MCQ Negotiable Instruments Law

Hello, strangers. The following are some exam questions I used for my BS Accountancy students for the subject Negotiable Instruments. They're very basic so I decided not to post the answers. Test yourselves.

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Phil. Bank of Commerce v. CA

G.R. No. 97626, March 14, 1997

• The negligence must be the proximate cause of the loss

FACTS:

Rommel’s Marketing Corporation (RMC) maintained two separate current accounts with PBC in connection with its business of selling appliances. The RMC General Manager Lipana entrusted to his secretary, Irene Yabut, RMC funds amounting to P300,000+ for the purpose of depositing the same to RMC’s account with PBC. However, it turned out that Yabut deposited the amounts in her husband’s account instead of RMC. Lipana never checked his monthly statement of accounts regularly furnished by PBC so that Yabut’s modus operandi went on for the span of more than one year.
ISSUE:

• What is the proximate cause of the loss – Lipana’s negligence in not checking his monthly statements or the bank’s negligence through its teller in validating the deposit slips?

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Bank of America, NT vs. American Realty Corporation

G.R. No. 133876, Dec. 29, 1999

• When foreign laws, despite having been duly presented and proven, may not be given application

FACTS:

Petitioner Bank of America (BANTSA) is an international banking and financing institution duly licensed to do business in the Philippines, organized and existing under and by virtue of the laws of the State of California, USA while private respondent American Realty (ARC) is a domestic corporation.

On numerous occasions, BANTSA and Bank of America International Limited (BAIL), organized under the laws of England, granted US Dollar loans to certain foreign corporate borrowers. These loans were later restructured, the restructured loans secured by two real estate mortgages with private respondent ARC as third-party mortgagor. When the corporate borrowers defaulted, BANTSA sued them for collection before foreign courts, without impleading ARC as party-defendant. While these civil suits are still pending before the foreign courts, BANTSA filed an extra-judicial foreclosure of real estate mortgage before the Office of the Provincial Sheriff of Bulacan, Philippines. The properties were sold at public auction, prompting ARC to file this action for damages against BANTSA.

The trial court ruled in favour of ARC and this was affirmed by the CA. Hence, this appeal.

ISSUES:

• Whether or not the petitioner’s act of filing a collection suit against the principal debtors for the recovery of the loan before foreign courts constituted waiver of the remedy of foreclosure
• Whether or not the award by the lower court of actual and exemplary damages in favour of private respondent ARC, as third-party mortgagor, is proper

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Perla Cia. De Seguros, Inc. v. CA

208 SCRA 487 (1992)

• INSURANCE LAW: Warranties
• Authorized Driver Clause applies only in accidents, etc. but not to theft

FACTS:

Spouses Lim purchased a brand new red Ford Laser car from Supercars, Inc. in a sale by installment secured by a chattel mortgage. The same car is insured with Perla Compania de Seguros (Perla). On the same day, Supercars, Inc. assigned its rights, title and interest to FCP Credit Corporation (FCP).

On a later date, the vehicle was carnapped. Spouses Lim filed a claim for loss with Perla but this was denied on the ground that Evelyn Lim, who was using the vehicle before it was carnapped, was in possession of an expired driver’s license at the time of the loss, in violation of the authorized driver clause of the insurance policy.

ISSUE:

• Whether or not Perla is liable despite the alleged violation of the authorized driver clause in the insurance contract

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Sunlife Assurance v. Court of Appeals

245 SCRA 268 (1995)

• INSURANCE LAW: Concealment
• Disclosure of material facts is required
• Good faith is not a defense in determining the materiality of the information to be disclosed
• Waiver of medical examination by insured is not a defense
• Cause of death is immaterial in case of concealment

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American Home Assurance v. Tantuco

G.R. No. 138941, 8 Oct. 2001

• INSURANCE LAW: Liberality is the rule of construction in insurance contracts.

FACTS:

Tantuco Enterprises, Inc. is a coconut oil milling and refining company. It owned two mills (the first oil mill and a new one), both located at its factory compound at Iyam, Lucena City. The two oil mills are separately covered by fire insurance policies issued by American Home Assurance Co.

On Sept. 30, 1991, a fire broke out and gutted and consumed the new oil mill. American Home rejected the claim for the insurance proceeds on the ground that no policy was issued by it covering the burned oil mill. It stated that the new oil mill was under Building No. 15 while the insurance coverage extended only to the oil mill under Building No. 5.

