2020 BAR EXAMINATIONS TRIAL

COMMERCIAL LAW
(PART 1)

LEGAL EDGE BAR REVIEW CENTER

legaledge8@gmail.com
0942-949-9176 / 0917-894-5356

A.1

Is a Health Maintenance Organization (HMO), which provides health services to its members in case
they get diagnosed with any illness or hospitalized, engaged in the insurance business? (2.5%)

SUGGESTED ANSWER:

No

HMOs are generally not engaged in the insurance business. A major element of an insurance business
is the assumption of risk and indemnification of loss which should be the principal and not just the
incidental purpose.

In the case at bar, this HMO’s main purpose is not the indemnification of loss but rather the provision
of health services.

Hence, the HMO is not engaged in the insurance business. (Philippine Health Care Providers, Inc. v.
Commissioner of Internal Revenue, G.R. No. 167330 (Resolution), September 18, 2009)

A.2

While waiting for the issuance of the fire insurance policy over her goods, Nancy was given a cover
note by her insurer. However, before her policy was issued, the goods were lost in a fire. When Nancy
claimed the insurance proceeds for the loss, she was refused as she has no policy yet, only a cover
note, which is just a proof of application and she has not yet paid premiums when the loss occurred.
The basic rule in insurance is no premium, no insurance. Is Nancy entitled to insurance proceeds?
(2.5%)

SUGGESTED ANSWER:

Yes

A Cover Note is not a mere application for insurance, but in a real sense a contract to be integrated to
the regular policies subsequently issued. The fact that no separate premium is paid on the Cover Note,
before the loss occurred, does not militate against recovery thereunder. Cover notes do not usually
contain particulars to serve, as basis for premiums that is why no separate premiums are intended or
required to be paid on it.

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In the case at bar, the fact that no separate premium was paid on the Cover Note, before the loss
insured against occurred, does not militate against the claim of insurance. The Cover Note is not without
a consideration, for no such premium could have been paid, since by its nature, no separate premiums
are intended or required to be paid on a Cover Note for it to be binding.

Hence, Nancy is entitled to the insurance proceeds. (Pacific Timber Export Corp. v. Court of Appeals,
G.R. No. L-38613, February 25, 1982)

A.3

When is the existence of insurable interest required in property insurance and in life insurance? (2.5%)

SUGGESTED ANSWER:

An interest in property insured must exist when the insurance takes effect, and when the loss occurs,
but need not exist in the meantime. On the other hand, interest in the life or health of a person insured
must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.
(Insurance Code Section 19)

A.4

Sonny got a life insurance policy on August 14, 2018. On January 1, 2019 he was involved in a
firecracker accident that claimed his life. His beneficiary, his wife, went to the insurer to claim the
insurance proceeds, but the latter denied the claim saying that Sonny concealed that he was a diabetic
and had suffered 2 mild strokes already. The insurer claims that they still have the right to deny the
claim by reason of concealment, as the two year period required for incontestability has not yet lapsed.
Is the insurer correct? (5%)

SUGGESTED ANSWER:

No.

Under the Insurance Code, the incontestability clause provides that After a policy of life insurance made
payable on the death of the insured shall have been in force during the lifetime of the insured for a
period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent. However, the case of Sun Life of Canada Inc. v. Sibya
further clarified that when the insured dies within the period, the insurer must make good on the policy,
even though the policy was obtained by fraud, concealment, or misrepresentation.

In the case bar, although Sonny may have acquired the policy with concealment, his beneficiaries are
still entitled to the benefit as he had already died without the insurer having rescinded the policy, even
if it was still before the lapse of 2 years.

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Hence, the insurer is not correct and Sonny’s beneficiaries are entitled to the claim. (Sun Life of Canada
(Philippines), Inc. v. Sibya, G.R. No. 211212, June 8, 2016)

A.5

What are the requisites for the rule on general average to apply? (2.5%)

SUGGESTED ANSWER:

For the rule on general average to apply, the following requisites must be present:

First, there must be a common danger. This means, that both the ship and the cargo, after it has been
loaded, are subject to the same danger, whether during the voyage, or in the port of loading or
unloading; that the danger arises from accidents of the sea, dispositions of the authority, or faults of
men, provided, that the circumstance producing the peril should be ascertained and imminent - or may
rationally be said to be certain and imminent. This last requirement excludes measures undertaken
against a distant peril.

