LEGAL ENVIRONMENT OF PHILIPPINE BUSINESS AND MANAGEMENT

MIDTERM EXAMINATIONS
August 17, 2011, Wednesday
Professor: Ma. Concepcion C. Castro-Santiago, AB, MS Public Management, Ll. B.
Schedule: 5:30 – 8:30, Wednesdays
Room: S522

Submitted by: VILLAR, Maan P.

Course and Year: MSBA 1

1. Explain the Filipino First Policy as enshrined in the 1987 Philippine Constitution? What
are its implications with respect to doing business in the Philippines? Cite at least five
ways through which the said policy is being implemented in the State.

The Filipino First Policy is Stated in the Philippine Constitution as: SECTION 12,
ARTICLE XII: The State shall promote the preferential use of Filipino labor, domestic
materials and domestic materials and locally produced goods, and adopt measures
that help make them competitive. It contains the duty of the state to promote the
preferential use, by the government and by the private sector, of Filipino labor, materials
and locally produced goods as well as to adopt measures that would make the
aforementioned competitive. The constitutional policy is aimed at giving preference and
dominance to Filipinos in their own country especially in the grant of rights, privileges and
concessions involving our national economy and patrimony and makes them competitive as
against foreigners in both local and foreign markets though it is not meant to insulate them
from competition. The Filipino First Policy does not mean to foster absolute patronage to
Filipino goods because it is antithetical to our increasing aspirations toward economic self-
reliance and also it is enshrined in the constitution to open our doors to foreign trade and
investment but with reasonable safeguards. At its core, the Filipino First Policy promotes
the welfare of millions of Filipino workers and consumers who will benefit from widened
employment opportunities and higher quality but less expensive goods and services that
result from competition in the open economy.

With respect to doing business in the Philippines, the Filipino First Policy makes the
Filipino conserves foreign exchange, boosts the Philippine industry, helps domestic
producers to become globally competitive, promotes employment and stimulates the local
economy in general. It could be catalytic to the promotion of local entrepreneurship and the
generation of more employment and increases in household and business consumption that
would create a more viable economy for Filipino business. We could then fully utilize and
employ available resources and use them for the enrichment of the lives of individual
Filipinos and it all starts by simply creating loyalty and trust in our local output and
products.

Examples of legislation in the country that promote the Filipino First Policy would
be the Anti Dummy Act (CA 108, as amended by PD 715) which is a law that penalizes
Filipinos who permit aliens to use them as nominees to enjoy the privileges supposed to be
enjoyed by Filipinos or Filipino corporations. The Anti Dummy Act prevents aliens from
having intervention as to the management, operation and administration or control of
nationalized businesses or enterprises whether as officers, employees or laborers with or
without compensation although aliens may take part in the technical aspects of the

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 business, it is required that no Filipino is able to do such technical work and there should be
express authority from the President of the Philippines. Another law that promotes the
Filipino First Policy would be the Flag Law (CA 138 and RA 912) which provides for the
bidding requirements of the National Government or any of its political subdivisions or by
government-owned and controlled corporations if the difference in the bid price is just 15%
amongst native products and foreign bidders wherein preference would still be given to
Filipinos or corporations 75% owned/controlled by Filipinos. Republic Act No. 1180 (An
Act to Regulate the Retail Business) presents the method of analysis by which the courts
use in ruling the validity of the law and is hinged on the idea that the freedom of enterprise
is guaranteed to all persons including aliens. The Foreign Investments Act of 1991 says
that the Philippines promotes and welcomes foreign investments which significantly
contribute to national industrialization and socio-economic development to the extent that
foreign investment is allowed in such activity by the Constitution and relevant laws.

2. What is social justice? Cite ways through which a business enterprise (like your
respective workplace) could promote social justice as it complies with its obligations
under the law.

Social justice means that it is the duty of the State to give preferential attention to
the welfare of the less fortunate members of the community (the poor, the underprivileged,
those who have less in life). It is mandated in the policy in SECTION 10, ARTICLE II that
“The State shall promote social justice in all phases of national development”. Social
justice equates to justice for the “common tao”. Basically, social justice means that the less
in life should have more in the law and it is a means for the State to tilt the balance of social
forces by favoring those who are disadvantaged in life.

A business enterprise can implement the concept of social justice in its day-to-day
operations by formulating policies that would provide extra assistance to employees that
are proven to be more disadvantaged to others. It could come in the form of material,
financial, emotional and work-related support. For example, janitors and those who
perform menial jobs in the workplace could be given free meals for their lunch and meal
breaks or even rice and food allowances that would be assessed based on the number of
children or family members that they support. Also, a higher rung manager would not need
the same kind of benefits and allowances that are given to the underprivileged in the
company. In fact, such people from the higher and middle rungs of the company could be
asked to give voluntary contributions that would address the needs and fill in the gaps for
those who need help in the company.

3. Explain the reason behind the State’s exercise of its police power. Cite specific instances
through which the State exercises this power over business organizations. Does the
State’s exercise of police power somehow promote fair competition in business? Discuss.

Police power: the inherent power to regulate, is the power vested in the
legislature of the state to make, ordain and establish all manner of wholesome and
reasonable law, statutes and ordinances, either with penalties or without, which are not
repugnant to the Constitution as they shall be judged to be for the good and welfare of the
commonwealth and the subjects of the state. It is exercised by the State through the
legislative branch. It is originally identified as “nothing more or less than the powers of
government inherent in every sovereignty” and state authority to enact legislation that may
interfere with personal liberty or property in order to promote general welfare.

