FINAL BAR REVIEW NOTES

WEEK 3: MERCANTILE LAW

PART I – INTELLECTUAL PROPERTY LAW

 Intellectual property rights – Intangible rights granted by law to owners of intellectual creations
such as inventions, designs, signs, and names used in commerce, and literary and artistic works.
There is no definition of intellectual property in law.

 Intellectual Property Rights under the R.A. 8293, the Intellectual Property Code:

1. Copyright and related rights;

2. Trademarks and service marks;
3. Geographical indications;
4. Industrial designs;
5. Patents
6. Utility models
7. Layout designs of integrated circuits
8. Protection of undisclosed information

 2019 Bar Question: KLM Printers, Inc. operated a small outlet laced at the ground floor of a
university building in Quezon City. It possessed soft copies of certain textbooks on file, and would
print “book-alikes” of these textbooks (or in other words, reproduced the entire textbooks) upon
order and for a fee. It would even display samples of such “book-alikes” in its stall for sale to the
public.

Upon learning of KLM Printers, Inc. ’s activities, the authors of the textbooks filed a suit against it
for copyright infringement. In its defense, KLM Printers, Inc. invoked the doctrine of fair use,
contending that the “book-alikes” are being used for educational purposes by those who avail of
them.

(a) What is the doctrine of fair use?

(b) Is KLM Printers, Inc.’s invocation of the doctrine of fair use proper in this case? Explain.

 2019 Bar Question: X Pharmaceuticals, Inc. has been manufacturing the antibiotic ointment
Marvelopis, which is covered by a patent expiring in the year 2020. In January 2019, the
company filed an application for a new patent for Disilopis, which, although constituting the same
substance as Marvelopis, is no longer treated as an antibiotic but is targeted and marketed for a
new use, i.e., skin whitening.

(a) What are the three requisites of patentability under the IPC?

(b) Should X Pharmaceuticals, Inc.’s patent application for Disilopis be granted? Explain.

 2019 Bar Question: In 2005, W Hotels, Inc., a multinational corporation engaged in the hospitality
business, applied for and was able to register its trademark “W” with the IPO in connection with
hotels found in different parts of the world.

In 2009, a Filipino Corpration, RST Corp., filed before the IPO a petition for cancellation of W
Hotels Inc.’s “W” trademark on the ground of non-use, claiming that W Hotels, Inc. failed t use its
 mark in the Philippines because it is not operating ay hotel in the country which bears the “W”
trademark.

In its defense, W Hotels, Inc. maintained that it has used its “W” trademark in Philippine
commerce, pointing out that while it did not have any hotel establishment in the Philippines, it
should still be considered as conducting its business herein because its hotel reservation
services, albeit for its hotels abroad, are made accessible to Philippine residents through its
interactive websites prominently displaying the “W” trademark. W Hotels, Inc. also presented
proof of actual booking transactions made by Philippine residents through such websites.

Is W Hotels, Inc.’s defense against the petition for cancellation of trademark tenable? Explain.

 Article 14, Section 13 of the 1987 Constitution provides for the protection for intellectual property,
to wit: The state shall protect and secure exclusive rights of scientists, inventors, artists, and other
gifted citizens to their intellectual property and creations, particularly when beneficial to the
people, for such period as may be provided for by law. (SOCIAL JUSTICE)

 Characteristics of the constitutional protection for IP:

1. Exclusive Rights
2. Limited in Scope and Space
a. Exceptions and limitations (public domain)
b. Territory

 General Rule: Free competition; Exception: Public domain

 Intellectual property, being property rights, may be assigned or licensed to others, and it may be
trespassed upon (infringement).

 Amendments to R.A. 8293:

1. R.A. 9502 – Universally Accessible Cheaper and Quality Medicines Act of 2008. (High
chance of being asked in Bar 2021)
a. Compulsory Licensing on the manufacture of patented medicine;
b. Compulsory Licensing on the importation of medicine protected by patent or
trademarks
c. Non-patentability of second use of known substances unless there is enhanced
efficacy

2. R.A. 10372 on Copyrights (2013)

a. Retransmission of broadcast is made a right (reversing ABS-CBN v. Phil. media,
2009)
b. Vicarious liability including landlord liability;
c. Providing as aggravating circumstances the following:
 Circumvention of effective technological protection measures; and
 Electronic rights management information (removal of copyright
information)

 The IPC, under its declaration of state policy, reaffirms the protection for the exclusive IP rights
provided for by the Constitution. It further establishes that the use of intellectual property bears a
social function, as the same contributes to the common good.

 Intellectual Property protection is merely a means towards the end of making society benefit from
the creation of its men and women of talent and genius. This is why products of ingenuity
 concealed from the public are outside the pale of protection afforded by the law (ABS-CBN vs.
Philippine Media).

 Trademarks, copyright, and patents are different IP rights that cannot be interchanged. A
trademark is any visible sign capable of distinguishing the goods or services of an enterprise and
shall include a stamped or marked container of goods. In relation thereto, a trade name means
the name or designation identifying or distinguishing an enterprise. Meanwhile, the scope of
copyright is confined to literary and artistic works which are original intellectual creations in the
literary and artistic domain protected from the moment of their creation. Patentable inventions on
the other hand, refer to any technical solution to a problem in any field of human activity which is
new, involves an inventive step, and is industrially applicable (Kho v. CA).

 Where what was registered as trademark was the drawing (design), and not the manufacturing of
the product itself (poster ad lightboxes), there can be no infringement (in this case, P&D created
the lightboxes, but subcontracted the manufacturing to another company. SM was sued when it
bought from the manufacturer instead of P&D). Being a technical product, P&D should have
secured a patent for the industrial manufacturing of the lightboxes instead (Pearl & Dean v.
Shoemart, 2003). (Concept vs. expression)

 Distinctions:

 Subject Matter of protection:

1. Patent - A technical solution to a problem which is new, involves an inventive step, and is
industrially applicable.
2. Copyright – Literary or artistic works and their expression.
3. Trademark and Service Mark – A visible sign capable of distinguishing goods or services;
brand

 Office where right is registered:

1. Patent – IPO (required for protection)

2. Copyright – IPO (not a requisite for protection)
3. Trademark and Service Mark – Bureau of Trademarks, IPO

 Duration of Right:

1. Patent – 20 years from filing of priority date.

2. Copyright – Generally, lifetime of author + 50 years.
3. Trademark and Service Mark – 10 years, indefinitely renewable

 International Regime of IP Rights

1. Berne Convention (WIPO)

2. Paris Convention (WIPO)
3. Patent Cooperation Treaty (WIPO)
4. Madrid Protocol (WIPO)
5. TRIPs Agreement (WTO)
6. Marrakesh Treaty to Facilitate Access to Published Works for Persons who are Blind,
Visually Impaired

 Intellectual and industrial property rights cases are not simple property cases. For this reason, all
agreements concerning industrial property, like those of trademarks and trade names are
intimately connected with economic development. The IP Code declares that an effective
intellectual and industrial property system is vital to the development of domestic and creative
 activity, facilitates transfer of technology, etc. The WTO is a common institutional framework for
the conduct of trade relations among its members in matters related to the multilateral and
plurilateral trade agreements annexed to the WTO Agreement, among those of which is TRIPS
(Mirpuri v. CA, 1999).

 The Berne Convention for the Protection of Literary and Artistic Works (1971)

 Basic Principles:

1. National Treatment
2. Automatic Protection
3. Independence of Protection (copyright is territorial)

 The Paris Convention on the Protection of Industrial Property (1967) (patents, trademarks,
industrial design, etc.)

 Basic Principles:

1. National Treatment
2. Right of Priority (date of filing, even when applied for internationally)
3. Common Rules (minimum standards)

 Trade-Related Aspects of Intellectual Property Agreement (TRIPs)

 Annex C to the General Agreement on Tariffs and Trade or GATT.

 Basic Principles:

1. National Treatment
2. Most-Favoured-Nation Treatment

 3 Main Sets of Provisions:

1. Minimum Standards: Berne-Plus and Paris-Plus

2. Enforcement: Inaudita Altera Parte (without the other party being heard); Border
enforcement
3. Dispute Settlement: WTO Procedures

 Patent Cooperation Treaty (PCT)

 A filing system. A PCT application has the effect of automatically designating all Contracting
States bound by the PCT on the international filing date, as if a national patent application had
been filed with the national patent office of that member State.

 Advantages:

1. Brings the world within reach;

2. Provides a strong basis – through ISR – for patenting decisions;
3. Postpones (by 18 months) the major costs associated with international patent protection.

 Madrid Protocol for the International Registration of Marks

1. Filing one application with the International Bureau (through office of the home country);
2. In one language (English, French, or Spanish);
3. And paying one set of fees.
 Includes maintenance, renewals, amendments, and assignments.

 In 2012, the Philippines acceded to the Madrid Protocol through mere ratification by the
President. The IPAP petitioned SC to declare the accession unconstitutional because it was not
concurred upon by the Senate. The Supreme Court ruled that the President’s ratification is
constitutional, because the DFA declared that the Madrid Protocol was not a treaty that needs the
concurrence of Senate. (IPAP v. Executive Secretary).

 The Marrakesh VIP (Visually impaired persons) Treaty:

1. Facilitates access to published works by visually impaired persons and persons with print
disabilities.
2. It was signed in Marrakesh on June 27, 2013, and came into force in September 30,
2016.

 The treaty allows for copyright exceptions to facilitate the creation of accessible versions of books
and other copyrighted works for visually impaired persons.

 Accessible Format Copy – A copy of work in an alternative manner or form which gives a
beneficiary person access to the work, as feasibly and comfortably as a person without visual
impairment or other print disability.

 Accessible formats:

1. Large prints for people with low vision;

2. Braille for those with total loss of sight; and
3. Audio information

 The Intellectual Property Code, as amended by R.A. 10372, has provided for this accessibility
requirement through Section 184.1(l), which provides: “The reproduction or distribution of
published articles or materials in a specialized format exclusively for the use of the blind, visually
and reading-impaired persons: Provided, That such copies and distribution shall be made on a
nonprofit basis and shall indicate the copyright owner and the date of original publication.”

 PATENTS

 Basic Patent Principles:

1. Territoriality – Patents are only valid in the country or region in which they have been
granted;

2. First-to-File Rule – Applicant who files first will get the patent;

3. Disclosure – Applicant shall disclose the invention in a manner sufficiently clear and
complete

a. Quid pro quo principle – Protection in exchange for disclosure

4. Conditional – Patents are granted only upon compliance with the criteria of patentability.

5. Limited Rights:

a. Territorial application
b. Scope: As to what is claimed only
 c. Time: 20 years from date of application. Non-extendible. OR lapse of period
without paying annuities after the first five years

 Section 21 – Any technical solution to a problem in any field of human activity which is new,
involves an inventive step, and is industrially applicable. It may be, or may relate to, a product, or
process, or an improvement to any of the following.

 A technical solution to a problem in any field of human activity – Problem-solution approach.

 Products, process, or improvements thereon – Inventions, devices, food, medicine,

microorganisms, etc.

 Non-Patentable Inventions (Section 22):

1. Discoveries (nature is not patentable);

2. Scientific theories;
3. Mathematical methods;
4. Schemes, rules, and methods of performing mental acts;
5. Methods for treatment of the human or animal body by surgery or therapy and diagnostic
methods practiced on the human and animal body;
6. Plant varieties or animal breeds, or essentially biological processes for the production of
plants and animals (except those covered by the Plant Varieties Protection Act);
7. Aesthetic creations (not technical solutions; industrial design);
8. Contrary to public order or morality

 Requirements for Patentability:

1. Novelty – An invention shall not be considered new if it forms part of a prior art. Prior art
includes everything which is made available to the public anywhere in the world before
the filing date or the priority date of the application. It may also refer to the whole contents
of an application for a patent, utility model, or industrial design registration properly filed
and published under the IPC.

2. Inventive Step – An invention involves an inventive step if, having regard to prior art, it is
not obvious to a person skilled in the art at the time of the filing date or priority date of the
application claiming the invention.

3. Industrial Application – An invention that can be produced and used in any industry shall
be industrially applicable.

 The defense of lack of novelty, i.e. anticipation, can only be established by a single prior art
reference which discloses each and every element of the claimed invention (Structural Rubber
Products Co. v. Park Rubber Co.).

 Non-Prejudicial Disclosure – Self-publishing or disclosure of inventions in a journal in public

prevents the applicant from filing a patent. Exception: If the person already disclosed or
published, a patent application may still be filed within 12 months from the date of such disclosure
or publication.

 Ownership of Patents – The Right to a patent belongs to the inventor, his heirs, or assigns. When
two or more persons have jointly made the invention, the right to a patent shall belong to them
jointly (Section 28).

 First-to-File Rule (Section 29) – If two or more persons have made the invention separately and
independently of each other, the right to the patent shall belong to the person who filed a patent
 application for each invention. Where two or more applications are filed for the same invention,
the applicant who has the earliest filing date, or the earliest priority date becomes the patent
holder.

 Inventions created pursuant to a contract: General Rule: The person who commissions the work
shall own the patent, unless otherwise provided in the contract.

 If the invention is made by the employee in the course of his employment contract, the patent
shall belong to (Section 30):

1. The employee, if the inventive activity is not part of his regular duties even if the
employee uses the time, facilities, and materials of the employer;
2. The employer, if the invention is the result of the performance of his regularly-assigned
duties, unless there is an agreement, express or implied, to the contrary.

 Mandatory publication of the patent in the IPO Gazette should be made upon the expiration of 18
months from the filing date or priority date. After publication of a patent application, any interested
party may inspect the application documents filed with the office.

 Term of a patent – 20 years from filing date.

 Cancellation of patents: Grounds:

1. That what is claimed as the invention is not new or patentable;

2. That the patent does not disclose the invention in a manner sufficiently clear and
complete for it to be carried out by any person skilled in the art; or
3. That the patent is contrary to public order or morality.

 Remedy of the true and actual inventor – If a person who was deprived of the patent without his
consent or through fraud is declared by final court order or decision to be the true and actual
inventor, the court shall order for his substitution as patentee, or at the option of such true
inventor, cancel the patent, and award actual and other damages in his favor if warranted by the
circumstances (Section 68).

 When the language of its claims is clear and distinct, the patentee is bound thereby and may not
claim anything beyond them. And so are the courts bund which may not add to or detract frm the
claims matters not expressed or necessarily implied, nor may they enlarge the patent beyond the
scope of that which the inventor claimed (Smith Kline Beckman v. CA, 2003).

 Limitations of Patent Rights – The owner of a patent has no right to prevent third parties from
performing, without his authorization the following acts:

1. Using a patented product which has been put on the market in the Philippines by the
owner of the product, or with his express consent;

2. Where the act is done privately and on a non-commercial scale for a non-commercial
purpose;

3. Where the act consists of making or using exclusively for the purpose of experiments that
relate t the subject matter of the patented invention;

4. In case of drugs and medicines, where the act is solely for purposes reasonably related
to the development and submission of information and issuance of approvals by
government regulatory agencies;
 5. Where the act consists of the preparation for individual cases, in a pharmacy or by a
medical professional, of medicine;

6. Where the invention is used in any ship, vessel, aircraft, or land vehicle of any other
country entering the territory;

7. Any prior user, who in good faith was using the invention or has undertaken serious
preparations to use the invention in his enterprise or business, before the filing date or
priority date of the application on which a patent is ranted, shall have the right to continue
the use thereof as envisaged in such preparations within the territory where the patent
produces its effect;

The right of the prior user may only be transferred or assigned together with his
enterprise or business, or with that part of his enterprise or business in which the use or
preparations for use have been made.

8. Use by the government (Section 74.1) – A government agency or third person authorized
by the government may exploit the invention even without agreement of the patent owner
where:

a. The public interest, in particular, national security, nutrition, health, or the

development of other sectors, as determined by the appropriate agency of the
government, so require (COVID vaccines may fall under this exception); or

b. A judicial or administrative body has determined that the manner of exploitation,

by the owner of the patent or his licensee is anti-competitive.

c. In the case of drugs and medicines, there is a national emergency or other

circumstance of extreme urgency requiring the use of the invention; or

d. In the case of drugs and medicines, there is a public non-commercial use of the
patent by the patentee, without satisfactory reason; or

e. In the case of drugs and medicines, the demand for the patented article in the
Philippines is not being met to an adequate extent and on reasonable terms, as
determined by the Secretary of Health

 Grounds for Compulsory Licensing (Section 93): The Director of Legal Affairs may grant a license
to exploit a patented invention, even without the agreement of the patent owner, in favor of any
person who has shown his capability to exploit the invention, under any of the following
circumstances (the government does not need compulsory license):

1. National emergency or other circumstances of extreme urgency;

2. Where the public interest, in particular, national security, nutrition, health, or the
development of any other vital sectors of the national economy as determined by the
appropriate agency of the Government, so requires, or

3. Where a judicial or administrative body has determined that the manner of exploitation by
the owner of the patent or his license is anti-competitive;

4. In case of public non-commercial use of the patent by the patentee, without satisfactory
reason;
 5. If the patented invention is not being worked in the Philippines on a commercial scale,
although capable of being worked, without satisfactory reason: Provided, that the
importation of the patented article shall constitute working or using the patent.