Second, that for the common safety part of the vessel or of the cargo or both is sacrificed deliberately.

Third, that from the expenses or damages caused follows the successful saving of the vessel and
cargo.

Fourth, that the expenses or damages should have been incurred or inflicted after taking proper legal
steps and authority. (A. Magsaysay, Inc. v. Agan, G.R. No. L-6393, January 31, 1955)

A.6

What are pre-need plans? (2.5%)

SUGGESTED ANSWER:

According Republic Act no 9289 or the Pre-Need Code of the Philippines, “Pre-need plans” are
contracts, agreements, deeds or plans for the benefit of the plan holders which provide for the
performance of future service/s, 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 plans, instruments, contracts or deeds as may be determined in the future. (Republic Act No.
9289 or AN ACT ESTABLISHING THE PRE-NEED CODE OF THE PHILIPPINES)

A.7

Richard was a common carrier, who owned a fleet of ships engaged in the carriage of passengers. One
day, Christopher approached him asking if he could charter one of his ships, as Christopher needed to
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transport a number of his employees to a remote island for a company retreat. Richard agreed to
execute a charter contract with Christopher, wherein Richard would grant Christopher the use of one
of his ships for a week, but Christopher would be the one responsible for hiring a ship captain, deciding
which route to take, buying the fuel, and all other necessities. On the way to the retreat, the ship figured
in an accident causing injuries to one of the passengers. Trying to reduce his liabilities, Christopher
went to Richard claiming that since the latter owned the ship, he is liable to the injured passenger as a
common carrier by virtue of their contract. Is Richard liable as a common carrier? (2.5%)

SUGGESTED ANSWER:

No

Under the law, a common carrier is generally liable for injuries caused to its passengers. However,
when a common carrier charters his vessel under a contract of demise or bareboat charter, he strips
himself of liability as a common carrier. Under this form contract, the owner of the vessel relinquishes
all control over the vessel in favor of the charter and as discussed in several cases decided by the
Supreme Court, the owner is no longer considered as a common carrier with regard to the voyage
under the contract. This is in contrast to a mere contract of affreightment where the charter only leases
a certain portion of space of the owner’s ship and the latter continues to be a common carrier

In the case at bar, Richard and Christopher entered into a contract of demise since Richard relinquished
control over his ship over to Richard completely. It was even Christopher who had to secure the services
of a ship captain.

Hence, Richard is not liable as a common carrier. (Coastwise Lighterage Corp. v. Court of Appeals,
G.R. No. 114167 (Resolution), July 12, 1995)

A.8

What is the three-fold characteristic of a bill of lading? (2.5%)

SUGGESTED ANSWER:

A bill of lading has 3 main characteristics, it is a/an:

1) Receipt for the goods shipped.
2) Evidence of the terms of the contract of carriage
3) Document of title to the goods specified in the Bill of Lading

A.9

When is a protest required in maritime insurance? (2.5%)

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SUGGESTED ANSWER:

Under the Code of Commerce, a protest is required in the following:

1) Arrival under stress;
2) Shipwreck;
3) If the vessel has gone through a hurricane or where the captain believes that the cargo has
suffered damages or averages; and
4) Maritime collision.

A.10

Joel suddenly got fired from his job resulting in his failure to pay his electricity bills. Because of this, he
tampered with his electric meter to lessen his electricity cost, but was however found out by the electric
company. Because of this, the electric company sent him two notices for him to pay his dues with a
warning indicated in the letters that failure to pay within 30 days will result in disconnection. After 40
days, the company disconnected Joel’s electricity connection to his surprise. Joel complained saying
that electric company disconnected his electricity without notice and is illegal. Was the electric company
justified? (2.5%)

SUGGESTED ANSWER:

No

The law provides that disconnection due to non-payment of bills requires a 48-hour notice be given to
the consumer.