ISSUE:

• Whether or not the new oil mill is covered by the fire insurance policy

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Quickie Notes on Maritime Law

GENERAL CONCEPTS

A. Real and Hypothecary Nature

• limitation of liability of agents (and owners) to the actual value of the vessel and freight money - abandonment of the vessel is required EXCEPT if the vessel is totally lost
• right to retain the cargo and the embargo and detention of vessel

B. Acts and Conduct of Captain

- the common carrier and/or ship agent (solidary) are liable to third persons EXCEPT when there is abandonment (no liability)
- co-owner also liable to third persons UNLESS he renounces, before a notary, his interest in the vessel

C. Loss of Vessel

- all rights are extinguished
- if partial loss of vessel only, captain and crew on wages have a right to salvage the ship and goods. HOWEVER, sailors on shares have a right to the cargo only EXCEPT if they worked for salvage, in which case they are entitled to compensation for their salvage service.

D. Collisions

- Liability of ship owner is limited to the value of the vessel and its appurtenances and freight.

E. Exceptions to Limited Liability Rule

1. injury or death to passenger due to fault of shipowner or concurring negligence of shipowner and captain
2. vessel is insured
3. workmen's compensation claims
4. expenses for repairs and provisioning of the ship prior to departure

VESSELS

A. Protest
- a condition precedent to make owner of the vessel liable in case of collision

B. Type of Property

- Vessels are personal property but they partake of the nature of real property because of their value and importance to world commerce.
- The person registered as owner is presumed the owner of the vessel.
- The sale of vessels must be registered to the Maritime Industry Authority in order to affect third persons.

C. Manifest

- a declaration of the entire cargo
- distinguish from a bill of lading, which is only a declaration of particular cargo

D. Ship Mortgage

(1) PURPOSE: construction, acquisition, purchase of vessels, initial operatio of vessels

(2) PREFERRED MORTGAGE

Requisites:

• mortgage recorded with the Coast Guard
• affidavit of good faith
• no stipulation that the mortgagee waives preferred status of the mortgage

Exceptions
- not covered by preferred mortgage

• court fees and taxes
• crew's wages
• general averages
• maritime lien prior to the registration of mortgage
• salvage
• damages for tort
• preferred mortages registered prior in time

(3) JUDICIAL FORECLOSURE

- suit in rem in admiralty
- vessel is arrested (replevin to recover possession) and made a party
- applicant files a bond
- filed with the Regional Trial Court

(4) MARITIME LIEN FOR NECESSARIES

- suit in rem
- allege credit and prove it

Requisites

• for the benefit of the vessel
• necessary for the continuation of the voyage
• credit is extended to the vessel
• necessity of such extension of credit
• the extension of credit is ordered by authorized persons

Determine if Maritime Lien Exists

• depends on the law of the country where the supplies were furnished which must be pleaded and proved
• Lauritzen-Romero-Rhobitis trilogy of cases

- multiple-contact test:

1. place of wrongful act
2. law of the flag
3. allegiance or domicile of the injured person
4. allegiance of the owner
5. place of contract
6. inaccessibility of foreign forum
7. law of the forum

• factors provided in the Restatement of Conflict of Laws

- if no choice of law:

1. place of contracting
2. place of negotiation
3. place of performance
4. location
5. domicile or residence of parties

PERSONS WHO TAKE PART IN MARITIME COMMERCE

A. Ship Owner
- primarily liable

B. Ship Agent
- solidarily liable with ship owner

• capacity to trade
• recorded in the merchant's registry of the province

- POWERS: discharge duties of the captain
- LIMITATION ON POWERS: needs resolution of the majority of the co-owners UNLESS previously this authority is included in the certificate of appointment
- If the ship agent enters into contract of insurance without authority, he shall be held subsidiarily liable with the insurer.
- DUTY TO ACCOUNT
- REIMBURSEMENT AND LIABILITIES: accion ejectuva (expenses or profits) -- resolution of majority and signatures of persons who voted

C. Part Owners
- if more than one, presumed partners
- vote of majority; if none, the owner with the largest interest; if equal, then divided by lot