 Rights of the Patent Holder:

1. In case of a product patent, exclusive right to restrain, prohibit, and prevent any
unauthorized person from making, using, offering for sale, selling, or importing the
product;

2. In case of a process patent, exclusive right to restrain, prohibit, and prevent any
unauthorized person from using the process, and from manufacturing, dealing in, using,
selling, or offering for sale or importing any product obtained directly or indirectly from
such process;

3. Right to assign or transfer by succession the patent, and to conclude licensing contracts
for the patent.

 Patent infringement – The making, using, offering for sale, selling, or importing a patented
product obtained directly or indirectly from a patented process or the use of a patented process
without the authorization of the patentee.

 Section 75.2 – For the purpose of determining the extent of protection conferred by the patent,
due account shall be taken of elements which are equivalent to the elements expressed in the
claims, so that a claim shall be considered to cover not only all the elements as expressed
therein, but also equivalents.

 Patents thus, may be infringed literally or by equivalents. For example:

1. Literal infringement exists if the accused device falls directly within the scope of properly
interpreted claims. There is literal infringement if the patent claim is on a biodegradable
composition made up of a (1) resin and a (2) soy protein, and the infringing product is
likewise a biodegradable composition comprising a mixture of a (1) resin and an (2)
elastomeric material and a soy protein.

2. On the other hand, if two devices do the same work in substantially the same way and
accomplish substantially the same result, then they are the same, even though they differ
in name, form or shape (Smith Kline v. CA, supra). For example, the patent claim is on a
biodegradable composition made up of a resin and a corn starch, whereas the infringing
product is made up of a resin and a potato starch. These components are equivalents,
albeit being literally different.

 Process patents: Reverse burden of proof – If the subject matter of a patent is a process for
obtaining a product, any identical product shall be presumed to have been obtained through the
use of the patented process if the product is new or there is substantial likelihood that the
identical product was made by the process and the owner of the patent has been unable despite
reasonable efforts, to determine the process actually used.

 Defenses in an action for infringement – The defendant, in addition to any defenses which may
be available to him, may show the invalidity of the patent, or any claim thereof, on any of the
grounds on which a petition for cancellation may be brought under Section 61.

 Criminal infringement (Section 84) – If the infringement is repeated by the infringer or anyone in
connivance with him after finality of the judgment of the court against the infringer, the offender
shall, without prejudice to the institution of a civil action for damages, be criminally liable therefor
 and, upon conviction, shall suffer imprisonment for the period of not less than 6 months but not
more than 3 years and/or a fine of not less than 100k but not more than 300k, at the discretion of
the court. The criminal action herein provided shall prescribe in three years from the date of the
commission of the crime. (there must have been final judgment in the first case of infringement)

 Section 85: Voluntary License Contract – To encourage the transfer and dissemination of
technology, prevent or control practices and conditions that may in particular cases constitute an
abuse of intellectual property rights having an adverse effect on free competition and trade, all
technology transfer arrangements shall comply with the provisions of this transfer.

 Technology transfer arrangement – Refers to contracts or agreements involving the transfer of

systematic knowledge for the manufacture of a product, the application of a process, or rendering
of a service including management contracts; and the transfer, assignment, or licensing of all
forms of intellectual property rights including licensing of computer software, except software
developed for mass market.

 Prohibited Clauses in Voluntary Licensing (deemed prima facie to have an adverse effect on
competition and trade):

1. 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;

2. 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;

3. Those that contain restrictions regarding the volume and structure of production;

4. Those that prohibit the use of competitive technologies in a non-exclusive technology

transfer agreement;

5. Those that establish a full or partial purchase option in favor of the licensor;

6. Those that obligate the licensee to transfer for free to the licensor the inventions or
improvements that may be obtained through the use of licensed technology;

7. Those that require payment of royalties to the owners of patents for patents which are not
used;

8. 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 products have already
been granted;

9. Those which restrict the use of technology supplied after the expiration of the technology
transfer arrangement due to reasons attributable to the licensee;

10. Those which require payments for patents and other industrial property rights after their
expiration;

11. Those which require that the technology recipient shall not contest the validity of any of
the patents of the technology supplier;

12. Those which restrict the research and development activities of the licensee designed t
absorb and adapt the transferred technology to local conditions or to initiate research and
development programs in connection with new products, processes, or equipment;
 13. 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;

14. Those which exempt the licensor for 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 f the licensed product or the licensed technology; or

15. Other causes with equivalent effects.

 Mandatory Provisions in Voluntary Licensing:

1. 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;

2. Continued access to improvements in techniques and processes related to the

technology shall be made available during the period of the technology transfer
agreement;

3. In the event the technology transfer arrangement shall provide for arbitration, the
Procedure for Arbitration of the Arbitration Law of the Philippines or the Arbitration Rules
of the United Nations Commission on International Trade Law (UNCITRAL) or the 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; and

4. The Philippine taxes on all payments relating t the technology transfer arrangement shall
be borne by the licensor.

 Exceptional cases (Section 91) – In exceptional or meritorious cases where substantial benefits
will accrue to the economy, exemption from any of the above requirements may be sought from
the Documentation, Information, and Technology Transfer Bureau of the IPO after evaluation
thereof on a case-by-case basis.

 Non-conformance with any of the provisions of Section 87 and 88 (prohibited and mandatory
provisions) will automatically render the technology transfer arrangement unenforceable, unless
said technology transfer arrangement is approved and registered with the Documentation,
Information, and Technology Transfer Bureau under Section 91.

 Utility models – Novelty and industrial applicability, but no inventive step necessary (Petty patent).
Only 7 years without extension or renewal. Same rights as patent invention. Mere registration is
required, no need for substantive examination.

 Industrial design – Any composition of lines or colors or any three-dimensional form, whether or
not associated with lines or colors, provided that such composition or form gives a special
appearance to and can serve as a pattern for an industrial product or handicraft. (mere
aesthetics, no protection for technical solutions). Term: 5 years, renewable twice.

 A patent is granted to provide rights and protection to the inventor after an invention is disclosed
to the public. It also seeks to restrain and prevent unauthorized persons from unjustly profiting off
a protected invention. However, ideas not covered by a patent are free for the public to use and
exploit. Thus, there are procedural rules on the application and grant of patents established to
protect against any infringement. To balance the public interests involved, failure to comply with
strict procedural rules will result in the failure to obtain a patent. In this case, Dupont was
 inexcusably negligent in the prosecution of its patent application; there was a correlative duty on
its part to be diligent in keeping itself updated on the progress of its patent application. Its failure
to be informed of the abandonment of its patent application was caused by its own lack of
prudence (E.I. Dupont v. IPO, 31 August 2016).

 Under the Dupont case, the SC outlined a three-fold purpose of the patent law:

1. Patent law seeks to foster and reward invention;

2. It promotes disclosures of inventions to stimulate further innovation and to permit the
public to practice the invention once the patent expires; and
3. The stringent requirements for patent protection seek to ensure that ideas in the public
domain remain here for the free use of the public.

 A patent is a monopoly granted only for specific purposes and objectives. Thus, its procedures
must be complied with to attain its social objective.

 Issue # 1: Can an injunctive relief be issued based on an action of patent infringement when the
patent allegedly infringed has already lapsed?

No.

The exclusive right to monopolize the subject matter of the patent exists only within the term of
the patent. It is clear from this provision of the law that the exclusive right of a patentee to make,
use, and sell a patented product, article or process exists only during the term of the patent.

Issue #2: Does the filing of separate patent infringement cases before the IPO and the RTC for
different patents constitute forum shopping?

Yes.

It is clear from the foregoing that the ultimate objective which respondents seek to achieve in their
separate complaints filed with the RTC and the IPO, is to ask for damages for the alleged
violation of their right to exclusively sell Sulbactam Ampicillin products and to permanently
prohibit or prevent petitioner from selling said products to any entity. Owing to the substantial
identity of the parties, reliefs and issues in the IPO and RTC cases, a decision in one will
necessarily amount to res judicata in the other action.

(Phil. PharmaWealtth v. Pfizer, 2010)

 Lexmark sells toner cartridges at a discount, on the condition that customers must sign a contract
agreeing to use the cartridge only once and to refrain from transferring the cartridge to anyone
other than Lexmark (return program). Impressions purchase empty cartridges from Mexico,
importing them back into the US, refill, and then resell them. The Supreme Court ruled that there
is no patent infringement, since Lexmark has already exhausted its right over the product after
selling the same, regardless of any contractual restrictions the patentee purports to impose
(Impressions v. Lexmark, US).

 Will the ruling be good law in the Philippines?

Yes, as to the fact that the return program, being a mere contractual imposition on the sale, has
no bearing on patent rights, but No as to the exhaustion issue.

Under the IPC, the patent owner has no right to prevent third parties from using a patented
product which has been put in the market in the Philippines by the patent holder. Thus, under this
case, if the products are imported, the patent holder in the Philippines still has a claim over his
patent rights thereto.
 TRADEMARKS

 2018 Bar Question:

A distinctive-tasting pastillas is well-known throughout the country as having been developed

within a close-knit women’s group in Barangay San Ysmael which is located along a very busy
national highway. Its popularity has encouraged the setting up of several shops selling similar
delicacies, with the most famous product being the pastillas of “Barangay San Ysmael.”
Eventually, the pastillas of Aling Yoling under the brand name “Ysmaellas” began to attract
national distinction. Aling Yoling therefore registered it as a copyright with the National Library.
Her neighbor, Aling Yasmin, realizing the commercial value of the brand, started using
“Ysmaellas” for her pastillas but used different colors. Aling Yasmin registered the brand name
“Ysmaellas” with the Intellectual Property Office.

(a) Can Aling Yoling successfully obtain court relief to prohibit Aling Yasmin from using the brand
name “Ysmaellas” in her products on the basis of her (Aling Yoling’s copyright)?

(b) Can Aling Yasmin seek injunctive relief against Aling Yoling from using the brand name
“Ysmaellas,” the latter relying on the doctrine of prior use as evidenced by her prior copyright
registration?

(c) Can Aling Yoling seek the cancellation of Aling Yasmin’s trademark registration of the brand
name “Ysmaellas” on the ground of “Well Known Brand” clearly evidenced by her (Aling
Yoling’s) prior copyright registration, actual use of the brand, and several magazine articles?

 Trademarks – A mark means any visible sign capable of distinguishing the goods (trademark) or
services (service mark) of an enterprise and shall include a stamped or marked container of
goods. The function of a trademark is to point out distinctly the origin or ownership of the goods to
which it is affixed; to secure to him, who has been instrumental in bringing into the market a
superior article of merchandise, the fruit of his industry and skill, as well as to ensure to the public
that they are purchasing the genuine article.

 Three functions of trademark law:

1. They indicate ownership of the articles to which they are attached;

2. They guarantee that those articles come up to a certain standard of quality; and
3. They advertise the articles they symbolize.

 Goodwill is no longer confined to the territory of market penetration; it extends to zones where the
marked article has been fixed in the public mind through advertising. Whether in print, broadcast,
or electronic communication, advertising has paved the way for growth and expansion of the
product by creating and earning a reputation that crosses borders (Mirpuri v. CA).

 Requirements:

1. Visible; and
2. Distinctive

 General rule: The more descriptive, the less protection is given. The more arbitrary or fanciful, the
more protection (e.g. Apple, Jaguar, are fanciful and arbitrary, because they have nothing to do
with the products they represent).

 A trademark device is susceptible to registration if it is crafted fancifully or arbitrarily and is

capable of identifying and distinguishing the goods of one manufacturer or seller from those of
 another. Apart from its commercial utility, the benchmark of trademark registrability is
distinctiveness (Great White Shark v. Caralde, Jr., 21 November, 2012).

 Types of Marks:

1. Trademarks vs. Service Marks

2. Collective Marks
a. Geographical Indications
b. Certification marks
3. Well known marks

 Collective marks – Any visible sign designated as such in the application for registration and
capable of distinguishing the origin or any other common characteristic, including the quality of
goods or services of different enterprises which use the sign under the control of the registered
owner of the collective mark. Example: Halal certification, certified leather, wool, textile, etc.

 Well-Known Marks (Article 6bis of the Paris Convention) – (1) The countries of the Union
undertake, ex officio if their legislation so permits, or at the request of an interested party, to
refuse or to cancel the registration, and t prohibit the use, of a trademark which constitutes a
reproduction, an imitation, or a translation, liable to create confusion, of a mark considered by the
competent authority of the country of registration or use to be well known in that country as being
already the mark of a person entitled to the benefits of this Convention and used for identical or
similar goods.

 Article 6bis is a self-executing provision, and does not require legislative enactment to give it
effect in the member country. It may be applied directly by the tribunals and officials of each
member country by the mere publication or proclamation of the convention, after its ratification
according to the public law of each state and the order for its execution. The power to determine
whether a trademark is well-known lies in the competent authority of the country of the country of
registration or use (Sehwani v. In-N-Out Burger, October 15, 2007).

 Criteria for Identifying Well-Known Marks:

1. The duration, extent, and geographical area of any use of the mark;
2. The market share, in the Philippines, and in other countries;
3. The degree of the inherent or acquired distinction of the mark;
4. The quality image or reputation acquired by the mark;
5. The extent to which the mark has been registered in the world;
6. The exclusivity of registration attained by the mark in the world;
7. The extent to which the mark has been used in the world;
8. The exclusivity of use attained by the mark in the world;
9. The commercial value attributed to the mark in the world;
10. The record of successful protection of the rights in the mark;
11. The outcome of litigations dealing with the issue of whether the mark is a well-known
mark; and
12. The presence or absence of identical or similar marks validly registered for or used on
identical or similar goods or services and owned by persons other than the person
claiming that his mark is a well-known mark.

 Since any combination of the criteria is sufficient to determine that a mark is well-known, it is
clearly not necessary that the mark be used in commerce in the Philippines. Thus, while under
the territoriality principle a mark must be used in the Philippines to be entitled to protection,
internationally well-known marks are the exceptions to this rule (Fredco v. Harvard, June 1,
2011).
 Rule 18, A.M. No. 10-3-10-SC – In determining whether a mark is well-known, account shall be
taken of the knowledge of the relevant sector of the public, rather than of the public at large,
including knowledge in the Philippines which has been obtained as a result of the promotion of
the mark.

 Non-Registrable Marks (Section 123):

1. Immoral, deceptive, or scandalous matters;

2. Matters which may disparage or falsely suggest a connection with persons, etc.;
3. Contrary to public order or morality;
4. Flags/coat of arms of nations;
5. Names, portraits, or signatures of living persons, except with their consent;
6. Names, portraits, or signatures of deceased Presidents of the Philippines, except with the
written consent of his/her living widow;
7. Identical or confusingly similar with existing registered or earlier filed application for
trademarks including well-known marks (first-to-file rule);
8. Misleading marks;
9. Generic terms signifying the designation of goods or services in everyday parlance;
10. Descriptive terms designating the kind, quality, purpose, geographical origin, etc.;
11. Color, by itself;
12. Shapes dictated by technical factors;

 Descriptive geographical terms are in the public domain in the sense that every seller should
have the right to inform customers of the geographical origin of his goods. A geographically
descriptive term is any noun or adjective that designates geographical location and would tend to
be regarded by buyers as descriptive of the geographical locations of the goods or services
(Shang Properties v. St. Francis, July 21, 2014).

 Under this case, the Supreme Court underlined the test to determine whether or not the
geographical term in question is descriptively used, to wit: Is the mark the name of the place or
region from which the goods actually came? If the answer is yes, then the geographic term is
probably used in a descriptive sense, and secondary meaning is required for protection.

 A mark cannot be registered if it is identical with, confusingly similar to, or constitutes a translation
of a mark which is considered by the competent authority of the Philippines to be well-known
internationally and in the Philippines, whether or not it is registered here, as being already the
mark of a person other than the applicant for registration, and used for identical or similar gods or
services.

 Doctrine of secondary meaning (Section 123.2) – As regards signs or devices mentioned in

paragraphs (j), (k), and (l), nothing shall prevent the registration of any such sign or device which
has become distinctive in relation to the goods for which registration is requested as a result of
the use that have been made of it in commerce in the Philippines. The Office may accept as
prima facie evidence that the mark has become distinctive, as used in connection with the
applicant’s goods or services in commerce, proof of substantially exclusive and continuous use
thereof by the applicant in commerce in the Philippines for five years before the date on which the
claim of distinctiveness is made. (substantial, continuous, and exclusive use)

 Ownership of Trademarks – The rights in a mark shall be acquired through registration made
validly in accordance with the provisions of the IPC. Notwithstanding, a registered mark shall
have no effect against any person who, in good faith, before the filing date or the priority date,
was using the park for the purposes of his business or enterprise.