In the case at bar, the electric company did not provide a 48 hour notice and the warning in its letters
does not suffice. The serious consequences on a consumer, whose electric supply has been cut off,
behoove a distribution utility to strictly comply with the legal requisites before disconnection may be
done.

Hence, the electric company is not justified. (G.R. No. 196020, April 18, 2018 MANILA ELECTRIC
COMPANY, v. NORDEC PHILIPPINES)

A.11

On January 1, 2019, Pia contracted a loan from SP bank for P1M pesos secured by a mortgage on her
house, which also contained a dragnet clause to secure all future loan obligations. On March 1, 2019,
she again secured a loan from SP bank for another P1M pesos which she again secured through a
mortgage of her car. Due to the COVID-19 pandemic, PIA failed on the payments for her second loan.
The bank then wanted to foreclose the mortgage on the house considering that the mortgage contained
a dragnet clause which covers also the second loan. Can the bank foreclose the mortgage on the
house? (5%)

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SUGGESTED ANSWER:

No

In the case of Prudential Bank vs Spouses Alviar, the high court explained the reliance on security test,
wherein if a second loan taken is secured by another security, despite the existence of a dragnet clause
in the first secured loan, it could not be inferred that such second loan was made in reliance solely on
the original security with the dragnet clause, but rather, on the new security given which must be used
to satisfy the second loan.

In the case at bar, the PIA secured her second loan with another mortgage despite the existence of the
dragnet clause in her first mortgage. Hence, it is clear that the second loan did not solely rely on the
first security. Applying the doctrine in the above mentioned case, the mortgage on the car should be
the one to be foreclosed to pay for the second loan and not the mortgage on the house. Should the
proceeds be insufficient, that would be the time when the first mortgage can be foreclosed as well.

Hence, the bank cannot foreclose the mortgage on the house unless the mortgage on the car is
foreclosed first and is insufficient. (Prudential Bank v. Spouses Alviar, G.R. No. 150197, July 28, 2005)

A.12

Miggy, together with his wife, was on board a bus owned and operated by ML Transport, heading to
Manila. Upon arriving at the terminal, they both alighted from the bus immediately. However, when they
were still trying to get their baggage, which the bus conductor placed on the ground beside the bus, the
bus started to run and swerved to the side, causing Miggy and his wife to be hit by the tail end. ML
Transport did not deny its liability, but rather argued that as Miggy and his wife were no longer
passengers of the bus having alighted already, ML transport should not be held liable to them as a
common carrier and that it should no longer be held to the standard of care for common carriers, which
is extra-ordinary diligence. Is ML Transport’s contention correct? (2.5%)

SUGGESTED ANSWER:

No

Jurisprudence has repeatedly recognized as a rule that 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. What is a reasonable time or a reasonable delay within this
rule is to be determined from all the circumstances. In decided cases, a person who, after alighting
from a train, walks along the station platform and a person waiting to claim his baggage were still
considered passengers.

In the case at bar, Miggy and his wife were justified in neat the bus as they were still about to claim
their baggage. With this, they are still considered passengers and ML Transport is still liable as a
common carrier who has failed to observe extra-ordinary diligence or 'utmost diligence' of a 'very
cautious person' required under the law.

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Hence, ML transport’s contention is not correct as it is still considered a common carrier and should be
liable as such. (Aboitiz Shipping Corp. v. Court of Appeals, G.R. No. 84458, [November 6, 1989], 258-
A PHIL 665-680)

A.13

Grace maintained a dollar denominated deposit account with Citibank. Pursuant to case of Graft and
Corruption filed against her, the complainant, Ronald, wanted to compel Citibank to disclose her bank
information, as the bank account was the subject matter of the litigation, which is one of the recognized
exceptions under Republic Act (RA) No. 1405 or the Bank Secrecy Law. Grace on the other hand
argued that Citibank may not be compelled to disclose her bank account details as RA No. 1405 does
not provide for such exemption and only disclosure based on her written consent is allowed under such
law. Who is correct Ronald or Grace? (5%)

SUGGESTED ANSWER:

Both Ronald and Grace are not correct.

