COMMERCIAL LAW REVIEW

FINAL EXAMINATION 2017

(1) Give at least three (3) examples of the acts or activities that are specifically identified
under our foreign investment laws as constituting “doing business” in the Philippines. (5pts)

SUGGESTED ANSWER:

Any three (3) of the following acts or activities constitute “doing business” in the Philippines under
our foreign investment laws:

1. Soliciting orders
2. Opening offices by whatever name
3. Participating in the management, supervision or control of any domestic entity
4. Entering into service contracts
5. Appointing representatives or distributors, operating under the control of the foreign entity,
who is domiciled in the Philippines or who stays in the country for a period or periods totaling
at least 180 days in any calendar year

(2) After many years of shopping in the Metro Manila area, housewife HW has developed the
sound habit of making cash purchases only, none on credit. In one shopping trip to Mega
Mall, she got the shock of her shopping life for the first time, a store’s smart salesgirl refused
to accept her coins in payment for a purchase worth not more than one hundred pesos (take
note na lang sa amount baka ibahin). HW was paying seventy pesos in 25-centavo coins and

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twenty five pesos in 10 centavo coins. Strange as it may seem, the salesgirl told HW that her
coins were not “legal tender.” Do you agree with the salesgirl in respect of her understanding
of “legal tender?” Explain. (10pts)

SUGGESTED ANSWER:

Pursuant to Section 52 of Republic Act No. 7653 and Monetary Board Resolution No. 862 dated 6
July 2006, the maximum amount of coins to be considered as legal tender is adjusted as follows:
One thousand pesos (P1,000.00) for denominations of 1-Piso, 5-Piso and 10-Piso coins;
One hundred pesos (P100.00) for denominations of 1-sentimo, 5-sentimo, 10-sentimo, and 25-
sentimo coins.

(3) May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with a
company licensed to do business under the Insurance Code of the Phils (PD 1460)? Explain.
(5pts)

SUGGESTED ANSWER:

A member of the MILF or the Abu Sayyaf may be insured with a company licensed to do business
under the Insurance Code of the Phils. What is prohibited to be insured is a public enemy. A public
enemy is a citizen or national of a country with which the Philippines is at war. Such member of the
MILF or the Abu Sayyaf is not a citizen or national of another country, but of the Philippines.

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(4) X company procured a group accident insurance policy for its construction employees
variously assigned to its provincial infrastructure projects. Y Insurance Company underwrote
the coverage, the premiums of which were paid for entirely by X Company without any
employee contributions. While the policy was in effect, five of the covered employees
perished at sea on their way to their provincial assignments. Their wives sued Y Insurance
Company for payment of death benefits under the policy. While the suit was pending, the
wives signed a power of attorney designating X Company executive, PJ, as their authorized
representative to enter into a settlement with the insurance company. When a settlement was
reached, PJ instructed the insurance company to issue the settlement check to the order of X
Company, which will undertake the payment to the individual claimants of their respective
shares. PJ misappropriated the settlement amount and the wives pursued their case against
Y Insurance Co. Will the suit prosper? Explain. (10pts)

SUGGESTED ANSWER:

Yes. The suit will prosper. Y Ins Co is liable. X Co, through its executive, PJ, acted as agent of Y Ins
Co. The latter is thus bound by the misconduct of its agent. It is the usual practice in the group
insurance business that the employer-policy holder is the agent of the insurer.

(5) Name at least three instances when an insured is entitled to a return of the premium paid.
(5pts)

SUGGESTED ANSWER:

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Three instances when an insured is entitled to a return of premium paid are:

1. To the WHOLE PREMIUM, if no part of his interest in the thing insured be exposed to any of the
perils insured against.

2. Where the insurance is made for a definite period of time and the insured surrenders his policy, to
such portion of the premium as corresponds with the unexpired time at a pro rata rate, unless a short
period rate has been agreed upon and appears on the face of the policy, after deducting from the
whole premium any claim for loss or damage under the policy which has previously accrued.

3. When the contract is voidable on account of the fraud or misrepresentation of the insurer or of his
agent or on account of facts the existence of which the insured was ignorant without his fault; or
when, by any default of the insured other than actual fraud, the insurer never incurred any liability
under the policy.

ALTERNATIVE INSTANCE:

In case of an over insurance by several insurers, the insured is entitled to a ratable return of the
premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds
the insurable value of the thing at risk.

