. On the voyage to Manila, 50

boxes were jettisoned to save the more precious cargo.

A. Is the importer entitled to receive any indemnity for average?

Explain. (2%)

B. What are the types of averages in marine commerce? (3%)

PARTICULAR AVERAGE. THE OWNER OF THE VESSEL SHALL SHOULDER THE AVERAGE. GENERALLY SPEAKING, SIMPLE OR PARTICULAR AVERAGES INCLUDE ALL EXPENSES AND DAMAGES CAUSED TO THE VESSEL OR CARGO WHICH HAVE NOT INURED TO THE COMMON BENEFIT (ART. 809, AND ARE, THEREFORE, TO BE BORNE ONLY BY THE OWNER OF THE PROPERTY WHICH GAVE RISE TO THE SAME (ART. 810) WHILE GENERAL OR GROSS AVERAGES INCLUDE "ALL THE DAMAGES AND EXPENSES WHICH ARE DELIBERATELY CAUSED IN ORDER TO SAVE THE VESSEL, ITS CARGO, OR BOTH AT THE SAME TIME, FROM A REAL AND KNOWN RISK" (ART. 811). BEING FOR THE COMMON BENEFIT, GROSS AVERAGES ARE TO BE BORNE BY THE OWNERS OF THE ARTICLES SAVED (ART. 812)

XVII

The Supreme Court has held that fraud is an exception to the

“independence principle” governing letters of credit. Explain this

principle and give an example of how fraud can be an exception.

(3%)

THE INDEPENDENCE PRINCIPLE IS BASICALLY VERY SIMPLE AND IT IS FUNDAMENTAL TO THE USEFULNESS OF LETTERS OF CREDIT. IT IS WHAT MAKES A LETTER OF CREDIT USEFUL WHERE AN ORDINARY CONTRACTUAL OBLIGATION WOULD NOT BE. THE INDEPENDENCE PRINCIPLE STATES THAT THE ISSUER'S OBLIGATION TO THE BENEFICIARY IS ENTIRELY INDEPENDENT OF THE BENEFICIARY'S OBLIGATION TO THE APPLICANT OR THE APPLICANT'S OBLIGATION TO THE ISSUER.

XVIII

For years, Y has been engaged in the parallel importation of

famous brands, including shoes carrying the foreign brand

MAGIC. Exclusive distributor X demands that Y cease

importation because of his appointment as exclusive distributor of

MAGIC shoes in the Philippines.

Y counters that the trademark MAGIC is not registered with

the Intellectual Property Office as a trademark and therefore no

one has the right to prevent its parallel importation.

A. Who is correct? Why? (2%)

B. Suppose the shoes are covered by a Philippine patent issued

to the brand owner, what would your answer be? Explain.

(2%)

XIX

Dr. Nobel discovered a new method of treating Alzheimer’s

involving a special method of diagnosing the disease, treating it

with a new medicine that has been discovered after long

experimentation and field testing, and novel mental isometric

exercises. He comes to you for advice on how he can have his

discoveries protected.

Can he legally protect his new method of diagnosis, the new

medicine, and the new method of treatment? If no, why? If yes,

how? (4%)