Republic Act No. 1405 or the Bank Secrecy Law applies only to peso denominated Deposits. Foreign
Currency denominated deposits are governed by Republic Act No. 6426 or the Foreign Currency
Deposit Act of the Philippines.

In the case at bar, the account in question is a dollar denominated deposit account. Thus, it is not
governed by RA 1405 and its exceptions do not apply as contended by Ronald. Grace also is not correct
as consent is not the only exception provided for in RA 1405.

Hence, both Ronald and Grace are not correct. (Intengan v. Court of Appeals, G.R. No. 128996,
February 15, 2002)

A.14

Cynthia was being criminally prosecuted for money laundering after she laundered in the casino the
proceeds of several of her graft and corrupt practices. While the case was pending, the prosecutor
likewise filed a criminal case against her under the Graft and Corrupt Practices Act. Cynthia contends
that the prosecutor could not validly file the case as the two cases involve the same set of facts and
she would be under double jeopardy. She contends that the prosecutor can no longer file a case under
the graft and corrupt practices act as she has already been tried for money laundering. Is Cynthia’s
contention correct? (2.5%)

SUGGESTED ANSWER:

No

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Section 6 of Republic Act No. 9160 or the Anti-Money Laundering Act provides that any person may be
charged with and convicted of both the offense of money laundering and the unlawful activity committed
in relation to the same.

In the case at bar, the fact that Cynthia was already tried for Anti-money laundering does not bar the
filing of another case for the unlawful activity she committed, in this case, graft and corruption.

Hence, Cynthia’s contention is not correct and the prosecutor may file the case.

A.15

Provide at least five (5) kinds of information that are classified as sensitive personal information under
the Data Privacy Act. (2.5%)

SUGGESTED ANSWER:

According to RA 10173 or the Data Privacy Act of 2012, Sensitive personal information refers to
personal information:

1) About an individual’s race, ethnic origin, marital status, age, color, and religious, philosophical
or political affiliations;
2) About an individual’s health, education, genetic or sexual life of a person, or to any proceeding
for any offense committed or alleged to have been committed by such person, the disposal of
such proceedings, or the sentence of any court in such proceedings;
3) Issued by government agencies peculiar to an individual which includes, but not limited to, social
security numbers, previous or current health records, licenses or its denials, suspension or
revocation, and tax returns; and
4) Specifically established by an executive order or an act of Congress to be kept classified.

A.16

Without applying or inquiring for it, Bong received in his mail a credit card from SH Bank. He then used
the card for several purchases and without him knowing, he already exceeded his credit limit. The bank
then charged him with penalties and interest for such excess to which Bong complained, as he was not
aware of such terms as they were not sent together with the card. The bank argued that since he used
the card, he is deemed to have agreed to the terms and conditions attached to such privilege. Is the
bank correct? (5%)

SUGGESTED ANSWER:

No

As held in the case of Spouses Yulo vs BPI, when issuing a pre-screened or pre-approved credit card,
the credit card provider must prove that its client read and consented to the terms and conditions
governing the credit card's use. Failure to prove consent means that the client cannot be bound by the

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provisions of the terms and conditions, despite admitted use of the credit card compared to a client who
actually applied for a credit card from the bank.

In addition, RA 3765 or the Truth in Lending Act requires that persons who extend credit must furnish
to his debtors a clear statement in writing setting forth the terms and conditions of the credit including
finance charges among others as enumerated under the law.

In the case at bar, SH bank failed to prove that Bong agreed to the terms and conditions of the credit
card. Hence although he may be required to pay for his purchases he may not be held liable for the
interest and charges indicated in the terms and conditions of the card.

Hence, SH bank is not correct. (G.R. No. 217044, January 16, 2019 - SPOUSES RAINIER JOSE M.
YULO AND JULIET L. YULO, v. BANK OF THE PHILIPPINE ISLANDS)

-NOTHING FOLLOWS-

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