1. Prior use is not a requirement, but there must be actual use after application.
2. Declaration of actual use – Within three years from filing the application.
 Term of protection – 10 years from registration; renewable for 10-year increments indefinitely,
provided a declaration of use is filed within one year from filing and from the 5th year of
registration.

 Two drugs: Zynapse (Generic name – Citicoline; indication – cerebrovascular disease or stroke;
registered September 2007) vs. Zynaps (Generic name – Carbamazepine; Indication – Anti-
convulsant, seizure disorders like epilepsy; registered April 2003). The marks are practically
identical and confusingly similar.

Natrapharm sued Zuneca for injunction, trademark infringement, damages, etc. with a prayer for
TRO and/or preliminary injunction, alleging that Zuneca’s ZYNAPS is confusingly similar to its
registered trademark ZYNAPSE, and that the resulting likelihood of confusion is dangerous
because the marks cover medical drugs intended for different types of illnesses. In its Answer,
Zuneca claimed that it had been selling carbamazepine under the mark ZYNAPS since 2004 after
securing a product registration therfor in 2003. In effect, Zuneca argues that as the prior users, it
had already owned the ZYNAPS mark prior to Natrapharm’s registration thereof.

In making its ruling, the Supreme Court set forth the legislative history of RA 8293 (IPC), stating
that as compliance with the TRIPS Agreement, the IPC no longer requires prior use of the mark
as a requirement for filing a trademark application. It also abandoned the rule that ownership of a
mark is acquired through use by now requiring registration of the mark in the IPO (Zuneca v.
Natrapharm, 8 September 2020, en banc, LEONEN dissenting). (Justices Leonen and Lazaro-
Javier dissented on the point of abandonment of use as ownership regime, owing to its continued
requirement of actual use under the IPC, and because of the prima facie nature of a certificate of
registration)

 ABS-CBN asserts that it has a vested right over the mark (METRO) because it has applied,
through its predecessor company, in 1994 for the registration of the same under the old
Trademark Law. Since then, it actually used the mark in commerce. The SC stated that while it is
quite noticeable that the petitioner failed to discuss the implications of its abandonment (despite
filing for registration, it did not file certificate of actual use), it remains a fact that once a trademark
is considered abandoned, the protection accorded by the IPC, or in this case the old Trademark
Law, is also abandoned. The petitioner cannot now come before the Court to cry foul if another
entity has, in the time that it has abandoned its trademark, registered its own (ABS-CBN
Publishing v. Director, Bureau of Trademarks, June 20, 2018).

 Rights of a Trademark Owner

1. Right to exclusive use of the mark in connection with one’s own goods or services
resulting in likelihood of confusion;

2. Right to prevent others from use of an identical mark for the same, similar, or related
goods or services.

 Trademark is territorial. Trademarks applied for in the Philippines do not apply abroad.
Exceptions:

1. Well-Known Marks
2. Bad Faith Registration

 Trademark Infringement – Unauthorized use of a registered trademark, or of a colorable imitation

of the same, for similar or related goods in which such use is likely to cause confusion or mistake,
or to deceive. Elements:
 1. Ownership of a trademark through registration;
2. That the trademark is reproduced, counterfeited, copied, or colorably imitated by another;
3. No consent by the trademark owner or assignee;
4. Used in connection with the sale, offering for sale, or advertising of any such goods,
business, or services or those related thereto;
5. Likelihood of confusion

 Colorable imitation denotes such a close or ingenious imitation as to be calculated to deceive

ordinary persons, or such a resemblance to the original as to deceive an ordinary purchaser
giving such attention as a purchaser usually gives, as to cause him to purchase the one,
supposing it to be the other.

 Likelihood of confusion – Actual confusion is not required; it is enough that it could likely cause
confusion in consumers. The particular, and sometimes peculiar circumstances of each case are
determinative of its existence, therefore in trademark infringement cases, precedents must be
evaluated in the light of each particular case (Prosource International vs. Horphag).

 Types of confusion:

1. As to the goods themselves; and

2. As to the source of origin of such goods.

 Wherein the gods of the parties but the defendant’s product can be reasonably assumed to
originate from the plaintiff thereby deceiving the public into believing that there is some
connection between plaintiff and defendant which, in fact, does not exist (Mighty Corporation v.
Gallo).

 Likelihood of confusion should be tested against the consumers making up the relevant market
of the product in question.

 Tests of confusion:

1. Dominancy Test – Examines the prevalent features of a mark;

2. Holistic Test – Considers the marks compared in their entirety

 Lee vs. Stylistic Mr. Lee – The Supreme Court in this case affirmed the latter’s contention that
there is no likelihood of confusion, owing to its use of the holistic test (Emerald v. CA, 1995). (The
SC has since moved away from using the holistic test since the advent of the IPC; nevertheless,
there has been no explicit proscription against using the same test)

 Idem Sonas Rule – Aural effects of the words and letters contained in the marks are also
considered in determining the issue of confusing similarity. Examples: Dermaline vs. Dermaline –
Dermaline, Inc. v. Myra Pharmaceuticals; Nanny vs. Nan – Nestle vs. Dy, Jr.

 Fair Use (Section 148): Use of Indications by Third Parties for Purposes Other than those for
which the Mark is Used – Registration of the mark shall not confer on the registered owner the
right to preclude third parties from using bona fide their names, addresses, pseudonyms, a
geographical name, or exact indications concerning the kind, quality, quantity, destination, value,
place of origin, or time of production or of supply, of their goods or services: Provided, that such
use is confined to the purposes of mere identification or information and cannot mislead the
public as to the source of the goods or services.
 St. Francis Towers and St. Francis Shangri-La Place are marks meant merely to identify, or at
least associate, their real estate projects with its geographical location (Shang Properties v. St.
Francis, supra).

 Trade Name Infringement – Same protections as for trademark, except registration is not a
requirement for ownership of trade name.

 Section 165.2(a), IPC – Notwithstanding any laws or regulations providing for any obligation to
register trade names, such names shall be protected, even prior to or without registration, against
any unlawful act committed by third parties.

 Petitioner’s trademark of SAN FRANCISCO COFFEE constitutes infringement of the

respondent’s trade name, even if the same is not registered with the IPO. All that is required is
that the trade name is previously used in trade or commerce in the Philippines (Coffee Partners,
Inc. v. San Francisco Coffee).

 Section 165.2(b), IPC – In particular, any subsequent use of the trade name by a third party,
whether as a trade name or a mark or collective mark, or any such use of a similar trade name or
mark, likely to mislead the public, shall be deemed unlawful.

 Unfair Competition (Section 168) – Premised on the right to protect one’s goodwill over his/her
products/services. Unfair competition refers to the passing off or attempting to pass off upon the
public the goods or business of one person as the goods or business of another with the end and
probable effect of deceiving the public (Superior Commercial Enterprises vs. Kunnan, 2010).

 Elements of unfair competition:

1. Confusingly similar to the general appearance of the goods;

2. Intent to deceive the public and defraud a creditor.

 Test to determine unfair competition – Whether the acts of the defendant have the intent of
deceiving or are calculated to deceive the ordinary buyer making his purchase under the ordinary
conditions of the particular trade to which the controversy relates.

 False Designation of Origin; False Description or Representation (Section 169) – Any person
who, on or in connection with any goods or services, or any container for goods, uses in
commerce any word, term, name, symbol, or device, or any combination thereof, or any false
designation of origin, false or misleading description of fact, which:

1. Is likely to cause confusion, or to cause mistake as to affiliation, connection, or

association of such person with another person; or

2. In commercial advertising or promotion misrepresents the nature of his/her or another’s

goods or services, shall be liable in a civil action for damages and injunction by any
person who believes that he or she is likely to be damaged by such act.

 Remedies and Jurisdiction:

1. Administrative action – IPO-Bureau of Legal Affairs, concurrent with RTC-Special

Commercial Courts;
2. Civil action – RTC-SCC concurrent with IPO-BLA
3. Criminal action – Exclusive to RTC-SCC
a. 2-5 years imprisonment
b. 50k-200k fine
 Actual damages – reasonable profit which the complaining party would have made, had the
defendant not infringed his rights; or the profit which the defendant actually made out of the
infringement. In the event that either cannot be readily ascertained with reasonable certainty, the
court may award as damages a reasonable percentage based on the gross sales of the
defendant or the value of services in connection with the mark or trade name in question.

 If intent to mislead the public or defraud the complainant is shown in evidence, the damages
awarded may be doubled.

 Damages can only be claimed if there is prior notice to the defendant that such imitating is likely
to cause confusion. Knowledge is presumed if the registrant gives notice that his mark is
registered.

 Limitations on actions for infringement:

1. Persons in good faith;

2. Infringer engaged solely in the business of printing the mark (innocent infringer);
3. Infringement contained in part of paid advertisement in periodicals;

 The only remedy against #2 is an injunction against further printing.

 The remedy against #3 is limited to injunction against future advertising, except that no injunction
can be made where it would delay the delivery of such issue in a timely manner in accordance
with the sound business practice of the publisher.

 Case Law Updates on Trademarks:

 Philips is a well-known mark, as declared by the SC, which is a competent authority. Applying the
dominancy test, the court ruled that there is confusing similarity between the marks of petitioner
PHILITES and respondent PHILIPS (Wilson Dy or Philites v. Koninklijke Philips, 22 March 2017).

 Use – means genuine, not merely token use; bona fide use which results or tends to result into a
commercial transaction. There was sufficient proof of actual use where the website showing
goods being sold or services being rendered used the mark prominently thereon (W Land
Holding, Inc. v. Starwood Hotels and Resorts, 4 December, 2017).

 IPF Filed an application to register the trademark OK HOTDOG INASAL under class 30 (flour and
preparations made from cereals); Mang Inasal opposed citing registration under class 45
(Services providing food and drink)

Ruling: While generally, there is no confusion where one describes a product, whereas the other
describes a service, it is obvious in this case that IFP copied the dominant feature INASAL of
Mang Inasal (the font size and color combinations are a copy). In this case, the services of IFP
and Mang Inasal are related to each other, thus the average buyer who comes across the snacks
marketed by IFP is likely to confuse the origin or source of the same.

The term INASAL per se is a descriptive term that cannot be appropriated. However, the
dominant element INASAL as stylized by the Mang Inasal brand, is a trademark thereof

(Mang Inasal v. IFP Manufacturing, 19 June, 2017).

 Puregold filed an application for COFFEE MATCH under class 30 (coffee, tea, cocoa, etc.)

Nestle opposed on the ground of confusing similarity to its registered COFFEE-MATE

 Ruling: The mark of Puregold is registrable. The SC ruled that the common dominant feature
COFFEE is a generic term mark that cannot be appropriated by either Nestle or Puregold. Given
this fact, applying the dominancy test to the remaining dominant feature (MATE vs. MATCH), it is
clear that there is an aural and visual difference between the two that can distinguish the two
products from each other.

(Society des Produits, Nestle, v. Puregold)

 Roberto owns a laundry business called LAVANDERA KO, claiming to have used the mark since
1994. His brother Fernando registered the mark with the IPO. Roberto filed an action in the RTC
for the cancellation of the registration, but the court dismissed the action, stating that neither have
the right over the name, as it was owned by Santiago Suarez, having composed it as a song in
1942. The RTC took cognizance of this fact through the Internet.

Ruling: Copyright should not be confused with trademark. The mark by Fernando and Robert is
used as a trade name since the business is a laundry shop, whereas the song by Suarez is
protected by copyright, which only covers artistic creations and their expressions.

(Juan vs. Juan, 23 August, 2017)

 Respondent opposed the registration sought by the petitioner.

Respondent’s argument: confusingly similar; prior right to use name; gives the impression that
petitioner belongs to the La Salle group.

Petitioner’s argument: respondent cannot claim the exclusive use owing to the ruling in the
Lyceum of the Philippines case in 1993 (that La Salle and Lyceum are generic terms for
educational institutions not susceptible of appropriation).

Ruling: There is confusing similarity. The test is whether the similarity is such as to mislead a
person using ordinary care and discrimination. The SC noted that not only are the names similar,
but so are the business the parties are engaged in. Furthermore, the Lyceum case cannot apply
here. Lyceum literally means school or institution. It is a generic term. On the other hand, De La
Salle means “the room”. Used in the context of an educational institution, it is clearly suggestive
or fanciful, thus subject to trademark protection.

(De La Salle Montessori International of Malolos, Inc. v. De La Salle University, 7 February,

2018).

 City Cash vs. Citibank. The SC ruled that, applying the dominancy test, this Court sees that the
prevalent feature of respondent’s mark, the golden lion’s head device, is not present at all in any
of the petitioner’s marks. The only similar feature between respondent’s mark petitioner’s
collection of marks is the word CITY in the former, and CITY prefixed in the latter. This similarity
alone is not enough to create a likelihood of confusion (Citigroup, Inc. v. Citystate Savings Bank,
13 June 2018, LEONEN).

 Product name vs. corporate name (Paper One and Paperone, respectively). There are two types
of confusion – product confusion, whereby an ordinarily prudent purchaser would be induced to
purchase one product in the belief that he was purchasing the other; and business confusion (or
source or origin confusion), where, although the gods of the parties are different, the product is
such as might reasonably be assumed to originate with the registrant of an earlier product. Thus
this case falls within the second type of confusion. A reasonable consumer might conclude that
Paper One products are products of Paperone, Inc., not to mention that the goods of both parties
are obviously related (Asia Pacific Resources v. Paperone, Inc., 10 December 2018).
 Taiwan Kolin – Appliances (cameras, vacuum cleaners, televisions, etc.); Kolin Electronics, Inc. –
Electronic supplies. These products do not belong to the same classification of goods under the
Nice classification, thus there is no confusion (power supplies, regulators, converters,
transformers, etc.) (Kolin v. Kolin, 25 March, 2015).

 Adopting the Kolin case ruling, the Supreme Court ruled that products may be dissimilar even if
they belong to the same class, as long as they fall under different subclasses. In this case, both
fall under Class 09, but Kensonic’s goods belong to the IT and audiovisual equipment subclass,
whereas Uni-Line’s gods belong to apparatus and devices for controlling the distribution of
electricity sub-class (Kensonic v. Uni-Line, 6 June, 2018).

 In this case, the SC recommended that courts stop adhering to the Nice classification of goods in
determining whether or not they are related, because in this particular case, while they fall under
different classifications, they are complementary products, in which case, it may nevertheless
cause confusion among purchasers (Kolin v. Kolin, 9 February, 2021, en banc) (This ruling did
not reverse the earlier Kolin case, because it had different rulings, but this has set precedent for
future jurisprudence) (this ruling however, put the final nail in the coffin for the holistic test, finally
abandoning the same as a means for determining likelihood of confusion)

 The SC is aware that countless products circulate around the market today which may be viewed
as strikingly similar and may being forth a likelihood of confusion to its target market.
Nevertheless, the decision in determining confusion is largely left to the subjective judgment of
the court. In this case, the SC adopted the dissenting opinion of Justice Leonen in Asia Pacific v.
Paperone, that there should be an objective, scientific, and economic standards to determine
whether goods or services offered by two parties are so related that there is a likelihood of
confusion (Prosel Pharmaceuticals v. Tynor Drug House, Inc. 30 September, 2020).

 Booking.com is a generic term not capable of registration. However, 74% of people surveyed look
at the website as a source indicator. Thus it is a distinctive term, not merely generic, and is
capable of being registered (USPTO vs. Booking.com, US).

 COPYRIGHT

 Extent of Copyright Protection (Section 172) – Literary and artistic works are original intellectual
creations in the literary and artistic domain protected from the moment of their creation.

 Originality – Not copied, regardless of whether or not the same art has existed in some form
previously.

 Deposit with the National Library is not required to grant a copyright.

 Proof of ownership – Affidavit evidence under Section 218.

 Rules on Copyright Ownership – Copyright belongs to the author of the work – must be a natural
person.

 In case of joint authorship, the rules on co-ownership will apply in the absence of agreement
thereto. If, however, a work of joint authorship consists in parts that can be used separately and
the author of each part can be identified, the author of each part shall be the original owner of the
copyright in the part he has created.

 Copyright Under Employment:

1. To the employee, if the creation of the object of copyright is not a part of his regular
duties even if the employee uses the time, facilities, and materials of the employer.
 2. The employer, if the work is the result of the performance of his regularly-assigned
duties, unless there is an agreement, express or implied, to the contrary.

3. In commissioned work, the person who so commissioned the work shall have ownership
over the work, but the copyright thereto shall remain with the creator, unless there is a
written stipulation to the contrary.

4. In the case of audiovisual work, the copyright shall belong to the producer, the author of
the scenario, the composer of the music the film director, and the author of the work so
adapted. However, the producer shall exercise the copyright to an extent required for the
exhibition of the work in any manner, except for the right to collect performing license
fees for the performance of musical compositions, with or without words, which are
incorporated into the work.