D. Sale
- by public auction UNLESS owners unanimously agree otherwise
- owner of vessel is preferred

E. Discharge of Captain and Crew

• Before Voyage: salary earned, no indemnity EXCEPT express and specific agreement
• During Voyage: salaries until return to port UNLESS cause of discharge
• Contract for Definite Period: no discharge EXCEPT subordination in serious matters, robbery, theft, habitual drunkenness, damage to ship caused by malice or manifest/proven negligence
• Captain is Owner: no discharge UNLESS return his interest

F. Captains and Masters

Qualifications:

1. Filipinos
2. legal capacity
3. skill, capacity, and qualifications necessary to perform their jobs
4. not disqualified

Roles:

1. general agent of shipowner
2. commander and technical director of the vessel
3. representative of the country under whose flag he navigates

G. Pilotage
- reponsible for damages/injuries due to his fault EXCEPT force majeure
- COLLISIONS: colliding vessel deemed prima facie responsible so burden of proof is on it

CHARTER PARTIES

A. Bareboat
- whole vessel is chartered but the charterer provides the crew
- becomes a private carrier
- charterer is the owner pro hac vice and therefore liable to third persons

B. Contract of Affreightment
- the vessel, together with its crew, is leased
- common carrier
- liability to third persons rests with the shipowner

Kinds:

• Time
• Voyage

Requisites of a Valid Charter Party

1. consent
2. existing vessel which should be placed at the disposition of the shipper
3. freight
4. drawn in duplicate and signed by the parties

C. Demurrage
- charterer is responsible for sum of money in case vessel is detained in port beyond the period allowed in the contract

D. Dead Freight
- charterer failed to occupy the leased portion of the vessel

LOANS ON BOTTOMRY AND RESPONDENTIA

Distinguish from Simple Loan

• RATE OF INTEREST: Bottomry is not subject to Usury Law while Simple Loan is subject to a fixed ceiling rate in the Usury Law.
• EXISTENCE OF MARINE RISK: This is required in Bottomry but not in Simple Loan.
• REGISTRATION: Bottomry must be registered in the registry of vessels in order to affect third persons while Simple Loan needs no registration.
• REQUISITES: Bottomry is govered by the Code of Commerce while Simple Loan by obligations and contracts.
• PREFERENCE: In Bottomry, last lender is given preference while Simple Loan, the first lender.

AVERAGE

A. Simple Average
- not inured to the common benefit of all persons interested
- shipowner bears loss

B. General Average
- all damages are deliberately caused to save the vessel or the cargo

Requisites:

1. common danger which must be imminent and real
2. for the common safety, part of the vessel or cargo is deliberately sacrificed
3. successful saving of the vessel or cargo
4. taking of legal steps and authority

- those who benefited bears the loss
- owners of goods sacrificed are entitled to indemnity EXCEPT:

• goods carried on deck
• goods not recorded in the books
• fuel for the vessel if there is more than enough for the voyage

COLLISIONS

- even owner of a third vessel liable if it forced a vessel to hit another
- no applicability of "last clear chance" rule: if both parties are negligent, both must answer for the damage- no applicability of "contributory negligence" rule

A. Third Person at Fault
- indemnify others
- ship captain is civilly liable to the owner
- abandonment and limited liability rules apply

B. Doctrine of Inscrutable Fault
- if cannot determine who is at fault: both vessels bear the loss
- but shipper may go after the owner and captain if both have been negligent

C. Protest
- required of the captain only, not the passenger

ARRIVAL UNDER STRESS AND SHIPWRECK

Steps:

1. captain must determine if there is a well-founded fear of seizure, etc.
2. assemble the officers
3. summon all persons interested if present but they shall have no vote
4. officers determine danger and vote on it. The captain has the deciding vote.
5. enter into agreement and all protests/objections entered into logbook

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JG Summit Holdings Inc. vs. CA

G.R. No. 124293, November 20, 2000

FACTS:

The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation and management of the Subic National Shipyard, Inc., later became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding proportion of 60%-40% and that the parties have the right of first refusal in case of a sale.

Through a series of transfers, NIDC’s rights, title and interest in PHILSECO eventually went to the National Government. In the interest of national economy, it was decided that PHILSECO should be privatized by selling 87.67% of its total outstanding capital stock to private entities. After negotiations, it was agreed that Kawasaki’s right of first refusal under the JVA be “exchanged” for the right to top by five percent the highest bid for said shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this right in its stead.