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 Two specific instances that the State exercises this power over business
organizations would be the Case of Prohibition which is the total stoppage in business and
the Case of Restriction wherein a business entity is allowed to operate but with certain
restrictions. To concretize the Case of Prohibition, non-issuance of licenses to operators of
night clubs would be the total ban on business. On the other hand, the Case of Restriction
would be implementing a policy in hotels and inns where a customer is first to register or
fill out a prescribed from in the lobby before being let in a room.

If not abused, police power does promote fair business competition in the country
because demeaning businesses can be banned and proper business practice and safeguards
for both the consumer and the business practitioners can be enacted and thus promoting a
healthy environment for all industries.

4. Explain why labor relationships are basically contractual in nature but they are not
governed by the general law on obligations and contracts. Illustrate by way of a
situational example.

Article 1700 of the Civil Code of the Philippines indicates that the relationship
between capital and labor are not merely contractual and it is impressed in public interest
that labor contracts must yield to the common good. Common good or public interest is in
essence social order which enables individuals and society to attain their fullest
development economically, politically, culturally and spiritually. Economic decisions in this
case are made in consideration of special groups although it may involve decisions in favor
of the majority and that everyone’s welfare must be considered when a decision is to be
made and should never be oblivious to the good of the minority. In any labor case, decisions
are to be made in favor of the employees because it is assumed that they are the deprived
party in such cases.

Example, an employer may not place in the contract that an employee may render
service for payment of obligations to the business and other than this, there are more
exemptions that the general laws on obligations and contracts cannot encompass.

5. The state promotes the use of preferential modes of settling disputes between labor and
capital. How does the state ensure the implementation of this policy? May this policy be
advantageous to business enterprises?

Article 4 of the Labor Code of the Philippines is the construction in favor of labor
where all doubts in the implementation and interpretation in the provisions of this code
including implementing rules and regulations shall be resolved in favor of labor because it
is the general assumption of the code that between labor and capital, labor is always placed
at stake and on the losing end of such disputes. It is advantageous to the enterprise since it
promotes the idea that the business is not monopolizing on its powers over those who are
powerless against it. Also, this is advantageous in a way that as labor is given more
empowerment and it is a balancing mechanism as to the power of each party.

6. Employees enjoy the right to the free disposal of their wage. Given this right, what are
the requirements prescribed by law for employees to comply with such a policy?
Discuss.

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 Wages are the compensation that employees receive as payment for the services
that they render. All that is required of the employee is compliance to company standards
and to render service that is actually equating to the salary that they receive to that. Any
infraction to company standards and rules may entail a reduction in their salaries as the law
enables and as the company deems as necessary

7. Should you decide to put up a business, what business organization will you organize?
Cite at least five legal reasons why you would perform such a business organization.

I would put up a sole proprietorship because I believe that the lesser people there
are involved in the business, the lesser it becomes complicated to handle. Unlike a
partnership or a corporation which has a larger pool of capital the flipside is that the
revenues are divided among the partners while in a sole proprietorship, I could enjoy all of
it on my own. I could be more democratic and liberal as I operate the business because
although there are parties that may contend to the way that I do my business, the decisions
still lie within me and I need not consult any partners or get the majority vote of
shareholders or members just to arrive at a decision. In the formation of the business, it
takes a less tedious and less demanding process than that which governs corporations or
partnerships.

8. Explain the doctrine of corporate fiction. Is this doctrine absolute? In what ways does
this doctrine protect the creditors of a corporation?

The doctrine of corporate fiction subjects the corporation to being a mere creature
of the law and allows it to exist solely for lawful purposes. It is used to promote the
corporation as a legal entity distinct from the persons who compose it and is used for
purposes of convenience and to promote the ends of justice. It cannot extend to purposes
that are not within its reason and purposes.

The doctrine is not absolute, there are several instances when the fiction is
disregarded and the courts may pierce the veil of corporate entity considering the
corporation merely as an association of persons. In this case it is assumed that there are two
corporations where the one is being regarded as the instrumentality of the other. Instances
when the veil of corporate fiction is pierced is when the corporation functions for the
benefit of a single person, when the corporation is merely an instrumentality of individual
stockholders, where a domestic corporation is controlled by aliens, when a corporation is
organized by an insolvent debtor to defraud his creditors, when a subsidiary company is
created by a parent company merely as an agency of the latter and when a corporation is
formed by a purpose to evade an individual contract.

This protects the creditors of a corporation because by this means can the creditors
of a company run after individual stockholders for the obligations of the corporation and
those who comprise this because this is the limit to which the limited liability of
stockholders ends and when their responsibility to their creditors begin.

9. Cite at least five ways through which the Corporation Code of the Philippines protects
the following:
a. Stockholders
b. Creditors of a Corporation
c. Members of the Board of Directors

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 The corporation protects its stockholders through the voting rights vested upon
them which is dependent on the shares of stocks that they own because they have a say as
to how the corporation is to be ran. Also, stockholders have a limited liability and it is the
corporation that is held responsible for liabilities with its creditors. The creditors are
protected because the doctrine of corporation may be pierced when deemed justifiable and
necessary and they can go after the individuals who comprise the corporations for
payments of debts to them. The board of directors, on the other hand, are only liable when
he willfully and knowingly votes or assents to unlawful acts of the corporation, guilt of gross
negligence, and acquires pecuniary interest in conflict with his duty as director or trustee.

10. Given your background on business laws in the Philippines, do you think the Philippines
is a business friendly location? Cite legal bases of your opinion.

The Philippines is a country which is much more concerned with its international
relations than it is concerned with implementing protectionist policies to its trade economy.
It safeguards good relations with foreign countries by being more democratic as to allowing
other countries to trade with it as compared to other countries who put into priority
patronage to their own goods than the goods of other countries. It is very friendly to foreign
investors that it is quite easy for them to acquire licenses and authorization from the
government to operate their businesses here in the country.