5. In case of letters, copyright shall belong to the writer subject to Article 723 of the NCC.

6. Anonymous and pseudonymous work – The publishers shall be deemed to represent the
authors of articles and other writings published without the names of the authors or under
pseudonyms, unless the contrary appears, or the pseudonyms adopted leaves o doubt
as to the author’s identity, or if the author of the anonymous work reveals his identity.

 Derivative works – The following are also covered by copyright protection:

1. Dramatizations, translations, adaptations, abridgements, arrangements, and other

alterations of literary or artistic works; and

2. 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.

 Derivative works shall be protected as new works, provided that (1) such new work shall not
affect the force of any subsisting copyright upon the original works employed or any part thereof,
or (2) be constructed to imply any right to such use of the original works, or (3) to secure or
extend copyright in such original works (Section 173.2).

 Economic Rights (violation is infringement):

1. Reproduction of the work or substantial portion of the work;

2. Dramatization, translation, adaptation, abridgement, arrangement;
3. The first public distribution of the original and each copy of the work;
4. Rental of an audiovisual or cinematographic work, a work embodied in a sound
recording, a computer program, a completion of data and other materials, or a musical
work in graphic form;
5. Public display of the original copy of the work;
6. Public performance of the work; and
7. Other communication to the public of the work (online distribution included).

 Duration of Economic Rights:

1. New Works – Lifetime + 50

2. Joint authorship – Life of last author + 50
3. Anonymous or pseudonymous – 50 years from date first lawfully published
4. Work of applied art – 25 years from date of making
5. Photographic ad audiovisual – 50 years from publication if published, from making if not
 6. Performances not incorporated in recordings – 50 years from end of the year of
performance
7. Sound recordings and performances – 50 years from the year of recording or
performance.

 Count of period – January 1 of the year following the year of death of the author.

 Moral Rights – Allows the author to take certain actions to preserve the personal link between
himself and the work:

1. Right of attribution
2. Alteration and non-publication right;
3. Right to preservation of integrity;
4. Right against false attribution.

 Expired copyright transfers the work to the public domain.

 Elements of copyright infringement:

1. Ownership of a valid copyright by the offended party;

2. Exercise by another of any of the exclusive economic rights;
3. Without the owner’s consent

 Exception to copyright infringement: Fair use.

 Unprotected subject matter – Ideas, procedure, system, methods of operation, concept, principle,
discovery, and mere data; news of the day and press information, even if they are expressed or
embodied in a work.

 Official text of executive, legislative, and judicial nature, as well as government works are likewise
unprotected (Sections 175 and 176).

 Fair use exception – fair use is allowed for criticism, comment, news reporting, teaching, including
limited number of copies for classroom use, scholarship, research, and similar purposes (Section
185).

 Factors to be considered in determining fair use:

1. Purpose and character of the use;

2. Nature of the copyrighted work;
3. Amount and substantiality of the portion used in relation to the copyrighted work as a
whole; and
4. Effect of the use upon the potential market for or value of the copyrighted work.

 Liability for infringement:

1. Direct infringer;
2. Person who benefited from infringing activity of another, if the same has been given
notice of the fact of infringement and has the right and ability to control the activities of
the direct infringer;
3. Person who, with knowledge of infringing activity, induces, causes, or materially
contributes to he infringing conduct of another.

 Hacking is not copyright infringement unless the same was done to enable infringing activities.
 Remedies for infringement:

1. Injunction;
2. Actual damages – Cost and expenses to the plaintiff and profit taken by infringer. Plaintiff
shall be required to prove sales only and the defendant shall be required to prove every
element of cost which he claims.
3. Impounding of infringing material and destruction thereof.

 Case law in Copyright:

 Coverage of Angelo dela Cruz – GMA used the live-transmitted broadcast of ABS-CBN; the latter
sued the former for infringement. The defense: footage refers to news of the day, thus it is not
susceptible of copyright protection. Ruling: Nevertheless, while news of the day is not
copyrightable, an event may be captured and presented in a specific medium. Television involves
a whole spectrum of visuals and effects, video and audio. News coverage in television involves
framing shots, using images, graphics, and sound effects. It involves creative process and
originality. Television news thus is an EXPRESSION of the news. Furthermore, respondents
admitted that the material under review is an exact copy of the original—it was not transformed
(ABS-CBN v. Gozon, citing Joaquin v. Drion, LEONEN).

 Citing the Habana and Columbia pictures cases, the court ruled that good faith is not a defense in
copyright infringement cases. Lack of knowledge is not material to attach liability in infringement.
What is only required is the voluntariness of the act, as opposed to criminal intent, which is a
state of mind beyond mere volition (IPC is malum prohibitum).

 Petitioners, being corporate officers and/or directors, through whose act, default, or omission the
corporation commits a crime, may themselves be individually held answerable for the crime.
Veritably, the CA appropriately pointed out that petitioners, being in direct control and supervision
in the management and conduct of the affairs of the corporation, must have known or are aware
that the corporation is engaged in the act of refilling LPG cylinders bearing the marks of
respondents without authority and consent from the latter which, under the circumstances, could
probably constitute trademark infringement and unfair competition (Republic Gas v. Petron, 11
June, 2013).

 Plagiarism is the deliberate and knowing presentation of another’s original ideas or creative
expressions as one’s own. This cannot be the case here, because as proved by evidence, in the
original drafts of the assailed decision, there was attribution to the three authors but due to errors
made by Justice Del Castillo’s researcher, the attributions were inadvertently deleted (In re:
Justice Del Castillo). (plagiarism is an ethical issue, not a legal issue)

 Photograph by Rentmeester turned into the Nike logo. Petitioner has copyright over the
photograph, but he cannot sue Nike for infringement, because while the idea was similar, the
expression was different. No monopoly on ideas (Rentmeester v. Nike, 2018).

 Naruto the Macaque took a selfie. He is not a copyright owner, not being a natural person (Naruto
v. Slater, 2018).

 Varsity received copyright registration for the 2D artwork used in their sportswear design, and
then subsequently sued Star Athletica for having similar designs. The US Supreme Court ruled
that a feature on a useful article is copyrightable if:

1. It can be perceived as a two or three-dimensional artwork that is separable from the

useful article; and
2. It would be a protectable pictorial, graphical, or sculptural work on its own.
 This is the separability test (Star Athletica, LLC v. Varsity Brands).

 Google’s copying of the Java SE API, which included only those lines of code that were needed
to allow programmers to put their accrued talents to work in a new and transformative program,
was fair use of that material as a matter of law. The doctrine of fair use is flexible and takes
account of changes in technology. Computer programs differ to some extent from many other
copyrightable works because computer programs always serve a functional purpose (Google v.
Oracle, 2021).

PART II – PARTNERSHIP

 Sole Proprietorship – Owned by an individual, all profits and losses accrue to him. No separate
legal entity;

Corporation – Organization of people authorized by law to act as a single entity. Separate legal
entity that can d business, own and hold properties, and incur liabilities.

Partnership – Association of two or more persons acting as co-owners of a business. Separate

legal entity but partners are subsidiary liable for partnership debts.

 Elements of Partnership (Article 1767, NCC) – By the contract of partnership:

1. Two or more persons bind themselves to contribute to a common fund;

a. Money;
b. Property; or
c. Industry
2. With the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.

 Money – Must be legal tender

 Property – Real, personal, corporeal, or incorporeal

 Industry – Active cooperation, the work of the party associated, which may be either personal
manual efforts or intellectual, and for which he receives a share in the profits of the business.

 Joint Ventures – Similar to a particular partnership or one which “has for its object determinate
things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation.”
However, both are different in the sense that a joint venture is limited to a single transaction,
whereas a partnership generally relates to continuing business of various transactions of a certain
kind (Heirs of Tan Eng Kee v. CA, (3 October, 2000).

 A joint venture is not a legal entity. It does not enter into contracts, hire employees, or have their
own tax liabilities.

 Characteristics of a Partnership:

1. Consensual – perfected by mere consent

2. Nominate – has a special designation under the law
3. Bilateral – two or more parties
4. Onerous – each party aspires to procure benefit
5. Commutative – undertaking of one is considered equivalent of that of others
6. Principal – does not depend on some other contract for existence
 7. Preparatory – entered into as a means of an end

 Principles affecting the partnership relationship:

1. Doctrine of Delectus Personae – Under this doctrine, a partner has a right to choose with
whom he wishes to associate; concomitant with the right to dissociate therefrom (Ortega
v. CA).

2. Doctrine of Mutual Agency – Under this doctrine, all the partners shall be considered
agents of the partnership, and their sole acts shall bind the partnership (Article 1803(1),
1818, NCC).

3. Rule of Guarantors of the Partnership – Aside from being agents, partners are likewise
guarantors of partnership obligations; the partners are liable to the creditors of the
partnership with their own property, even beyond their contribution (Art. 1816, NCC).
(benefit of excussion)

 As a juridical person, a partnership may:

1. To acquire and possess property, real or personal;

2. Incur obligations; and
3. Bring civil or criminal actions.

 Separate liability from partners, except: Article 1816.

 Who can form partnerships:

1. Natural persons of legal age, not suffering from any legal impediment such as insanity or
civil interdiction;
2. Husband and wife can enter into particular partnerships, but not universal partnerships
(CIR v. Suter, 1969);
3. Corporations under the Revised Corporation Code (Section 35(h), R.A. No. 11232).

 Rules in determining the existence of a partnership:

1. By estoppel, if the persons treat each other as partners (Art. 1825, NCC);

2. Co-ownership or co-possession does not itself establish a partnership, whether such co-
owners or co-possessors do or do not share any profits made by the use of the property.

3. Sharing of gross returns does not, of itself, establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which
the returns are derived.

4. The receipt by a person of the share of the profits of a business is prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits
were received in payment of:

a. Debt by installment or otherwise;

b. Wages of an employee or rent to a landlord;
c. Annuity to a widow or representative of a deceased partner;
d. As interest on a loan, though the amount of payment vary with the profits of the
business;
e. As consideration for the sale of a goodwill of a business or other property by
installments or otherwise
 Co-Ownership vs. Partnership

Co-ownership exists when an undivided thing or right belongs to different persons. It is a

partnership where two or more persons specifically bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among
themselves.

Co-ownership or co-possession does not itself establish a partnership, whether or not such co-
owners or co-possessors do or do not share any profits made by the use of the property.

The sharing of returns does not itself establish a partnership, whether or not the persons sharing
therein have a joint or common right or interest in the property. There must be a clear intent to
form a partnership, the existence of a juridical personality different from the individual partners,
and the freedom of each party to transfer or assign the whole property.

 Partnership is a consensual contract. However, under the Civil Code, the contract should be put
into writing (Staute of Frauds):

1. When, by its terms, it is not to be performed within a year from the making thereof; or
2. Where immovable property of real rights are contributed thereto, in which case:
a. It should also be in a public instrument;
b. An inventory of the contributed property duly signed by the parties should also be
attached to the public instrument. This is indispensable to the validity of the
partnership.
3. Where the capital is ₱3k or more, in money or property
a. It should also be in a public instrument;
b. It must be filed and recorded in the SEC.

 The failure to register the contract of partnership does not invalidate the same as among the
partners, so long as the contract has the essential requisites, because the main purpose of
registration is to give notice to third parties, and it can be assumed that the members themselves
knew of the contents of their contracts (Sunga-Chan v. Chua, 15 August 2001).

 A partnership must have a lawful object or purpose and must be established for the common
benefit or interest of the partners. The effects of an unlawful partnership are as follows:

1. The contract is void ab initio, and the partnership never existed in the eyes of the law;
2. The partnership will be dissolved and the profits confiscated in favor of the government;
3. The instruments or tools and proceeds of the crime shall also be forfeited in favor of the
government, but the contributions of the innocent partners shall not be confiscated.

 Case Doctrines in Partnership

 Tan Eng Kee v. CA, 3 October, 2000:

1. The best evidence of the partnership is the contract itself.

2. The essence of a partnership is that the partners share in the profits and losses. Each
has the right to demand an accounting as long as the partnership exists. A demand for
periodic accounting is evidence of a partnership.

3. Where circumstances taken singly may be inadequate to prove the intent to form a
partnership, nevertheless, the collective effect of such circumstances may be such as to
support a finding of the existence of the parties’ intent.
 Tucao v. CA, October 4, 2000

1. To be considered a separate juridical personality, a partnership must fulfill the

requirements of persons binding themselves to contribute money, property, or industry to
a common fund, and intention to divide the profits among themselves.

2. While it is true that the receipt of a percentage of net profits constitutes only prima facie
evidence that recipient is a partner in a business, the evidence at bar controverts an
employer-employee relationship between the parties. In the first place, private
respondent had a voice in the management of the affairs of the cookware distributorship,
including selection of people who would constitute the administrative staff and the sales
force.

3. The partnership exists until dissolved under the law. Since the partnership created by
petitioners and private respondent has no fixed term and is therefore partnership at will
predicated on their mutual desire and consent, it may be dissolved by the will of a
partner.

 Pascual v. CIR, 18 October, 1988

1. The sharing of returns does not in itself establish a partnership, whether or not the
persons sharing therein have a joint or common right or interest in the property. There
must be a clear intent to form a partnership, the existence of a juridical entity different
from the partners, and the freedom of each party to transfer or assign the whole property.

2. In the present case, there is clear evidence of co-ownership between the petitioners.
There is no adequate basis to support the proposition that they thereby formed an
unregistered partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them partners.
They shared in the gross profits as co-owners and paid their capital gains taxes on their
net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot
be considered to have formed an unregistered partnership which is thereby liable for
corporate income tax, as the respondent commissioner proposes.

 Yu v. NLRC, 30 June, 1993

1. In the ordinary course of events, the legal personality of the expiring partnership persists
for the limited purpose of winding up and closing the affairs of the partnership. In the case
at bar, it is important to underscore the fact that the business of the old partnership was
simply continued by the new partners, without the old partnership undergoing the
procedures relating to dissolution and winding up of business affairs.

2. In this case, creditors of the old Jade Mountain are also creditors of the new Jade
Mountain, which continued the business of the former without liquidation of the
partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Yu in
respect for his claim for unpaid wages, is entitled priority vis-à-vis any claim of any retired
or previous partner insofar as such retired partner’s interest in the dissolved partnership
is concerned.

3. However, the new partnership was entitled to appoint and hire a new general or assistant
general manager to run the affairs of the business enterprise taken over.

 Exercises:

 Ian and Sue are siblings. They formed a small business called Lil’Boo Ice Pops. At the time of
creation, they received ₱100,000.00 from Ramdel as ’investment’, with Ian and Sue promising to
 give Ramdel a 10% share in the profits of the business. Two years into the business, Ian and Sue
also received ₱100,000.00 from Sophia as ’ loan’, with Ian and Sue promising to give Sophia
₱10,000.00 for the next 10 months. Ian and Sue issued separate Promisory Notes to Ramdel and
Sophia. Is there a partnership among Ian, Sue, Ramdel, and Sophia?

- There is a partnership as between Ian, Sue, and Ramdel, as there was a contribution of
money in exchange for a share in the profits. As to Sophia, the contract involved was a
contract of loan n installment.

 Due to business losses brought about by the Covid-19 pandemic, Ian and Sue shut down Lil’Boo
Ice Pops. At the time, the following properties were existing:

Description Documents under the Name of:

Commercial Lott and Building Lil’Boo Ice Pops
100 units Freezers Lil’Boo Ice Pops
Nissan Urvan Ian
5 units motorcycles Lil’Boo Ice Pops
₱1M in bank deposits Ian and/or Sue

Assuming there is a partnership, do the partners have a right to these properties?

- With respect to the properties recorded under the names of the individual partners, these did
not become partnership property, thus there was no right of ownership transferred over the
same to the partnership entity upon its creation. As to those named under the partnership,
none of the partners have claim over the same until the partnership is dissolved, in which
case they are entitled to proportionate shares thereof.

 In 2010, Tabitha and Carla joined the buy and sell businesses of Samuel. Tabitha and Carla
contributed 100k and 80k, respectively, with the right to receive monthly profits. Samuel managed
and ran the business. The business prospered, bringing in 500k in profits monthly. In 2020, police
raided the store and confiscated narcotics and Covid-19 therapy drugs which were banned by the
FDA. Criminal liability aside, the partnership was ordered closed and the court ordered the
forfeiture of the properties, assets, funds, and individual shares of the partners.

Tabitha and Carla alleged that there is no partnership because there is no written contract and
that they did not participate in running the business. If at all, they were mere lenders of creditors
of Samuel. Are they correct?

- No. The mere fact that no contract was in writing does not negate the existence of a
partnership, nor was the fact that they did not personally participate in running the business.
They cannot claim to be mere creditors when they have the right to receive profits.

 Assuming that Tabiha and Carla were creditors, can they challenge the order of forfeiture on the
ground that they have the right to the partnership assets and funds up to the extent necessary to
pay off the loans they extended?