During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5% percent the highest bid, it was able to top JG Summit’s bid. JG Summit protested, contending that PHILSECO, as a shipyard is a public utility and, hence, must observe the 60%-40% Filipino-foreign capitalization. By buying 87.67% of PHILSECO’s capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock.

ISSUE:

• Whether or not PHILSECO is a public utility
• Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECO’s stocks

HELD:

In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec. 13, CA No. 146. On the other hand, Kawasaki/PHI argued that PD No. 666 explicitly stated that a “shipyard” was not a “public utility.” But the SC stated that sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP Blg. 391 and when BP Blg. 391 was subsequently repealed by EO 226, the latter law did not revive sec. 1 of PD No. 666. Therefore, the law that states that a shipyard is a public utility still stands.

A shipyard such as PHILSECO being a public utility as provided by law is therefore required to comply with the 60%-40% capitalization under the Constitution. Likewise, the JVA between NIDC and Kawasaki manifests an intention of the parties to abide by this constitutional mandate. Thus, under the JVA, should the NIDC opt to sell its shares of stock to a third party, Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock would not exceed 40% of the entire shares of stock. The NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a government corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase of stocks even beyond 60% of the capitalization as the Constitution clearly limits only foreign capitalization.

Kawasaki was bound by its contractual obligation under the JVA that limits its right of first refusal to 40% of the total capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the capitalization of the joint venture on account of both constitutional and contractual proscriptions.

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BPI Investment Corp. v. CA

G.R. No. 133632. February 15, 2002

• credit transactions: Loan (Mutuum): A loan contract is not a consensual contract but a real contract. It is perfected upon delivery of the object of the contract.
• obligations and contracts: Reciprocal Obligations: It is a basic principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him.

FACTS:

Frank Roa obtained a loan at 16 1/4% interest rate per annum from Ayala Investment and Development Corporation. For security, Roa's house and lot were mortgaged. Later, Roa sold the house and lot to ALS and Antonio Litonjua, who assumed Roa's debt to Ayala Investment. Ayala Investment, however, granted a new loan to be applied to Roa's debt, secured by the same property at a different interest rate of 20% per annum.

When ALS and Litonjua failed to pay, BPIIC, successor to Ayala Investment, filed for foreclosure of mortgage.

ISSUE:

• W/N a contract of loan is a consensual contract

HELD:

A loan contract is not a consensual contract but a real contract. It is perfected upon delivery of the object of the contract. Although a perfected consensual contract can give rise to an action for damages, it does not constitute a real contract which requires delivery for perfection. A perfected real contract gives rise only to obligations on the part of the borrower.

In the present case, the loan contract was only perfected on the date of the second release of the loan.

A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other. It is a basic principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in.

DECISION:

The payment of amortization should accrue from the time BPIIC released the loan amount to ALS and Litonjua because it was only at that time (the delivery of the amount -- the object of the contract) that the loan contract was perfected.

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Benguet Management v. CA

G.R. No. 153571, September 18, 2003

• Credit Transactions: Real Estate Mortgage
• Extra-judicial Foreclosure
• Venue of Action

FACTS:

Benguet Management Corporation (BMC) and Keppel Bank Philippines Inc. (KBPI) entered into a Loan Agreement and Mortgage Trust Indenture. For the consideration of Php 190M, BMC mortgaged its properties located in Alaminos, Laguna and Iba, Zambales.

BMC defaulted so KBPI filed an application for extra-judicial foreclosure of real estate mortgage first with the Office of the Clerk of Court of the Regional Trial Court in Iba and later with the Office of the Clerk of Court of the Regional Trial Court in San Pablo City.

BMC contended that the application should be denied on grounds of wrong remedy and forum-shopping.

The trial court granted the foreclosure proceedings.

ISSUES:

• W/N KBPI violated the rule against forum-shopping in filing applications for extra-judicial foreclosure of real estate mortgage with both the RTCs in Iba and San Pablo City

HELD:

Under the Procedure for Extra-Judicial Foreclosure of Mortgage, an extra-judicial foreclosure covering several properties located in different provinces but covering only one indebtedness requires the applicant to pay only one filing fee. This is regardless of the number of properties to be foreclosed. However, the venue of the extra-judicial foreclosure proceedings is the place where each of the mortgaged property is located.