(6) GP is a suspected jueteng lord who is rumored to be enjoying police and military
protection. The envy of many drug lords who had not escaped the dragnet of the law, GP was
summoned to a hearing of the Committee on Racketeering and Other Syndicated Crimes of

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the House of Representatives, which was conducting a congressional investigation “in aid of
legislation” on the involvement of police and military personnel, and possibly even of local
government officials, in the illegal activities of suspected gambling and drug lords.
Subpoenaed to attend the investigation were officers of certain identified banks with a
directive to them to bring the records and documents of bank deposits of individuals
mentioned in the subpoenas, among them GP. GP and the banks opposed the production of
the banks’ records of deposits on the ground that no such inquiry is allowed under the Law
on Secrecy of Bank Deposits (RA 1405 as amended). Is the opposition of GP and the banks
valid? Explain. (10pts)

SUGGESTED ANSWER:

Yes. The opposition is valid. GP is not a public official. The investigation does not involve one of the
exceptions to the prohibition against disclosure of any information concerning bank deposits under
the Law on Secrecy of Bank Deposits. The Committee conducting the investigation is not a
competent court or the Ombudsman authorized under the law to issue a subpoena for the production
of the bank record involving such disclosure.

(7) Embassy Appliances sells home theater components that are designed and customized as
entertainment centers for consumers within the medium-to-high price bracket. Most, if not all,
of these packages are sold on installment basis, usually by means of credit cards allowing a
maximum of 36 equal monthly payments. Preferred credit cards of this type are those issued
by banks, which regularly hold mall wide sales blitzes participated in by appliance retailers
like Embassy Appliances. You are a buyer of a home theater center at Embassy Appliances.

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The salesclerk who is attending to you simply swipes your credit card on the electronic
approval machine (which momentarily prints out your charge slip since you have unlimited
credit), tears the slip from the machine, hands the same over to you for your signature, and
without more, proceeds to arrange the delivery and installation of your new home theater
system. You know you will receive a statement on your credit card purchases from the bank
containing an option to pay only a minimum amount, which is usually 1/36 of the total price
you were charged for your purchase. Did Embassy Appliances comply with the provisions of
the Truth in Lending Act (RA 3765)? (10pts)

SUGGESTED ANSWER:

There is no need for Embassy Appliances to comply with the Truth in Lending Act. The transaction is
not a sale on installment basis. Embassy Appliances is a seller on cash basis. It is the credit card
company which allows the buyer to enjoy the privilege of paying the price on installment basis.

(8) S stored hardware materials in the bonded warehouse of W, a licensed warehouseman

under the General Bonded Warehouse Law (Act 3893 as amended). W issued the
corresponding warehouse receipt in the form he ordinarily uses for such purpose in the
course of his business. All the essential terms required under Section 2 of the Warehouse
Receipts Law (Act 2137 as amended) are embodied in the form. In addition, the receipt issued
to S contains a stipulation that W would not be responsible for the loss of all or any portion
of the hardware materials covered by the receipt even if such loss is caused by the
negligence of W or his representatives or employees. S endorsed and negotiated the

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warehouse receipt to B, who demanded delivery of the goods. W could not deliver because
the goods were nowhere to be found in his warehouse. He claims he is not liable because of
the free-from-liability clause stipulated in the receipt. Do you agree with W’s contention?
Explain. (10pts)
SUGGESTED ANSWER:
There is no need for Embassy Appliances to comply with the Truth in Lending Act. The transaction is
not a sale on installment basis. Embassy Appliances is a seller on cash basis. It is the credit card
company which allows the buyer to enjoy the privilege of paying the price on installment basis
(9) X was riding a suburban utility vehicle (SUV) covered by a comprehensive motor vehicle
liability insurance (CMVLI) underwritten by FastPay Insurance Company when it collided with
a speeding bus owned by RM Travel Inc. The collision resulted in serious injuries to X; Y, a
passenger of the bus; and Z, a pedestrian waiting for a ride at the scene of the collision. The
police report established that the bus was the offending vehicle. The bus had CMVLI policy
issued by Dragon Ins Co. X, Y, and Z jointly sued RM Travel and Dragon Ins for indemnity
under the Insurance Code of the Phils (PD1460). The lower court applied the “no fault”
indemnity policy of the statute, dismissed the suit against RM Travel, and ordered Dragon Ins
to pay indemnity to all three plaintiffs. Do you agree with the court’s judgment? Explain
(10pts)

SUGGESTED ANSWER:
No. The cause of action of Y is based on the contract of carriage, while that of X and Z is based on
torts. The court should not have dismissed the suit against RM Travel. The court should have

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ordered Dragon Ins to pay each of X, Y , and Z to the extent of the insurance coverage, but
whatever amount is agreed upon in the policy should be answered first by RM Travel and the
succeeding amount should be paid by Dragon Insurance up to the amount of the insurance
coverage. The excess of the claims of X, Y, and Z, over and above such insurance coverage, if any,
should be answered or paid by RM Travel.