- No, because in this case, the contract was rendered illegal, thus it was rendered void.
Creditors cannot have a better right than the government. The creditors however, can run
after the partners for remuneration.

 Classifications of Partnership:

 As to subject matter:
 1. Universal partnership – Up to the extent of all present property, or all profits;
2. Particular partnership – Object are determinate things, their use of fruits, or specific
undertaking, or exercise of vocation or profession

 As to liability of partners:

1. General partnership – General partners are all liable pro rata and subsidiarily, sometimes
solidarily, with their separate property;
2. Limited partnership – Formed by two or more persons having as members one or more
general partners and one or more limited partners, the latter not being liable for the
obligations of the partnership

 As to duration:

1. Partnership at will – May terminate anytime

2. Partnership with a fixed term – Period or undertaking; but it may still be dissolved by the
withdrawal of a partner.

 As to legality of its existence:

1. De jure – Complied with all requirements

2. De facto – Failed to comply with all requirements

 As to representation to others:

1. Ordinary or real – Exists as to partners and third persons

2. Ostensible partnership or partnership by estoppel – Only exists as to third persons to
protect against fraud

 As to publicity:

1. Open or notorious – Revealed to the public

2. Secret – Where the existence of some partners are not divulged

 As to purpose:

1. Commercial partnership – Organized for trade

2. Professional or non-trading

 Kinds of Partners:

1. Capitalist partner – Contributes money or property (including credit)

2. Industrial partner – Contributes industry or personal service
3. General partner – Personally liable with the partnership
4. Limited partner – Liability is confined to contribution
5. Managing partner – Manages the affairs of the partnership
6. Liquidating partner – In charge of winding up of partnership affairs
7. Partner by estoppel – Liable as partner only with respect to third persons
8. Continuing partner – Continues the business after dissolution due to admission of new
partner
9. Surviving partner – Continues in the business after dissolution by death of a partner
10. Subpartner – Not being a partner, contracts with a partner with reference to the latter’s
share in the partnership.
 Universal Partnership of Profits – What passes to the partnership is the income from the industry
or work of the partners and the usufruct of the property which the partners may possess at the
time of the celebration of the partnership contract. Also, since the law refers to the usufruct of
PRESENT property, fruits from future property are excluded. The law also speaks of profits
acquired through work or industry, so profit acquired through chance are not included.

 Rules on Commencement of Partnership and Obligation to Contribute:

 Partnership commences from the moment of execution. Registration with SEC is not a
requirement for the partnership to acquire juridical personality.

 Every partner is a debtor of the partnership for whatever he may have promised to contribute
thereto.

 A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor
for the interest and damages from the time he should have complied with his obligation.

 A partner who contributes property is bound to warrant the thing against eviction.

 The remedy for a partner who delays his contribution is specific performance, not dissolution.

 The liability for interest commences not from the time of judicial or extrajudicial demand, but from
the time the partner should have complied with the obligation or from the time he converted the
amount to his own use, as the case may be.

 A partner is guilty of Estafa if he fraudulently appropriates partnership property delivered to him

with specific directions to apply it to partnership purposes.

 Risk of Loss of Things Contributed (Art. 1795):

Nature or Character of the thing Who bears the risk of loss?

Specific and determinate things which are not
fungible where only the use is contributed
Specific and determinate things, the ownership
of which is transferred to the partnership
Fungible things or things which cannot be kept
without deteriorating even if they are
contributed only for the use of the partnership
Things contributed to be sold
Things brought and appraised in the inventory
The partner because he remains the owner.
The partnership because it becomes owner.
The partnership, because ownership was
transferred since use is impossible without the
things being consumed or impaired.
The partnership, because to sell them, the
partnership must be the owner thereof.
The partnership; there is an implied sale
making the partnership owner of the said
things.

 An industrial partner cannot engage in business for himself, unless the partnership expressly
permits him to do so. The industrial partner becomes a debtor of the partnership for his work or
services from the moment of commencement of the partnership. In effect, the partnership
acquires an exclusive right to avail itself of his industry.

 The capitalist partner cannot engage for their own account in any operation which is of the same
kind of business in which the partnership is engaged, unless there is a stipulation to the contrary.
 Only the industrial partner may be removed from the firm if he commits the above offense. For the
guilty capitalist partner, he shall be forced to bring to the common funds any profits he obtained
from the other business.

 Rules on Contribution and Shares

 Capital:

1. That stated in the agreement shall prevail;

2. In the absence of such, the share shall be equal;
3. In case of imminent loss of the business, additional share as may be determined by the
majority may be required.

 Profits:

1. Share according to agreement;

2. If there is no such agreement:
a. Proportional share to each partner’s capital contribution;
b. The industrial partner shall receive such share which must be satisfied first
before the capitalist partners shall divide the profits, as may be just and equitable
under the circumstances.

 Losses:

1. Distributed according to agreement;

2. If there is no such agreement, but the contract provides for the share of the partners in
the profits, their share in the losses shall be proportionate thereto.
3. If there is no profit-sharing agreement, then the losses shall be borne by the partners in
proportion to their capital contributions, but the purely industrial partner shall not be liable
for the losses.

 Every partner is responsible to the partnership for damages suffered by the partnership for his
fault, and he cannot compensate them with the profit and benefits which he may have earned for
the partnership by his industry. However, the courts may equitably lessen this responsibility if,
through the partner’s extraordinary efforts in other activities of the partnership, unusual profits
have been realized.

 Article 1807 – Partners must account to the partnership for any benefit, and hold as trustee for it
any profits derived by him without the consent of the other partners from any transaction
connected with the formation, conduct, or liquidation of the partnership or from any use by him of
his property.

 Article 1809 – Any partner shall have the right to a formal account as to partnership affairs:

1. If he is wrongfully excluded from the partnership business or possession of its property by

his co-partners;
2. If the right exists under the terms of any agreement;
3. As provided by Article 1807;
4. Whenever other circumstances render it just and reasonable.

 The managing partner has the duty to keep true and correct partnership books, but each partner
has the right to free access to them, and to inspect and copy any of them at any reasonable time,
even after dissolution.

 The Managing Partner

 A managing partner may be appointed through the Articles of Partnership, or after the constitution
of the partnership upon the agreement of the partners.

 The appointment, when made in the Articles, may be revoked only upon lawful cause, or if he
acted in bad faith, and through the vote of the partners. If after the constitution of the partnership,
he may be removed for whatever cause provided the removal is done through the vote of the
partners representing the controlling interest (based on contribution).

 Powers of a managing partner:

1. Acts of administration (Art. 1879 – Acts of strict dominion requiring SPA; Agency);
2. All incidental powers necessary to carry out the object of the partnership in the
transaction of its business (Citibank v. Chua);

 Duty of Trust Respecting Partnership Money – If a partner authorized to manage collects a

demandable sum which was owed to him in his own name, from a person who owed the
partnership another sum also demandable, the sum thus collected shall be applied to the two
credits in proportion to their amounts, even though he may have given a receipt for his own credit
only; but should he have given it for the account of the partnership credit, the amount shall be
fully applied to the other.

 If however, the personal credit of the partner is more onerous to the debtor, the provision of
Article 1252—the right of the debtor to declare at the time of making the payment, to which of the
same must be applied.

 Powers of two or more managing partners whose respective duties are not specified:

1. If one or more of the managing partners shall oppose he acts of the others, then the
decision of the majority (irrespective of capital contribution) of the managing partners
shall prevail.
2. In case of tie, the matter shall be decided by the vote of the partners owning the
controlling interest, that is, more than 50% of the capital investment.

 Unanimity of action is required – If it should be stipulated that none of the managing partners
shall act without the consent of the others, then the absence or disability of one of them is not an
excuse, except when there is imminent danger of grave or irreparable injury to the partnership, in
which case unanimity need not be required.

 When management is not agreed upon – Every partner is a managing partner and an agent
thereof. All partners may do acts of administration and all powers incidental thereto. However,
this act of management does not extend to altering immovable property for that would be an act
of strict dominion. In this case, all other parties must give their consent. If the refusal or consent is
prejudicial to the partnership, court intervention may be sought (action for specific performance).

 Property Rights of the Partners

 Right to Specific Partnership Property:

1. Covers tangible property.

2. The specific property belongs to the partnership as a separate juridical entity. The
partners have an inchoate right exercisable after dissolution.
 3. Equal right with other partners to possess specific partnership property for partnership
purposes.

4. The right is not assignable, except in connection with the assignment of rights of all
partners in the same property.

5. It is not subject to legal support (cannot be attached).

 Right to Interest in the Partnership:

1. The right to share in the profit and losses.

2. Effect of conveyance of interest:

a. Conveyance of whole interest – Partnership may remain or be dissolved

b. Assignee does not necessarily become a partner
c. Assignee cannot interfere in the management or administration of the partnership
business or affairs
d. Assignee cannot demand information, accounting, and inspection of partnership
books.

 Charging Order – A remedy of a judgment creditor of a partner. In this remedy, the judgment
creditor applies for a charging order after securing judgment on his credit to subject the interest of
the debtor partner with payment of unsatisfied amount of the judgment debt. The interest charged
may be redeemed at any time before foreclosure, or in case of a sale being directed by the court,
may be purchased without thereby causing dissolution. (charging order becomes a lien on the
partner’s share in the profit)

 How redeemed:

1. With separate property by any one or more of the partners; or

2. With partnership property, by any one or more of the partners with the consent of all the
partners whose interests are not so charged or sold.

 Sub-Partnership – A partnership formed between a member of a partnership and a third person

for a division of the profits coming to him from the partnership enterprise. It is a partnership within
a partnership and is distinct and separate from the main or principal partnership.

 Rights of sub-partner or associate – Only with respect to a share in the profits. The sub-partner
does not become a member of the partnership, nor is he liable for partnership debts.

 In case of dissolution of the partnership, the assignee is entitled to receive his assignor’s interest
and may require an account from the date only of the last account agreed to by all partners
(Realubit v. Jaso, 21 September, 2011).

 Right to Participate in Management:

1. The parties can appoint a Managing Partner who can execute all acts of administration.
2. If no managing partner has been appointed, all the other partners shall be considered
agents of the partnership. None of them may make any important alteration in the
immovable property of the partnership without the consent of the others.
a. In case of disagreement, majority rules. In case of a tie, controlling interest.
 The managing partner, being an authorized representative of the partnership, may sue in its
behalf. However, he cannot enter into a settlement with an adverse party, as this is an act of
dominion requiring the concurrence of the rest of the partnership.

 Obligations of Partners to Third Persons

 Liability for Contractual Obligations:

1. The partnership shall be principally liable for partnership obligations.

2. The partnership is also liable for the acts of the partners in the following:
a. Acts for apparently carrying on the usual way the business of the partnership
(Art. 1818);
b. Acts of strict dominion when authorized (Art. 1819);
c. Acts in contravention of the authority granted, but the third person has actual or
presumptive knowledge of the restrictions (Art. 1818).

 Any stipulation exempting a partner from personal liability shall be void, except as among the
partners (Art. 1817). (this means the exempt partner may still be liable to a third person, but
without prejudice to his claim against his co-partners for reimbursement)

 The partners’ obligation with respect to the partnership liabilities is subsidiary in nature. It
provides that the partners shall only be liable with their property after all the partnership assets
have been exhausted. To say that one’s liability is subsidiary means that it merely becomes
secondary and only arises if the one primarily liable fails to sufficiently satisfy the obligation. The
subsidiary nature of the partners’ liability with the partnership is one of the valid defenses against
a premature execution of judgment directed to a partner (Guy v. Gacott, 13 January, 2016).

 Liability of persons admitted into an existing partnership – Liability for obligations of the
partnership arising before his admission shall be limited to his contribution to the partnership,
unless there is a stipulation to the contrary. Personal liability applies only to partnership
obligations incurred after his admission.

 Solidary Liability of Partnership and Partners:

1. Where by any wrongful act or omission of any partner acting in the ordinary course of
business of the partnership or with authority of his co-partners, loss or injury is caused to
any person, not being a partner in the partnership.

2. Where one partner, acting within the scope of his authority, receives money or property of
a third person and misapplies it.

3. Where the partnership, in the course of its business, receives money or property and it is
misapplied by any partner while it is in the custody of the partnership.

 Dissolution of Partnership

 Dissolution – The change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on of the business. It is that point of time the partners cease to carry on
the business together.

 Winding Up – The process of settling business affairs after dissolution.

 Termination – The point in time after all the partnership affairs have been wound up.

 Causes of Dissolution:
 1. Those without violating the agreement between parties (retirement, termination of the
fixed term, stipulation);

2. In contravention of the agreement between the partners, by the express will of any
partner at any time:

a. By an event which makes it unlawful for the business of the partnership to be

carried on or for the members to carry it on in partnership;

b. When a specific thing, which a partner had promised to contribute to the

partnership, perishes before delivery, or when the thing, the enjoyment or use of
which was transferred to the partnership, is lost;

3. By the death of any partner;

4. By the insolvency of any partner of the partnership;

5. By the civil interdiction of a partner;

6. By the decree of the court in the situations provided under Art. 1831 (insanity, fraud,
breach of terms, etc.);

 Effects of Dissolution:

1. Terminates all authority of any partner to act for the partnership.

2. Each partner is liable to his co-partner for his share of any liability created by any partner
not knowing the cause of the dissolution.

3. A partner, however, can bind the partnership by:

a. Any act appropriate for winding up the partnership affairs or completing

transactions unfinished at dissolution;

b. Any transaction which would bind the partnership if a third person had extended
credit to the partnership prior to the dissolution and had no knowledge of said
dissolution, or had extended credit to the partnership after the dissolution but he
had no knowledge of said dissolution, and the fact of said dissolution was not
advertised in a newspaper of general circulation.

 Rights of a Partner After Dissolution:

1. Right to wind up partnership affairs;

2. Right to apply the partnership property to discharge its liabilities and to apply the surplus
to pay in cash the net amount owing to the respective partners;

3. Right to damages in case of breach of the agreement;

4. Right to be paid in cash his net interest only if he is the partner who caused the
dissolution wrongfully and the partnership business is continued by the other partners.

5. The partner who has a right to rescind the contract on the ground of fraud or
misrepresentation of one of the parties thereto has the right of lien or retention of surplus
of the partnership property, or to be subrogated to the rights of the partnership creditors
 whom he has paid, or to be indemnified by the person guilty of fraud or misrepresentation
against all debts and liabilities of the partnership.

 A share in the partnership can be returned only after the completion of the latter’s dissolution,
liquidation, and winding up of the business (Villareal v. Ramirez, 2003).

 In winding up, the partnership assets shall be applied according to the following order of
preference of partnership liabilities:

1. Those owing to creditors other than the partners (third-party);

2. Those owing to partners other than for capital and profits;
3. Those owing to partners in respect of capital;
4. Those owing to partners in respect of profit.

 After the exhaustion of the partnership property, the partners shall contribute pro rata with their
own property (except for #3 and #4).

 Limited Partnership – One formed by two or more persons, having as members one or more
general partners and one or more limited partners. The agreement must be in writing, and
recorded with the SEC. Substantial compliance is enough.

 Characteristics of the limited partnership (violation makes limited partner liable as general
partner, in which case the SEC registration must be amended):

1. Limited as to liability:

a. The limited partner is liable only up to his contribution; he is not liable with his
own property to answer for the obligations of the partnership.

b. He is not a proper party to proceedings by or against a partnership, except where

the action is to enforce his right against or liability to the partnership.

2. Limited as to management – Only general partners can participate in the management of

the partnership. If a limited partner takes part in the control of the business, he becomes
liable as general partner.

3. Limited as to the choice of contribution – A limited partner may contribute cash or

property, but not services.

4. Limited in the matter of firm name – The limited partner cannot appear in the partnership
name, unless the same is also the surname of a general partner, or if prior to the time
when he became limited partner, the business has been carried under the name in which
his surname appeared. The limited partner whose name appears in contrary to this rule
shall be liable as general partner.

 Rights of a Limited Partner:

1. Inspection of the partnership books;

2. True and full information and formal accounting of partnership affairs;
3. To demand dissolution and winding up by decree of court;
4. To receive his share of the profits, and to demand the return of his contribution;
5. To receive a pro rata share of the partnership assets should he loan money or transact
business with the partnership.

 Sub-limited partner vs. Sub-partner:

  A sub-limited partner is a person admitted to all the rights of a limited partner who has died or has
assigned his interest in a partnership, whereas a sub-partner merely shares in the profits of the
partner to which he is associated.

 If the general partner in a limited partnership wants to limit his liability and protect his personal
assets, he should undergo the following procedure:

1. Form a corporation, whether traditional or One-Person-Corporation;

2. Form a limited partnership with the corporation as the general partner;
3. The limited partners’ liability will be up to their contribution.
4. The personal liability of the general partner is only up to the assets of the corporation and
does not extend to the personal assets of the stockholder/owner.