The rationale of this rule is that an injunction order of the court is enforceable only within its territorial limits. Therefore, those properties subject to the same mortgage but are located in different provinces are outside the jurisdiction of the trial court. The remedy of the law is to allow the applicant to file separate injunction suits with another court which has jurisdiction over the latter properties.

BMC is not guilty of forum-shopping because the remedy provided by law is precisely to file separate injunction suits.

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Mayer Steel Pipe vs. CA

273 SCRA 432 (1997)

• INSURANCE LAW: Contract of Insurance

FACTS:

Hong Kong Government Supplies Department contracted Mayer Steel Pipe Corporation to manufacture and supply various steel pipes and fittings. Prior to the shipping, Mayer insured these pipes and fittings against all risks with South Sea Surety and Insurance Co., Inc. and Charter Insurance Corp., with Industrial Inspection Inc. appointed as third-party inspector.

After examining the pipes and fittings, Industrial Inspection certified that they are in good order condition. However, when the goods reached Hong Kong, it was discovered that a substantial portion thereof was damaged.

The trial court found in favor of the insured. However, when the case was elevated to the CA, it set aside the decision of the trial court and dismissed the complaint on the ground of prescription. It held that the action was barred under Sec. 3(6) of the Carriage of Goods by Sea Act (COGSA) since it was filed only on April 17, 1986, more than two years from the time the goods were unloaded from the vessel.

ISSUE:

• Whether or not the action is barred by prescription

HELD:

Sec. 3(6) of the COGSA states that the carrier and the ship shall be discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when they should have been delivered. Under this provision, only the carrier’s liability is extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished because the insurer’s liability is based not on the contract of carriage but on the contract of insurance.

An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril. An “all risks” insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured. Thus, when private respondents issued the “all risks” policies to Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code.

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Great Pacific Life vs. CA

316 SCRA 677 (1999)

• INSURANCE LAW: Parties in Insurance Contract

FACTS:

Great Pacific Life Assurance Corporation (Grepalife) executed a contract of group life insurance with Development Bank of the Philippines (DBP) wherein Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.

One such loan mortgagor is Dr. Wilfredo Leuterio. In an application form, Dr. Leuterio answered questions concerning his test, attesting among others that he does not have any heart conditions and that he is in good health to the best of his knowledge.

However, after about a year, Dr. Leuterio died due to “massive cerebral hemorrhage.” When DBP submitted a death claim to Grepalife, the latter denied the claim, alleging that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.

Hence, the widow of the late Dr. Leuterio filed a complaint against Grepalife for “Specific Performance with Damages.” Both the trial court and the Court of Appeals found in favor of the widow and ordered Grepalife to pay DBP.

ISSUE:

• Whether the CA erred in holding Grepalife liable to DBP as beneficiary in a group life insurance contract from a complaint filed by the widow of the decedent/mortgagor

HELD:

The rationale of a group of insurance policy of mortgagors, otherwise known as the “mortgage redemption insurance,” is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death, the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund. Such loss-payable clause does not make the mortgagee a party to the contract.

The insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person, such as a mortgagee.

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover it whatever the insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

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FAQs on International Copyright Laws

1. What are the applicable laws?

The two main international laws that govern the use and distribution of copyright are the Berne Convention and TRIPS Agreement. There is also the WIPO Internet Treaty which specifically applies to copyrights in the Internet.

2. What works are protected under international copyright laws?

Copyright is intellectual property that includes all literary, scientific and artistic works no matter the mode or form of expression – that is, original intellectual creations in the literary, scientific and artistic domain. Under Art. 2(7), Berne Convention, copyright shall include in particular:

(1) books, pamphlets and other writings;

(2) lectures, addresses, sermons and other works of the same nature;

(3) dramatic or dramatico-musical works;

(4) choreographic works and entertainments in dumb show;

(5) musical compositions with or without words;

(6) cinematographic works to which are assimilated works expressed by a process analogous to cinematography;

(7) works of drawing, painting, architecture, sculpture, engraving and lithography;

(8) photographic works to which are assimilated works expressed by a process analogous to photography;

(9) works of applied art;

Art. 2(7), Berne Convention: Subject to the provisions of Article 7(4) of this Convention, it shall be a matter for legislation in the countries of the Union to determine the extent of the application of their laws to works of applied art and industrial designs and models, as well as the conditions under which such works, designs and models shall be protected. Works protected in the country of origin solely as designs and models shall be entitled in another country of the Union only to such special protection as is granted in that country to designs and models; however, if no such special protection is granted in that country, such works shall be protected as artistic work.