(10) MV Mariposa, one of five passenger ships owned by Marina Navigation Co, sank off the
coast of Mindoro while en route to Iloilo City. More than 200 passengers perished in the
disaster. Evidence showed that the ship captain ignored typhoon bulletins issued by Pag-asa
during the 24-hour period immediately prior to the vessel’s departure from Manila. The
bulletins warned all types of sea crafts to avoid the typhoon’s expected path near Mindoro.
To make matters worse, he took more load than was allowed for the ship’s rated capacity.
Sued for damages by the victim’s surviving relatives, Marina Nav Co contended 1) that its
liability, if any, had been extinguished with the sinking of MV Mariposa; and 2) that assuming
it had not been so extinguished, such liability should be limited to the loss of the cargo. Are
these contentions meritorious in the context of applicable provisions of the Code of
Commerce? (10pts)

SUGGESTED ANSWER:

Yes. The contentions of Marina Nav Co are meritorious. The captain of MV Mariposa is guilty of
negligence in ignoring the typhoon bulletins issued by PAGASA and in overloading the vessel. But

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only the captain of the vessel MV Mariposa is guilty of negligence. The ship owner is not. Therefore,
the ship owner can invoke the doctrine of limited liability.

(11) What warranties are implied in marine insurance? (5pts)

SUGGESTED ANSWER:
The following warranties are implied in marine insurance:
1. That the ship is seaworthy to make the voyage and/or to take in certain cargoes
2. That the ship shall not deviate from the voyage insured;
3. That the ship shall carry the necessary documents to show nationality or neutrality and that it will
not carry any document which will cast reasonable suspicion thereon;
4. That the ship shall not carry contraband, especially if it is making a voyage through belligerent
waters

(12) RC imported computer motherboards from the United States and had them shipped to
Manila aboard an ocean-going cargo ship owned by BC Shipping Company. When the cargo
arrived at Manila seaport and delivered to RC, the crate appeared intact; but upon inspection
of the contents, RC discovered that the items inside had all been badly damaged. He did not
file any notice of damage or anything with anyone, least of all with BC Shipping Company.
What he did was to proceed directly to your office to consult you about whether he should
have given a notice of damage and how long a time he had to initiate a suit under the
provisions of the Carriage of Goods by Sea Act (CA 65). What would your advice be? (10pts)

SUGGESTED ANSWER:

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My advice would be that RC should give notice of the damage sustained by the cargo within 3 days
and that he has to file the suit to recover the damage sustained by the cargo within one year from
the date of the delivery of the cargo to him.

Additional:

At the annual stockholders’ meeting of MS Corporation, the stockholders unanimously

passed a resolution authorizing the Board of Directors to amend the corporate by-laws so as
to disqualify any stockholder who is also a director or stockholder of a competing business
from being elected to the Board of Directors of MS Corporation. The by-laws were
accordingly amended. GK, a stockholder of MS Corporation and a majority stockholder of a
competitor, sought election to the Board of Directors of MS Corporation. His nomination was
denied on the ground that he was ineligible to run for the position. Seeking a nullification of
the offending disqualification provision, GK consults you about its validity under the
Corporation Code of the Phils. What would your legal advice be?

SUGGESTED ANSWER:

The provision in the amended by-laws disqualifying any stockholder who is also a director or
stockholder of a competing business from being elected to the Board of Directors of MS Corp is
valid. The corporation is empowered to adopt a code of by-laws for its government not inconsistent
with the Corp Code. Such disqualifying provision is not inconsistent with the Corp Code.

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BD has a bank deposit of half a million pesos. Since the limit of the insurance coverage of the
Philippine Deposit Insurance Corp (PDIC) (RA 3591) is only one tenth of BD’s deposit, he
would like some protection for the excess by taking out an insurance against all risks or
contingencies of loss arising from any unsound or unsafe banking practices including
unforeseen adverse effects of the continuing crisis involving the banking and financial sector
in the Asian region. Does BD have an insurable interest within the meaning of the Insurance
Code of the Philippines (PD1460)?

SUGGESTED ANSWER:

Yes. BD has insurable interest in his bank deposit. In case of loss of said deposit, more particularly
to the extent of the amount in excess of the limit covered by the PDIC Act, PBD will be damnified. He
will suffer pecuniary loss of P300,000.00, that is, his bank deposit of half a million pesos minus
P200,000.00 which is the maximum amount recoverable from the PDIC.

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