PART III – TRANSPORTATION LAW

 COMMON CARRIERS

 Article 1732, NCC – Common carriers are (1) persons, corporations, firms, or associations (2)
engaged in the business of carrying or transporting (3) passengers or goods or both, (4) by land,
water, or air, (5) for compensation, (6) offering their services to the public.

 Private or special carriers on the other hand, lies in the character of the business, such that if the
undertaking is an isolated transaction, not a part of the business or occupation, and the carrier
does not hold itself out to carry the goods for the general public or to a limited clientele, although
involving the carriage of goods for a fee, the person providing such a service may just be a
private carrier (PhilAm General Insurance v. PK Shipping, April 9, 2003).

 The extent of a private carrier’s obligation is dictated by the stipulations of a contract it entered
into, provided its stipulations, clauses, terms, and conditions are not contrary to law, morals, good
customs, public order, or public policy. The Civil Code provisions on common carriers should not
be applied, where the carrier is not acting as such, but as a private carrier. Public policy
governing common carriers has no force where the public at large is not involved (Malayan
Insurance v. Philippine First Insurance, 11 July, 2012).

 Can a common carrier become a private carrier? – Yes, when it undertakes to carry a special
cargo or chartered to a special person (Malayan, Ibid., citing Valenzuela Hardwood v. CA, 340
Phil. 745). (isolated transactions)

 Test to determine common carriage – Whether the given undertaking is part of the business
engaged in by the carrier which he has held out to the general public as his occupation, rather
than the quantity or extent of the business transacted (Asia Lighterage and Shipping, Inc. v. CA, 9
August, 2003).

 Extraordinary diligence is the standard of diligence imposed upon common carriers. For private
carriers, diligence of a good father of the family is sufficient.

 Death or injury of passengers; loss of goods – presumption of negligence (only for common
carriers).

 The term common carriers is not limited to vehicles. One engaged in the business of transporting
petroleum products from refineries via pipeline is a common carrier, because it contains all the
essential elements thereof (First Philippine Industrial v. CA, 1998).
 The operator of a school bus is a common carrier in the eyes of the law (Spouses Perena v.
Spouses Zarate, 19 August, 2012).

 Likewise, customs brokers and warehousemen are considered common carriers. There is greater
reason for holding such persons as common carriers, since the transportation of goods is an
integral part of their business. To hold otherwise would be to deprive those with whom they
contract the partition which the law affords them (Calvo v. UCPB General Insurance, 19 March,
2002).

 A sole proprietor (a trader) is a common carrier even if his principal occupation was not the
carriage of goods for others, but that of buying used bottles and scrap metal in Pangasinan and
selling them in Manila (De Guzman v. CA, 22, December 1988).

 Barge operators are common carriers since it offers its barges to the public for carrying or
transporting goods by water for compensation (Asia Lighterage and Shipping, Ibid.).

 Resorts owners offering tour package contracts which include ferry services are common carriers.
Its ferry services are so intertwined with its main business as to be properly considered ancillary
thereto. Moreover, these services are made available to the public (Spouses Cruz v. Sun
Holidays, 29 June, 2010).

 Causes of action against common carriers:

1. Culpa contractual – Contractual negligence

2. Culpa aquiliana – Tortuous negligence
3. Culpa criminal – Criminal negligence

 Classification of Transport Network Vehicle Services (TNVS) and Transport Network Companies
(TNC)

A TNC is a corporation, partnership, or sole proprietorship that offers pre-arranged transportation

services for compensation using an internet-based technology application to connect passengers
with drivers using their personal vehicles (UBER, Grab Car, Angkas) (DOTC D.O. No. 2015-
011).

A TNVS refers to a TNC-accredited private vehicle carrier, which is a common carrier, using the
internet-based technology application or digital platform technology. The TNVS cannot operate as
a common carrier outside of or independent from the use of the internet-based technology of the
TNC or TNCs to which they are accredited (DOTr D.O. No. 2018-012).

An LTFRB issuance states that the TNC is treated as the transport provider, whose accountability
commences from the acceptance by its TNVS while online.

On the other hand, the accountability of the TNVS, as a common carrier, attaches form the time
the TNVS is online and offers its services to the riding public.

In the final analysis, the business of holding oneself out as transportation service provider,
whether done through online platforms or not, appears to be one which is imbued with public
interest and thus, deserves appropriate regulations.

 With the safety of the public further in mind, and given that, at any rate, the above-said
administrative issuances are presumed to be valid until and unless they are set aside (LTFRB v.
Hon. Carlos Valenzuela and DBDOYC, Inc. (Angkas), 11 March, 2019). (Angkas filed a petition
 for certiorari against the public respondent’s injunction on Angkas for violating the LTFRB
resolution preventing motorcycles from engaging as TNVS)

 Vigilance over Goods and Presumption of Negligence

 Rules for Lost or Damaged Goods – As a rule, if goods are lost, destroyed, or deteriorated, the
common carrier is presumed to have been at fault, or to have acted negligently, unless it is able
to prove that it observed extraordinary diligence as required by law (Art. 1735).

 Extraordinary diligence required for carrying passengers safely:

1. As far as human care and foresight can provide;

2. Using the utmost diligence of very cautious persons
3. With a due regard for all the circumstances

 This exacting standard imposed on common carriers in a contract of carriage of goods is intended
to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the goods
have been lodged for shipment (Loadmasters Customs Services, Inc. v. Glodel Brokerage Corp.).

 Burden of proof is on the common carrier, to prove that they exercised extraordinary diligence in
transporting the goods.

 Exempting Causes under the Civil Code (Art. 1734):

1. Flood, storms, earthquakes, etc.; acts of God (lack of human participation/contributory

negligence);
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the containers;
5. Order or act of competent public authority.

 The presence of natural disasters only free the carrier from liability over lost or damaged goods if
it was the proximate and ONLY cause of the loss.

 Else stated, for the common carrier to be absolved from liability in case of force majeure, it is not
enough that the accident was caused by a fortuitous event. The common carrier must still prove
that it did not contribute to the occurrence of the incident due to its own or its employees’
negligence (Sulpicio Lines v. Sesante, 27 July, 2016). Human participation negates the defense.

 Requisite for the application of the Act of God Doctrine – That the act must be occasioned solely
by the violence of nature. Human intervention is to be excluded from creating or entering into the
cause of the mischief.

 Art. 1739 – The common carrier must exercise due diligence to prevent or minimize loss before,
during, and after the occurrence of flood, storm, or other natural disaster in order that the
common carrier may be exempted from liability for the loss, destruction, or deterioration of goods.

 Natural disaster + delay in transporting goods – If the carrier negligently incurs delay in
transporting the goods, a natural disaster shall not free him from liability.

 Loss of goods due to the faulty nature of packing – Even if the loss, destruction, or deterioration
of the goods should be caused by the character of the goods, or the faulty nature of the packing
or of the containers, the common carrier must exercise due diligence to forestall or lessen the
loss (Art. 1742). Otherwise, if the carrier failed to exercise such diligence, the exemption shall not
attach.
 Loss of goods due to theft – The common carrier is liable. Under Art. 1745(6), a common carrier
is liable—and is not allowed to divest or to diminish such responsibility—even for acts of stranger
like thieves or robbers, except where such thieves or robbers acted with grave or irresistible
threat, violence, or force. Common carriers are mandated to internalize or shoulder the costs
under the contract of carriage. This is so because a contract of carriage is structured in such a
way that passengers or shippers surrender total control over their persons or goods to common
carriers, fully trusting that the latter will safely and timely deliver them to their destination (Annie
Tan v. Great Harvest Enterprises, Inc., 20 March 2019). (Goods were stolen by Tan’s driver;
carrier’s negligence in vetting driver before hiring)

 Nature of contributory negligence – Conduct on the part of the injured party, contributing to the
harm he has suffered, which falls below the standard to which he is required to conform for his
own protection (Sealoader Shipping Corp. v. Grand Cement Manufacturing, 15 December 2010).

 In case the negligence by the plaintiff was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the immediate and
proximate cause thereof being the defendant’s lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded.

 The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation, until
the same is delivered, actually or constructively, by the carrier to the consignee, or to the person
who has a right to receive them, without prejudice to the provisions of Article 1738, NCC (Eastern
Shipping Lines v. BPI, 12 January, 2015).

 It is therefore clear that the moment the carrier has delivered the subject goods, its responsibility
ceases to exist and it is thereby freed from all the liabilities arising from the transaction. Any
question regarding the payment of the buyer to the seller is no longer the concern of the carrier
(Designer Baskets, Inc. v.. Air Sea Transport, Inc. 9 March, 2016). (the moment the
representative of the consignee picks up the goods from the warehouse of the cc)

 Temporary unloading or storage – The extraordinary liability of the common carrier continues to
be operative even during the time the goods are stored in a warehouse of the carrier at the place
of destination, until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of them. (constructive
notice to the consignee; if failure to remove by consignee; carrier is relieved of responsibility)

 Stipulation for limitation of liability:

 Void stipulations:

1. That the goods are transported at the risk of the owner or shipper;
2. That the common carrier will not be liable for any loss, destruction, or deterioration of the
goods;
3. That the common carrier need not observe any diligence in the custody of the goods;
4. That the common carrier shall exercise a degree of diligence less than that of a good
father of a family, or of a man of ordinary prudence in the vigilance over the movables
transported;
5. That the common carrier shall not be responsible for the acts or omission of his or its
employees;
6. That the common carrier’s liability for acts committed by thieves, or of robbers who do not
act with grave or irresistible threat, violence or force, is dispensed with or diminished;
 7. That the common carrier is not responsible for the loss, destruction, or deterioration of
goods on account of the defective condition of the car, vehicle, ship, airplane or other
equipment used in the contract of carriage (Art. 1745, NCC);
8. That the common carrier is exempt from any and all liability for loss or damage
occasioned by its own negligence;
9. Stipulation providing for an unqualified limitation of such liability to an agreed stipulation
(Heacock v. Macondray, 1921)

 Limitation of liability to a fixed amount – A stipulation between the common carrier and the
shipper limiting the liability of the common carrier for the loss, destruction, or deterioration of the
goods to a degree less than extraordinary diligence shall be valid. Requisites:

1. Agreement in writing, signed by the shipper and owner;

2. Supported by a valuable consideration other than the service rendered by the common
carrier (discounts in exchange for reduced liability);
3. Must be reasonable, just, and not contrary to public policy.

 Limitation of liability in the absence of a declaration of greater value – A stipulation that the
common carrier’s liability is limited to the value of the goods appearing in the bill of lading, unless
the shipper ‘or owner declares a greater value, is binding (Art. 1749).

 Checked-in-Baggage – So long as the belongings were brought inside the premises of the vessel,
the common carrier was thereby effectively notified and consequently duty-bound to observe the
required diligence (extraordinary) in ensuring the safety of the belongings during the voyage
(Sulpicio v. Sesante, Ibid.).

 Baggage in possession of passengers – The law requires the common carrier to observe the
same diligence as hotel keepers in case the baggage remains with the passenger; otherwise,
extraordinary diligence must be exercised.

 Nevertheless, the liability of common carriers attaches even if the loss or damage to the
belongings resulted from the acts of the common carrier’s employees, the only exception being
where such loss or damages is due to force majeure.

 Safety of passengers – A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with a
due regard for all the circumstances (Art. 1755).

 Legal presumption in case of injury or death of a passenger – presumption of fault or negligence

of the carrier. To avoid liability therefrom, the common carrier must prove observance of
extraordinary diligence.

 Void stipulations – General rule: The responsibility of a common carrier for the safety of
passengers cannot be dispensed with or lessened by stipulation by the posting of notices, by
statements on tickets, or otherwise.

Exception: When a passenger is carried gratuitously, a stipulation limiting the common carrier’s
liability for negligence is valid.

Exception to the exception: Even when a passenger is carried gratuitously, a stipulation limiting
the common carrier’s liability for willful acts or gross negligence is invalid.

 Duration of liability – As in the contract of carriage of goods, the perfection of the contract of
carriage of passengers does not necessarily coincide with the commencement of the duty of
extraordinary diligence. It may occur at the same time or later.
 The duty that the carrier of passengers owes to its patrons extends to persons boarding the cars
as well as those alighting from it (Del Prado v. MERALCO, 1929).

 Under the Warsaw Convention, the liability of the carrier to a passenger (of air travel) lasts from
embarkation to disembarkation, including the period when the passenger is on board the aircraft.

 During the period of waiting for boarding of carrier – It is the duty of common carriers of
passengers, including common carriers by railroad train, streetcar, or motorbus, to stop their
conveyances within a reasonable length of time in order to afford passengers an opportunity to
board and enter (Dangwa Transportation v. CA). (at the time of acceptance of the signal or
indication made by the passenger that he/she is going to embark, the liability of the carrier
already begins)

 Arrival at destination - The relation of carrier and passenger does not cease at the moment the
passenger alights from the carrier’s vehicle at a place selected by the carrier at the point of
destination, but continues until the passenger has had a reasonable time or a reasonable
opportunity to leave the carrier’s premises (La Mallorca v. CA).

 The duty of the common carrier to provide safety to its passengers so obligates is not only during
the course of the trip but for so long as the passengers are within the premises and where they
ought to be in pursuance to the contract of carriage (LRTA v. Navidad). (drunk person fell on rail
tracks and got run over by a train)

 Even if he had already disembarked an hour earlier, his presence in carrier’s premises was not
without cause. The victim had to claim his baggage, which was possible only one hour after the
vessel arrived since it was admittedly standard procedure in case of petitioner’s vessel that the
unloading operations shall start only after that time. Consequently, the victim is still deemed a
passenger (Aboitiz Shipping Corp. v. CA).

 Liability for acts of others:

 Employees – General rule: Common carriers are liable for death or injuries of passengers owing
to negligence or willful acts of its employees, although such employees may have acted beyond
their authority or in violation of the orders of the common carriers. This liability does not cease:

1. Even upon proof that they exercised all the diligence of a good father of a family in the
selection and supervision of their employees;
2. By stipulation, by the posting of notices, nor by statements on the tickets eliminating or
limiting said liability.

Exception: A common carrier is not responsible for acts falling under force majeure. In order to be
exempted from liability due to a fortuitous event, a common carrier must still prove a complete
exclusion of human agency from the cause of injury or death (Yobido v. CA, 1997).

 The employer of a negligent employee is liable for damages under Article 2180, in relation to Art.
2176 of the NCC (Travel & Tours Advisers, Inc. v. Cruz, et al., 14 March, 2016).

 Vicarious Liability – When an injury is caused by the negligence of an employee, there instantly
arises a presumption of law that there was negligence on the part of the employer, either in the
selection of the servant or employee, or in the supervision thereof (Mendoza and Lim v. Spouses
Gomez, 18 June, 2014). (employer always subsidiarily liable)

 Other passengers and strangers – General Rule: A common carrier is not liable for injuries
inflicted by strangers or co-passengers.
 Exception: A common carrier is responsible for injuries suffered by a passenger on account of the
willful acts or negligence of other passengers or of strangers, if the common carrier's employees,
through the exercise of the diligence of a good father of a family, could have prevented or
stopped the act or omission (Art. 1763, NCC).

 Common carriers should be given sufficient leeway in assuming that the passengers they take in
will not bring anything that would prove dangerous to himself, as well as his coo-passengers,
unless there is something that will indicate that a more stringent inspection should be made (G.V.
Florida Transport, Inc. v. Heirs of Battung, 14, October 2015).

 Test to determine attendant negligence – The test to determine whether negligence attended the
performance of an obligation is: Did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would have used in the same
situation. If not, then he is guilty of negligence (Crisostomo v. CA, 2003).

 Liability for delay in commencement of voyage – Passengers shall have the following rights:

1. Right to information

2. Right to refund or revalidation

3. Right to amenities

4. Right to compensation

5. Right to remain on board

6. Right to return

7. Right to damages

 Liability for defects in equipment and facilities – A carrier is liable for the flaws of its equipment
and mechanical defects, if such flaws were at all discoverable. The manufacturer of the defective
appliance is considered in law, as the agent of the carrier, and the good repute of the
manufacturer will not relieve the carrier from liability.

 Bill of Lading – A written acknowledgement of the receipt of goods and an agreement to transport
and to deliver them at a specified place to a person named, or to his order. It may also be defined
as a instrument in writing, describing the freight so as to identify it, stating the name of the
consignor, the terms of the contract of carriage, and agreeing or directing that the freight be
delivered to bearer, to order, or to a specified person at a specified place.

 Three-fold character of the bill – In maritime transportation, a bill of lading is issued by a common
carrier as a contract, receipt, and symbol of the goods covered by it. If it has no notation of any
defect or damage in the goods, it is a clean bill of lading, which constitutes prima facie evidence
of the receipt by the carrier of the goods therein described (Eastern Shipping Lines, Ibid.).

 Period of delivery of goods – If a period has been fixed, delivery must be made within such time,
and if the carrier fails to deliver as agreed it shall pay the indemnity stipulated in the bill of lading,
neither the shipper nor the consignee being entitled to anything more.