(10) illustrations, maps, plans, sketches and three-dimensional works relative to geography, topography, architecture or science.

(11) Computer programs

Art. 10, TRIPS: 1. Computer programs, whether in source or object code, shall be protected as literary works under the Berne Convention. (1971)

*NOTE: This list is not exhaustive. The national laws of countries must be considered as well customs and traditions of the specific locality.

3. Should the work be original for it to be copyrightable?

The general rule is that the work must be ORIGINAL in order to be qualified for copyright protection.

EXCEPTIONS:

(1) Derivative Works – e.g. dramatizations, translations, adaptations, abridgments, arrangements, and other alterations of literary or artistic works

Art. 2(3), Berne Convention: Translations, adaptations, arrangements of music and other alterations of a literary or artistic work shall be protected as original works without prejudice to the copyright of the original work.

Art. 2(5), Berne Convention: Collections of literary or artistic works such as encyclopaedias and anthologies which, by reason of the selection and arrangement of their contents, constitute intellectual creations shall be protected as such, without prejudice to the copyright in each of the works forming part of such collections.

(2) Compilations – collections of literary, scholarly or artistic works, and compilations of data and other materials which are original by reason of the selection or coordination or arrangement of their contents (Art. 2, TRIPS)
4. When is a work considered eligible for copyright? When can one say that a work is copyrightable?

An original work is copyrightable by the mere fact of its creation. From the moment it is created, it is already protected by copyright. Registration of the work in an intellectual property office is NOT REQUIRED. Copyright must be distinguished from Patents and Trademarks where registration is a prerequisite in order for the patent or trademark owner to enjoy the protection afforded by the law.

Art. 5(2), Berne Convention: The enjoyment of these rights shall not be subject to any formality; such enjoyment and such exercise shall be independent of the existence of protection in the country of origin of the work.

5. What are the different rights of a copyright owner?

These are:

(1) Economic rights – i.e. reproduction, transformation (dramatization, translation, etc.), FIRST public distribution, rental, public display, public performance, other communication to the public of the work (including Internet and webcasting; see WIPO Internet Treaty), distribution

(2) Moral rights – i.e. attribution, alteration, the right to object to any modification of the work, and the right to claim ownership

(3) Rights to proceeds in subsequent transfers

Art. 14, Berne Convention: “Droit de suite” in Works of Art and Manuscripts: (1) The author, or after his death the persons or institutions authorized by national legislation, shall, with respect to original works of art and original manuscripts of writers and composers, enjoy the inalienable right to an interest in any sale of the work subsequent to the first transfer by the author of the work. (2) The protection provided by the preceding paragraph may be claimed in a country of the Union only if legislation in the country to which the author belongs so permits, and to the extent permitted by the country where this protection is claimed. (3) The procedure for collection and the amounts shall be matters for determination by national legislation.

(4) Ownership right – As a general rule, the author of the work is the owner of the copyright (this is a legal presumption) but there are cases where joint ownership may arise out of agreement between parties. The rule may also be different as regards employee’s works (if the creation of the work is part of the employee’s regular duties, then copyright of the work is attributed to the employer) or as regards independent contractors (where there is no employer-employee relationship, the creator is the owner).

(5) Right to assign copyright – this is inherent in ownership of property (the right to own includes the right to freely dispose or assign such right)

6. What are the different rights of a copyright user?

These rights are more commonly referred to as “fair use.” They are also considered as the limitations on copyright. Both the Berne Convention and TRIPS Agreement adopted a liberal policy on the limitations of copyright that countries should impose. In other words, the limitations are a matter of legislation in countries to determine the conditions for FAIR USE of copyright.

Art. 9(2), Berne Convention: It shall be a matter for legislation in the countries of the Union to permit the reproduction of works in certain special cases, provided that such reproduction does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author. Art. 13, TRIPS: Members shall confine limitations or exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.