 If there is no period fixed for the delivery of goods, the carrier shall be bound to forward them in
the first shipment of the same goods which he may make point where he must deliver them; and
should he not do so, the damages caused by the delay should be for his account.
 The consignee may refuse to take delivery, provided the following grounds are present:

1. When a part of the goods transported are delivered, and the consignee is able to prove
that he cannot make use of the part without the others;

2. When the goods are rendered useless for purposes of sale or consumption in the use for
which they are properly destined, in which case the consignee may demand payment of
the goods at current market prices;

3. In case part of the goods is in good condition and separation is possible, the consignee
may refuse to receive only the damaged goods;

4. Where the delay is through the fault of the carrier

5. If the cargo consists of liquids and they have leaked out, nothing remaining in the
containers but ¼ of their contents, on account of inherent defect of cargo.

 Rule of consignee refuses to take delivery – Municipal judge shall provide for their deposit at the
disposal of the shipper, this deposit producing all the effects of delivery without prejudice to third
parties with better right.

 Period for filing claims:

1. Within 24 hours, if the indications of the damage cannot be ascertained from the exterior
of the packages (i.e., latent damage); or

2. At the time of receipt, if the indications damage can be so ascertained (i.e., patent
damage)

 No claims shall be admitted against the carrier with regard to the condition in which the goods
transported were delivered after the aforementioned periods have elapsed.

 Presentation of the bill of lading is not indispensable before the goods may be released to the
consignee. The general rule is that upon receipt of the goods, the consignee surrenders the bill of
lading to the carrier and their respective obligations are considered cancelled. However, the law
provides two exceptions where the goods may be released without the surrender of the bill of
lading, to wit:

1. When the bill of lading is lost; or

2. For other causes.

In either case, the consignee must issue a receipt to the carrier upon the release of the goods.
The receipt shall produce the same effect as the surrender of the bill of lading.

 Prescriptive period – 12 months from the discharge of goods, or date when they should have
been delivered. This period may be extended or shortened by stipulation. Stipulations in the bill of
lading pertaining to prescriptive period for filing a claim shorter than one year is valid. However, if
the same bill of lading contains a provision that states that if the shorter period is contrary to law,
the period provided by the law (COGSA) shall prevail.

 Maritime Commerce
 Charter party – A contract by virtue of which the owner or agent of a vessel binds himself to
transport merchandise or persons for a fixed price. Liabilities arising from charter parties are
similar to overland transport.

 Bareboat/Demise Charter – A charter agreement whereby the shipowner leases the entire
command, possession, and consequent control over the vessel’s navigation, including the master
and the crew.

Legal effect – The vessel is thus transformed into a private carrier.

 Time Charter – An agreement whereby the charterer contract for the use of a vessel for a
specified period of time or for the duration of one or more specified voyages but the owner of the
vessel retains possession and control of the master and crew who remain his employees.

Legal effect – The status of the vessel remains to be that of a common carrier.

 Voyage or Trip Charter – A chartering agreement whereby the charterer contracts for the carriage
of goods from one or more ports of loading, to one or more ports of unloading, on one or on a
series of voyages. The master and crew remain in the employ of the owner of the vessel.

Legal effect - The status of the vessel remains to be that of a common carrier.

 Liability of shipowners – Ship owners and ship agents are allowed to limit their liability for any loss
or damage to the value of their investment or amount of interest in the vessel. This is known as
the Real and Hypothecary Nature of Maritime Law, otherwise known as the no vessel no liability
doctrine.

 Exceptions to the limited liability rule:

1. When the shipowner is at fault;

2. If the claim is based on the Compensation Act (employees);
3. Liabilities for repairs of and provisioning the vessel effected before the loss of the vessel;
4. When the vessel is insured; or
5. The vessel is a private carrier or the voyage is not maritime in character.

 General Average – General or gross averages refers to all damages and expenses which are
incurred deliberately in order to save the vessel, her cargo, or both, from a real and known risk.

 Legal consequence – All persons having an interest in the vessel and cargo therein at the time of
the occurrence of the average shall contribute for the payment of expenses and damages.

 Collisions vs. Allisions – Collision is the impact of two vessels both of which are moving. Allision
is the impact between a moving vessel and a stationary one.

 Liability in case of collision – Collision through the fault of the captain, sailing mate, or any other
member of the complement, the owner of the vessel at fault shall indemnify the losses and
damages suffered, after an expert appraisal.

If both vessels are liable, each one shall be liable for his own damages, and jointly responsible for
the losses and damage suffered by their cargo.

Where it cannot be determined which between the two are at fault, both bear their respective
damages, but both shall be solidarily liable for damage to the cargo of both vessels.
 If a vessel should collide with another by reason of an accident or through force majeure, each
vessel and her cargo shall be liable for their own damage – Doctrine of Inscrutable Fault.

If a vessel is forced to collide with another one by a third vessel, the owner of the third vessel
shall indemnify for the losses and damages caused, the captain thereof being civilly liable to said
owner.

 Carriage of Goods by Sea Act (COGSA)

 COGSA is applicable to all contracts for the carriage of goods by sea to and from Philippine ports
in foreign trade.

 Up to when is COGSA provisions applicable? – From the time when the goods have been
discharged from the ship and given to the custody of the arrastre operator is not covered by the
COGSA (Insurance Company of North America v. Asian Terminals, Inc., 15 February, 2012).

 Notice of loss under COGSA is required where there is damage to the goods being transported.
Notice should be given at the time of the removal of the goods into the custody of the person
entitled to delivery thereof. If the loss or damage is not apparent, the notice must be given within
three days from delivery.

 Failure to file a notice of claim within three days shall not bar recovery if a suit is nonetheless filed
within one year from delivery of the goods or from the date when the goods should have been
delivered (Belgian Overseas Chartering v. Philippine First Insurance Co, 2002).

 Parties may agree to extend the prescriptive period (Benjamin Cua v. Allem Phils. Shipping, 11
July, 2012). If no action is made within the prescriptive period, the carrier and the ship shall be
discharged from all liability in respect of loss or damage of goods.

 A stipulation limiting the carrier’s liability for loss of cargo is allowed under the NCC and COGSA
(Philippine Charter Insurance v. Neptune Orient Lines).

 Package Limitation Rule under COGSA? – This limits the carrier’s liability in the absence of a
shipper’s declaration of a higher value in the bill of lading. Exception: If the nature and value of
the goods have been declared by the shipper before the shipment and inserted in the bill of
lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall
not be conclusive on the carrier.

 PUBLIC SERVICE ACT

 A public utility is a business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water, transportation,
telephone, or telegraph service (National Power Corporation v. Court of Appeals, 1997).

 Elements of Public Utility:

1. There must be public interest or consequence;

2. Private property devoted to public use;
3. Offers to the public indiscriminately;
4. For hire or compensation

 Certificate of Public Convenience – A permit issued by a relevant government agency for the
grantee to operate public utility for which no franchise, either municipal or legislative, is required
by law.
 Prior Operator Rule – Allows an existing franchised operator to invoke a preferential right within
the territory he operates, for as long as he can provide satisfactory and economic service. It is
intended to prevent ruinous and wasteful competition in order that the interests of the public
would be conserved and preserved.

General Rule: Prior applicant has priority in the issuance of CPCs

Exceptions: Where the operator either fails or neglects to make the improvements or effect the
increase in services despite the opportunities given to him.

 Provided the aforementioned, a new operator must not be permitted to serve the territory or route
already served by another operator, without first giving the latter the opportunity to improve his
equipment and service.

 Boundary System – An arrangement whereby the registered owner of a vehicle allows another
person to operate it as a common carrier under a lease agreement between them, and thereby
avoiding the establishment of either an employer-employee relationship or that of a principal-
agent relation. This type of arrangement is not sanctioned by the Public Service Law.

 The operator of a public utility cannot avoid liability arising from the negligent act of his driver by
claiming that his driver is an independent contractor who merely leased his vehicle and that there
is no employer-employee relationship between them.

 Kabit System – This is an arrangement whereby a person who has been granted a CPC allows
another person who owns a motor vehicle to operate under such franchise for a fee. In case of
accidents involving vehicles operated under the Kabit system, both the owner and the kabit
operator may be held liable (Lita Enterprises v. IAC). (valid but cannot bind third parties; in pari
delicto)

 The Warsaw Convention – Applies to all international carriage of persons, baggage, or cargo
performed by aircraft for reward, as well as gratuitous carriage by aircraft performed by an air
transport undertaking.

 International air carriage or international air transport means transportation by air between points
of contact of two high contracting parties, or those countries that have acceded to the Warsaw
Convention, wherein the place of departure and the place of destination are situated:

1. Within the territories of two high contracting parties, regardless of whether or not there be
a break in the transportation or a transshipment; or

2. Within the territory of a single high contracting party, if there is an agreed stopping place
within a territory subject to the sovereignty, mandate, or authority of another power, even
though the power is not a party to the Convention.

 The Montreal Convention – Amended the now-defunct Warsaw Convention and its protocols.

 The Montreal Convention is a universal treaty, governing airline liability around the world. It
covers carriage of the following:

1. Passengers;
2. Baggage; and
3. Cargo

 Ratified by the Senate in 10 August, 2015, and took effect on 12 December, 2015.
 Significant terms of the Agreement

 On liability for death or bodily injury to a passenger:

1. Adopted a two-tier liability for death or injury:

a. The first tier imposes strict liability on the airline carrier for damage sustained in
case of death or bodily injury of a passenger.
 Liability automatically imposed, regardless of negligence or lack thereof,
as long as the accident which caused the death or injury took place on
board the aircraft or in the course of any of the operations for embarking
or disembarking.

 The carrier’s liability for damages shall not exceed 113,100 Special
Drawing Rights (SDR) (amount equivalent to a basket of currencies
which is stable; dollars, euros, yen, pounds, etc.) (roughly about ₱5M)

 An SDR is a type of foreign exchange reserve asset created by the

International Monetary Fund.

b. In the second tier of liability, the carrier can be liable for damages higher than
113,100 SDRs, if the death or bodily injury to the passenger was due to the
negligence or wrongful act or omission of the airline personnel.

2. The defense that the carrier or its agents have taken all reasonable measures to avoid
the damage is no longer available under the Montreal Convention.

3. Burden of proof is on the carrier.

4. To avoid additional liability, the carrier must prove that the damage was solely due to the
negligence or wrongful act of or omission of a third party.

 On Liability for Checked-In Baggage

1. In the case of destruction, or loss of, or of damage to, checked-in baggages, the carrier
shall be liable for damages as long as the destruction, loss or damage took place on
board the aircraft or during any period within which the checked baggage was under the
carrier’s custody.

2. The carrier’s liability shall be up to 1,131 SDRs for each passenger.

3. The passenger may claim above the limit of 1,131 SDR only if he has made a special
declaration of interest at the time of check-in, and has paid a supplementary sum if the
case so requires. In such case, the carrier will be liable to pay a sum not exceeding the
declared sum.

4. The carrier may be held not liable if and to the extent that the damage resulted from the
inherent defect, quality, or vice if the baggage.

 On Liability for Unchecked Baggage (hand-carried)

1. In case of unchecked baggage, including personal items, the carrier shall be liable if he
damage resulted from its faults or that of its agents.
  Period to file a complaint:

1. In case of damage to checked-in baggage, complainant must file his WRITTEN complaint
within 7 days from the date of receipt of the checked-in baggage.

2. In case of delay of delivery, the complaint must be made within 21 days from the date of
receipt of the baggage.

3. The time limitations for filing the complaints are important since no action can lie against
the carrier if the complaints were made beyond the period stated.

 Willful misconduct – The intentional omission of some act, with knowledge that such omission will
probably result in damage or injury, or the intentional omission of some act in a manner from
which could be implied reckless disregard of the probable consequences of the omission.

 The Montreal Convention is inapplicable where there was satisfactory evidence of malice or bad
faith attributable to officers or employees of the airlines.

PART IV – INSURANCE LAW

 (REFERENCE AQUINO HANDOUTS)

 R.A. 10607 – Insurance Code; passed 2013

 The Principal Object and Purpose Test – If the assumption of risk and indemnification is the
principal purpose of the contract, it is an insurance contract (Medicard Philippines v. CIR, 5 April,
2017).

 Relevance of HMO vs. Insurance contract – Through the regulation of the Insurance Commission,
HMOs are prohibited from including in a contract the indemnity in case of death.

 Insurance Contract: Concept

 Variable contract shall mean any policy or contract on either a group or individual basis issued by
an insurance company providing for benefits or other contractual payments or values thereunder
to vary so as to reflect investment results of any segregated portfolio of investments or of a
designated separate account in which amounts received in connection with such contracts shall
have been placed and accounted for separately and apart from other investments and accounts.
This contract may also provide benefits or values incidental thereto payable in fixed or variable
amounts, or both (Section 238(a), Insurance Code).

 Doing an insurance business under the IC:

1. Making or proposing to make, as insurer, any insurance contract; or

2. Making or proposing to make, as surety, any contract of suretyship as a vocation and not
as merely incidental to any other legitimate business or activity of the surety.
(nevertheless, a contract of suretyship is not a contract of insurance)

3. Doing any kind of business, including a reinsurance business, specifically recognized as

constituting the doing of an insurance business within meaning of this Code;
 4. Doing or proposing to do any business in the substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.

 Waiver of the premium will not change the nature of the contract as that of insurance.

 Characteristics of the Insurance Contract:

1. Contract of adhesion – Construed in favor of beneficiary

2. Risk-distributing device
3. Aleatory – Based on the happening of the contingent or unknown event
4. Personal
5. Perfect good faith – On both the insured and insurer
6. Contract of indemnity

 An insurance policy may be transferrable inter vivos or through succession. If there is doubt, as
between two or more persons who are called to succeed each other, as to which of them died
first, whoever alleges the death of one prior to the other, shall prove he same; in the absence of
proof, it is presumed that they died at the same time, and there shall be no transmission of rights
from one to the other.

 Elements of an Insurance Contract:

1. Existence of insurable interest;

2. Risk of loss;
3. Assumption of risk;
4. Scheme to distribute losses; and
5. Payment of premium

 Risk – Any contingent or unknown event, whether past or future, which may damnify a person
having insurable interest, or create a liability against him, may be insured against.

 Pure vs. Speculative Risk – The risk of loss from gambling, which is speculative, (gain vs. loss) is
not insurable. What is insurable is only pure risk, (loss vs. no loss) which involves loss, damage,
or liability of property.

 The risk of loss cannot be through willful acts (e.g. claiming fire insurance after committing arson
on your own property). This is bad faith and is thus not covered.

 Named perils policy vs. All risk policy – Risk of loss may be limited by specifically naming the
perils to be covered. It can be expanded by not giving specific perils, which will cover all allowable
risk under the law. If it is a named perils policy, the loss must be proven to have been caused by
one of those enumerated in the policy. On the other hand, the burden is upon the insurer to prove
that it is not covered by the policy in case of an all risk policy.

 Insurance of trivial risk is against public policy.

 Classes of Insurance:

1. Marine Insurance
2. Fire Insurance
3. Casualty Insurance
4. Life Insurance
5. Third-Party Liability Insurance
6. Suretyship
 7. Micro-Insurance (7.5% premiums; benefits not moore than 1000x the minimum wage)
8. Compulsory Motor Vehicle Liability Insurance
9. Compulsory Insurance Coverage for Agency-Hired Workers

 Banccassurance – Means the presentation and sale to bank customers by an insurance company
of its insurance products within the premises of the head office of such bank duly licensed by the
BSP (Section 375, IC).

 Parties to the Insurance Contract:

1. Insurer
2. Insured
3. Beneficiary

 In property insurance, the person who is insuring the property over which he has insurable
interest is the insured. In life insurance, one’s own life, or the life of another (with whom the
insurer has insurable interest), may be insured. In the latter case, the person whose life is insured
is the insured, while the one applying for the policy is called the assured. For the purpose of
applying insurance law, the assured will be considered the policy owner or holder, and as such,
he/she is entitled to all the rights pertaining thereto under the Insurance Code and resolutions of
the Insurance Commission.

 All the rights, title, and interests in the life or health insurance policy of the owner shall
automatically vest in the person whose life or death is insured upon the death of the original
owner, unless otherwise provided for in the policy. (assured predeceases the insured)

 Insurers must be licensed by the Insurance Commission (3 years period).

 If the beneficiary is the insured himself, then he is a party. On the other hand, if the beneficiary is
a third party, the NCC provisions on stipulation pour autrui shall apply as to him/her.

 General rule: In the absence of stipulation, the beneficiary is revocable, unless he has expressly
waived this right in said policy. Irrevocable beneficiaries cannot be changed. Exception: in case of
legal separation or annulment of marriage, even if the guilty (in bad faith) spouse was designated
as an irrevocable designation, the innocent spouse may revoke his or her designation as such.