However, some guidelines have been laid down:

(1) PERFORMANCE: the work must have been lawfully made accessible to the public and the use must only be made in private and free of charge

(2) QUOTATIONS: the work must have been lawfully made accessible to the public; the source and name of author must be named (Art. 10(1), Berne Convention)

(3) REPRODUCTION OF NEWS, etc.: if only for information purposes with source clearly indicated (Art. 10bis(1), Berne Convention)

(4) INCLUSION BY WAY OF ILLUSTRATION: for teaching purposes with source and name of author clearly indicated (Art. 10(2), Berne Convention)

(5) CRITICISM, COMMENT, NEWS REPORTING, TEACHING, SCHOLARSHIP, RESEARCH

7. What are the factors to be considered in order to determine if the use made of a work in any particular case is fair use?

The factors are:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work


8. How long can a work be protected by copyright?

Under Art. 7(1), Berne Convention and Art. 12, TRIPS, the term of protection is the life of the author and fifty years after his death. Note that there are qualifications to the term of protection, depending on the type of ownership (whether it is joint or sole) as well as the nature of the copyrighted work.

9. What are the remedies available to a copyright owner against copyright infringers?

Copyright infringement is a criminal offense. National legislation should be considered in determining the penalties and fines to be meted out. The copyright owner shall also have the right to apply for a “cease and desist” order from the proper court or office as well as seizure of copyright infringement goods.

10. In case of copyright infringement over international borders, where may the copyright owner file his case – in his country or the country where the crime was committed?

Since copyright infringement is a criminal offense, then the Doctrine of Territoriality of Criminal Law should generally apply. That means that jurisdiction over the subject matter should generally pertain to the country where the crime was committed, without prejudice to any contrary provision in international treaties or conventions to which the country is a signatory.

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Acme Shoe, Rubber and Plastic Corporation v. CA

G.R. No. 103576, Aug. 22, 1996

• Contracts of Security: Chattel Mortgage
• The rule on after-incurred obligations
• Is a corporation entitled to moral damages?

FACTS:

Chua Pac, president and general manager of Acme Shoe, Rubber and Plastic Corporation, executed a chattel mortgage in favor of Producers Bank of the Philippines, as a security for a corporate loan in the amount of P3M. The chattel mortgage contained a clause that provided for the mortgage to stand as security for all other obligations contracted before, during and after the constitution of the mortgage.

The P3M was paid. Subsequently, the corporation obtained additional financial accommodations totalling P2.7M. This was also paid on the due date. Again, the bank extended another loan to the corporation in the amount of P1M, covered by four promissory notes. However, the corporation was unable to pay this at maturity. Thereupon, the bank applied for an extra-judicial foreclosure of mortgage.

For its part, the corporation filed an action for injunction with prayer for damages. The lower court ultimately dismissed the case and ordered the extra-judicial foreclosure of mortgage. Hence, this appeal.

ISSUEs:

• W/N extra-judicial foreclosure of the chattel mortgage is proper
• If not proper, W/N the corporation is entitled to damages as a result of the extra-judicial foreclosure

HELD:

Contracts of Security

Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or suretyship, the faithful performance of the obligation by the principal debtor is secured by the personal commitment of another (the guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property -- in pledge, the placing of movable property in the possession of the creditor; in chattel mortgage by the execution of the corresponding and substantially in teh form prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering the real property covered thereby; and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit -- upon the essential condition that if the obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the payment of the obligation, but that should the obligation be duly paid, then the contract is automatically extinguished proceeding from the accessory character of the agreement. As the law so puts it, once the obligation is complied with, then the contract of security becomes, ipso facto, null and void.

After-incurred Obligations

While a pledge, real estate mortgage, or antichresis may exceptionaly secure after-incurred obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covered the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the Chattel Mortgage Law. Refusal on the part of borrower to execute the agreement so as to cover the after-incurred obligation can constitute as an act of default on the part of the borrower of the financing agreement wherein the promise is written, but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed.

In the case at bar, the chattel mortgage was terminated when payment for the P3M loan was made so there was no chattel mortgage to even foreclose at the time the bank instituted the extra-judicial foreclosure.