 Effect of irrevocable designation:

1. The beneficiary cannot be replaced;

2. The designation prevents the designation of additional beneficiaries (deprives the
irrevocable beneficiary of his vested rights over the policy);
3. The irrevocable beneficiary may avail of the cash surrender value if the insured should
surrender the policy;

 If there is no beneficiary in life insurance – The estate will be entitled to the proceeds.

 The source of the funds is immaterial in case of a third party beneficiary.

 Can the insured who is part of the LGBTQ+ community designate his/her/their domestic partner
as beneficiary of his/her life insurance? – It is implicit from Section 11 of the Insurance Code that
the insured who takes a life insurance contract on his own life may designate ANY PERSON as
beneficiary.
 Can a member of the cooperative designate the cooperative as beneficiary of life insurance? –
Yes. Same principle as above. (however, if it is the cooperative who takes the insurance upon the
lives of its members and designate itself as beneficiary, the same is not valid—no insurable
interest)

 Insurable interest as to the designation of beneficiaries is only applicable for property insurance.

 Who may be beneficiaries:

1. The insured himself;

2. Third persons who paid consideration – As when insured takes a policy for the benefit of
a creditor or to secure some other obligation.

 The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the
principal, accomplice, or accessory in willfully bringing about the death of the insured. In such a
case, the share forfeited shall pass on to:

1. The other beneficiaries, unless otherwise disqualified;

2. In the absence of other beneficiaries, the proceeds shall be paid in accordance with the
policy contract; and
3. If the policy contract is silent, the proceeds shall be paid to the estate of the insured.

 If the insured is a public enemy (must be in case of war; only international)

1. If public enemy is designated before insurance – Insurers cannot insure public enemies
or citizens thereof
2. If insurance came before state of war – The policy is not merely suspended, but
completely abrogated. It cannot produce any effect.
3. If there was subsequent reconciliation – The policy will no longer be revived.

 Insurance agents are independent contractors (unless they are employees under the Labor
Code). Insurance agents represent the insurer, whereas insurance brokers represent the insured.

 The jurisdiction of the Insurance Commission does not cover the relationship between the insurer
and the agent.

 Requisites of an insurance contract

1. Consent – of the insured; contract of adhesion

2. Consideration – assumption of risk; premium
3. Object

 Cognition Theory – For the purpose of perfection of a contract, the offeror (insured) must have
first learned of the acceptance by the other party. In case of insurance, the contract is perfected
upon the knowledge of the insured that his or her policy was approved or accepted.

 A contract of insurance must be assented to by both parties, either in person or through agents.
So long as the application for insurance has not been either accepted or rejected, it is merely an
offer or proposal to make a contract (Steamship Mutual Underwriting v. Sulpicio Lines, 20
September, 2017).

 There is no binding insurance if the application is not accepted by the insurer. Cognition theory
applies. However, there are cases when the insurer assumed the risk of loss without approving
the application. This includes cases when the buyer of a memorial lot is deemed insured the
 moment it enters into a contract with the seller (Eternal Gardens Memorial Park v. Phil. American
Life Insurance Corp. v. Philippine American Life Insurance Corp., 9 April, 2008).

 The Insurance Code provides for a prescribed policy, which impose mandatory stipulations to be
met. However, the policy itself is not necessary for the perfection of the insurance contract, the
same being consensual in nature.

 Riders or endorsement are likewise not necessary for the contract, but for the riders to be valid,
they must comply with the requirements under Section 50 of the IC.

 Property insurance policies:

1. Open policy
2. Running policy
3. Valued policy

 The insured may cancel the policy – by not paying the premium.

 Liability insurance covers actual damages. Moral damages – No jurisprudence yet. Liability for
exemplary damages – Not covered, because it is against public policy (exemplary damages are
imposed to serve as an example; to deter the continuation or repetition of the same unlawful act).

 Insurable Interest - That interest which a person is deemed to have in the subject matter insured,
where he has a relation or connection with or concern in it, such that the person will:

1. Derive pecuniary benefit or advantage from the preservation of the subject matter
insured; and
2. Suffer pecuniary loss or damage from its destruction, termination, or injury by the
happening of the event insured against.

 Without an insurable interest to protect, the risk becomes merely speculative. A policy issued to a
person without insurable interest is a mere wager policy or contract and is void for illegality.

 As a general rule, insurable interest must be capable of pecuniary estimation because the
purpose of insurance is to indemnify. Exception: Life insurance—its purpose is not indemnity but
as an investment or savings instrument.

 Double insurance - Double insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest. It is not per se prohibited, unless
it results to over-insurance, in which case the policy must be cancelled. Over insurance occurs
when the value of the insurance exceeds the value of the insurable interest.

 Insurable Interest in Life Insurance – (Section 10) Every person has an insurable interest in the
life and health:

1. Of himself, of his spouse and of his children;

2. Of any person on whom he depends wholly or in part for education or support, or in

whom he has a pecuniary interest;

3. Of any person under a legal obligation to him for the payment of money, or respecting
property or services, of which death or illness might delay or prevent the performance;
and
 4. Of any person upon whose life any estate or interest vested in him depends.

 The insurable interest in the life of another must be a pecuniary interest. It exists whenever the
relation between the assured and the insured is such that the assured has a reasonable
expectation of deriving benefit from the continuation of the life insured or of suffering detriment
through its termination.

 In life insurance, the insurable interest should exist at the time of the perfection of the contract,
but it need not exist thereafter. For property insurance, the insurable interest should exist at the
time of the perfection of the contract, as well as during the time of loss. When an insured property
is transferred, it has the effect of suspending the policy until the reacquisition thereof by the
insured.

 Consent of the persons whose life is insured is not required.

 Insurable Interest in Property Insurance – (Section 13) The following are considered as insurable
interest, provided that they are of such nature that a contemplated peril may directly damnify
(test to determine insurable interest in property insurance) the insured:

1. Every interest in real or personal property; or

2. Any relation thereto; or

3. Any liability in respect thereof.

 Multiple or Several Interest on the Same Property – Unless otherwise specified in the policy, the
insurance proceeds shall be applied exclusively to the proper interest of the person in whose
name or for whose benefit it is made.

 Example: Both the mortgagor and mortgagee have each separate and distinct insurable interest
in the mortgaged property.

 When a mortgagee insures his own interest in the mortgaged property without reference to the
right of the mortgagor, mortgagee is entitled to the proceeds of the policy in case of loss to the
extent of his credit.

 When a mortgagor takes out an insurance for his own benefit, only he can recover from the
insurer but the mortgagee has a lien on the proceeds by virtue of the mortgage. A mortgagor can
make the proceeds payable to or assigned to the mortgagee

 Open loss payable clause - An open loss payable clause states that the proceeds of the
insurance contract is payable to the mortgagee as beneficiary. The contract, however, is procured
by the mortgagor for his interest in the property. He is the party to the contract, not the
mortgagee. The acts of the mortgagor prior to the loss, which would otherwise avoid the
insurance, affect the mortgagee, even if the property is in the hands of said mortgagee.

 Premium – An insurance premium is the agreed price for assuming and carrying the risk, that is,
the consideration paid an insurer for undertaking to indemnify the insured against the specified
peril. General rule: No insurance policy issued or renewal is valid and binding until actual
payment of the premium. Any agreement to the contrary is void. (cash and carry rule) Exceptions:
 1. Whenever the grace period provision applies in the case of a life or an industrial life
policy.
2. Whenever under the broker and agency agreements with duly licensed intermediaries, a
90-day credit extension is given.
3. When there is an acknowledgment in the contract that the premium has been paid.
4. Agreement to grant payment of premium in installment basis and partial payment has
been made (Makati Tuscany Condominium v. CA);
5. When parties are barred by Estoppel (UCPB v. Masagana Telemart). (continued grant of
credit term for payment of premium despite full awareness of Section 77)

 Where an insurer authorizes an insurance agent or broker to deliver a policy to the insured, it is
deemed to have authorized said agent to receive the premium in its behalf.

 What is the effect off the provision in the policy that states that the insured’s application for the
insurance is subject to the payment of the premium? – The provision is consistent with Section 77
of the Insurance Code; thus the insurance application in violation of this policy is not valid and
binding (Gaisano v. Development Insurance and Surety).

 When the policy does not take effect pursuant to the cash and carry rule, the remedy of specific
performance is not available to compel the contract into existence.

 The payment of premium by a postdated check at a stated maturity subsequent to the loss is
insufficient to put the insurance into effect. But payment by a check bearing a date prior to the
loss, assuming availability of funds, would be sufficient, even if it remains unencashed at the time
of the loss. The subsequent effects of encashment would retroact to the date of the instrument
and its acceptance by the creditor.

 In the case of individual life or endowment insurance, the policy shall contain a provision that the
policyholder shall be entitled to have the policy reinstated:

1. At any time within three (3) years from the date of default of premium payment;
2. Upon production of evidence of insurability satisfactory to the company; and
3. Upon payment of all overdue premiums and any indebtedness to the company upon said
policy, with interest rate not exceeding that which would have been applicable to said
premiums and indebtedness in the policy years prior to reinstatement.

 Rescission of Insurance Contracts

1. Concealment – Concealment, whether intentional or unintentional, entitles the injured

party to rescind a contract of insurance (contract of perfect good faith). Concealment is
the failure to disclose facts which the applicant at the time of application, knows or ought
to know and are material to the insurance applied for. For the purpose of rescission, this
only applies to material facts concealed.

2. Misrepresentations – Representations are factual statements made by the insured at the

time of, or prior to, the issuance of the policy, which give information to the insurer and
induce him to enter into the insurance contract. It may be about a past, an existing fact,
or a future happening. Misrepresentation is false representation which the insured states
with knowledge that it is untrue, intended to deceive the insurer into accepting risk.
Misrepresentation is concealment in the active voice.

3. Breach of Warranties - A warranty is a statement or promise by the insured set forth in

the policy itself or incorporated in it by proper reference, the untruth or non-fulfillment of
which in any respect and without reference to whether the insurer was in fact prejudiced
 by such untruth or non-fulfillment, renders the policy voidable by the insurer. Violation of
a material warranty entitles the other party to rescind.

 The test of materiality (in concealment) is whether the insurer would have agreed to issue the
policy had it known of the facts concealed or, perhaps, impose additional terms or require higher
premium.

 Misrepresentation may be made at the time of or before the issuance of the policy, because
inducement to enter into a contract is essential.

 On the other hand, when the insured makes a representation, it is incumbent on them to assure
themselves that a representation on a material fact is not false; and if it is false, that it is not a
fraudulent misrepresentation of a material fact. This returns the burden to insurance providers
which, in general, have more resources than the insured to check the veracity of the insured’s
beliefs as to a statement of fact (Insular Life v. Heirs of Alvarez, 3 October, 2018).

 Riders – A rider is a printed or typed stipulation contained in a slip of paper attached to the policy
and forming an integral part thereof. Thus, it does not need to be signed by the insured.

 The test of materiality is not applicable in warranties. The mere fact that a representation is
warranted places the insured under liability against the breach thereof.

 Types of Warranties:

1. Express Warranty – There is no prescribed form for a warranty to be considered as

such. However, the Code prescribes a requirement for express warranties. It must be an
agreement contained in the policy or clearly incorporated therein as part thereof, relating
to the person or thing insured or to the risk as a fact.

2. Implied Warranty - Deemed included in the contract although not expressly mentioned
(e.g., implied warranty of seaworthiness of the vessel in marine insurance and implied
warranty not to alter the circumstances of the thing insured). This is only available for
marine insurance.

3. Affirmative Warranty - Asserts the existence of a fact or condition at the time it is made.

4. Promissory Warranty or Executory Warranty – The insured stipulates that certain facts or
conditions pertaining to the risk shall exist or that certain things with reference thereto
shall be done or omitted. It is in the nature of a condition subsequent.

 Incontestability Clause – In the case of individual life or endowment insurance, the policy shall
contain a provision that the policy shall be incontestable after it shall have been in force during
the lifetime of the insured for a period of two years from its date of issue as shown in the policy, or
date of approval of last reinstatement. Requisites:

1. Must be life insurance policy;

2. The policy is in force for two years from issue or last reinstatement (of a lapsed policy)

 Claims Settlement and Subrogation

 Claim only valid if the proximate cause (not remote cause) is covered. Even if the immediate
cause is the peril insured against, and not the proximate cause, there can still be recovery, so
long as the proximate cause is not an exempted peril. (the immediate cause is the cause that
immediately precedes the loss)
 Proximate cause – That cause, which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and without which the result would not have
occurred.

 Negligence does not prevent recovery. Intentional acts AND gross negligence precludes recovery
(bad faith).

 Requisites for Recovery Upon a Loss (including injury or damage):

1. The insured must have insurable interest in the subject matter;

2. The interest is covered by the policy;
3. There must be a loss;
4. The loss must be foe one for which the insurer is liable;
5. Notice and proof of loss must be given if the policy is fire insurance or when the same is
stipulated in the policy.

 Notice of Loss - This refers to the formal notice given the insurer by the insured or claimant under
a policy of the occurrence of the loss insured against. Effect of failure to give notice:

1. Fire Insurance – Exonerates the insurer if no notice is given without unnecessary delay;
2. Other types of insurance – G.R. No exoneration, unless there is a stipulation in the policy
requiring the insured to do so.

 However, it has been held that formal notice of loss is not required if the insurer has actual notice
of loss (Fidelity Phoenix Insurance v. Friedman).

 An insurer can exercise its right to rescind an insurance contract on the ground of alteration when
the following conditions are present, to wit:

1. The policy limits the use or condition of the thing insured;

2. There is an alteration in the use or condition of the thing insured;
3. There is alteration in the said use or condition;
4. The alteration is without the consent of the insurer;
5. The alteration is made by means within the insured’s control; and
6. The alteration increases the risk of loss.

 PRE-NEED

 Pre-need plans are contracts, agreements, deeds, or plans for the benefit of the planholders
which provide for the performance of future services, payment of monetary considerations, or
delivery of other benefits at the time of actual need or agreed maturity date, as specified therein,
in exchange for cash or installment amounts with or without interest or insurance coverage and
includes life, pension, education, interment, and other plan, instruments, contracts, or deeds
(Section 4, Pre-Need Code).

 Governed by the Pre-Need Code – R.A. No. 9829.

 Pre-need plans are not considered insurance contracts, because:

1. Pre-need plans can have insurance coverage, implying that they are separate contracts;
and
2. Pre-need plans do not involve unknown or contingent events but events certain to
happen at a certain time.
 Nevertheless, they are under the primary and exclusive power, supervision, and regulation of the
insurance commission, including the adjudication of all claims including pre-need plans.

 A pre-need company is any:

1. Corporation registered with the Commission and authorized or licensed to sell or offer t
sell pre-need plans;

2. Schools, memorial chapels, banks, non-bank financial institutions, and other entities
authorized or licensed to sell or offer to sell pre-need plans insofar as heir pre-need
activities or businesses are concerned.

 Registration statement must be made within a period of 45 days after the grant of a license to do
business as a pre-need company. Required documents:
1. Duly accomplished Registration Statements
2. Board resolution authorizing the registration of applicant’s pre-need plans;
3. Opinion of independent counsel on the legality of the issue;
4. Audited financial statements;
5. Viability study with certification, under oath, of pre-need actuary accredited by the
Commission;
6. Copy of the proposed pre-need plan; and
7. Sample of sales materials.

 Salient provisions:

 It shall be unlawful for any pre-need company to advertise itself or its pre-need plans unless the
Commission has approved such advertising materials (Primamanila, Inc. v. SEC, 6 August,
2014).

 The pre-need company must provide in all contracts issued to planholders a grace period of at
least 60 days within which to pay accrued installments, counted from the due date of the first
unpaid installment. Nonpayment of a plan within the grace period shall render the plan a lapsed
plan.

 The planholder shall be allowed a period of not less than two years from the lapse of the grace
period or a longer period as provided in the contract within which to reinstate his plan. No
cancellation of plans shall be made by the issuer during such period when reinstatement may be
effected.

 Notice requirement – Within 30 days from the expiration of the grace period and within 30 days
from the expiration of the reinstatement period, which is two years from the lapse of the grace
period, the pre-need company shall give written notice to the planholder that his plan will be
cancelled if not reinstated within two years. Failure to give these notices shall preclude the pre-
need company from treating the plan as cancelled.

 Termination:

1. The planholder may terminate his pre-need plan at any time by giving written notice to
the issuer (Section 24). A planholder is entitled to Termination Value.

2. No pre-termination by pre-need company, but it may offer to do so. Any offer made by the
pre-need company t terminate the plan for consideration exceeding the termination value
provided in the plan contract shall not require the approval of the Commission, provided:
 a. The consideration shall be below the pre-need reserves for the specific plan;
b. The offer is accepted by the planholder; and
c. The offer shall not prejudice the planholders who do not avail of such offers.

 Trust Fund – The trust fund is for the sole benefit of the planholders and cannot be used to satisfy
the claims of other creditors of the insolvent pre-need corporation (SEC v. Laigoo, 2 September,
2015).

PART V – CORPORATION LAW