Damages

In its complaint, the corporation asked for moral damages sustained "as a result of the unlawful action taken by the respondent bank against it." The court said --

"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills and sorrows and griefs of life -- all of which cannot be suffered by respondent bank as an artificial person.

"Although Chua Pac was included in the case, he was only so named as a party in representation of the corporation."

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Filipinas Compania de Seguros v. Christern Huenefeld

G.R. No. L-2294, May 25, 1951

• A corporation borrows its citizenship from the citizenship of majority of its stockholders, regardless of the country under whose laws it was organized and created.

FACTS:

Christern Huenefeld Corporation bought a fire insurance policy from Filipinas Compania de Seguros to cover merchandise contained in a building. During the Japanese military occupation, this same merchandise and the building were burned, so Huenefeld filed a claim under the policy.

Filipinas Compania refused to pay, alleging that the policy had ceased to be in force when the US declared war against Germany. Filipinas Compania contended that Huenefeld, although organized and created under Philippine laws, is a German subject, and hence, a public enemy, since majority of its stockholders are Germans. On the other hand, Filipinas Compania is under American jurisdiction.

However, the Director of Bureau of Financing, Philippine Executive Commission ordered Filipinas Compania to pay, so Filipinas Compania did pay. The case at bar is about the recovery of that sum paid.

ISSUES:

• W/N Christern Huenefeld is a German subject because majority of its stockholders are under German jurisdiction, despite the fact that it was organized and created under Philippine laws
• If so, W/N the fire insurance policy is enforceable against an enemy state

HELD:

The Court of Appeals ruled that a private corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected the theory that nationality of a private corporation is determined by the character or citizenship of its controlling stockholders.

But the Supreme Court held that Christern Huenefeld is an enemy corporation since majority of its stockholders are German subjects. The two American cases relied up by the Court of Appeals have lost their force in view of a newer case where the control test was adopted.

The Philippine Insurance Law provides that anyone, except a public enemy, may be insured. It stands to reason that an insurance policy ceases to be allowable as soon as the insured becomes a public enemy.

Since Christern Huenefeld became a public enemy on Dec. 10, 1941, then the policy has ceased to be enforcible and therefore Huenefeld is not entitled to indemnity. However, elementary rules of justice require that the premium paid from Dec. 11, 1941 should be returned.

Thus, Filipinas Compania is allowed to recover the sum paid but only its equivalent in actual Philippine currency, minus the premium that Huenefeld paid after Dec. 11.

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Rizal Surety vs. CA

336 SCRA 12 (2000)

• INSURANCE LAW: Interpretation of Insurance Contracts

FACTS:

Rizal Surety & Insurance Company issued a fire insurance policy in favor of Transworld Knitting Mills, Inc. The subject policy stated that Rizal Surety is “responsible in case of loss whilst contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situated within own Compound xxx.” The policy also described therein the four-span building covered by the same.

On Jan. 12, 1981, fire broke out in the compound, razing the middle portion of its four-span building and partly gutting the left and right sections thereof. A two-storey building (behind said four-span building) was also destroyed by the fire.

ISSUE:

• Whether or not Rizal Surety is liable for loss of the two-storey building considering that the fire insurance policy sued upon covered only the contents of the four-span building

HELD:

Both the trial court and the CA found that the so-called “annex” as not an annex building but an integral and inseparable part of the four-span building described in the policy and consequently, the machines and spare parts stored therein were covered by the fire insurance in dispute.

So also, considering that the two-storey building aforementioned was already existing when subject fire insurance policy contract was entered into on Jan. 12, 1981, having been constructed some time in 1978, petitioner should have specifically excluded the said two-storey building from the coverage of the fire insurance if minded to exclude the same but if did not, and instead, went on to provide that such fire insurance policy covers the products, raw materials and supplies stored within the premises of Transworld which was an integral part of the four-span building occupied by Transworld, knowing fully well the existence of such building adjoining and intercommunicating with the right section of the four-span building.

Also, in case of doubt in the stipulation as to the coverage of the fire insurance policy, under Art. 1377 of the New Civil Code, the doubt should be resolved against the Rizal Surety, whose layer or managers drafted the fire insurance policy contract under scrutiny.

In Landicho vs. Government Service Insurance System, the Court ruled that “the terms in an insurance policy, which are ambiguous, equivocal or uncertain x x x are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved, and the reason for this is that the insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.”

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