LAW ON BUSINESS TRANSACTIONS
2. CONTRACTS (Obligations ex contractu) - arise from stipulations of the parties:
meeting of the minds/ formal agreement. Once a contract is entered into, the parties are
bound by its terms and cannot, without valid reason, withdraw therefrom.
OBLIGATIONS
1.1.1 Definition
Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
GENERAL PROVISIONS
Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.
Article 1156. “An obligation is a juridical necessity to give, to do, or not to do.”
Juridical Necessity - the court may be asked to order the performance of an obligation if
the debtor refuses to perform.
3.QUASI-CONTRACTS (Obligations ex quasi-contractu) - The juridical relation resulting
from lawful, voluntary and unilateral acts by virtue of which the parties become bound to
each other to the end that no one will be unjustly enriched or benefited at the expense of
another.
Element/ Requisites of Obligation
1.) Active Subject (creditor/ obligee) - party who demands performance of the
obligation.
2.) Passive Subject (Debtor/obligor) - party who is obliged to perform the obligation
3.) Prestation (to do, to give, or not to do) - object or subject matter of the obligation.
4.) Efficient Cause (vinculum) - juridical tie, which binds the obligation
NOMINATE QUASI-CONTRACTS:
a. NEGOTIORUM GESTIO – Whoever voluntarily takes charge of the agency or
management of the business or property of another, without any power from the
latter, is obliged to continue the same until the termination of the affair and its
incidents, or to require the person concerned to substitute him, if the owner is in
a position to do so.
1.1.2 Sources of Obligations
1. LAW (Obligations ex lege) - Imposed by law itself: must be expressly or impliedly set
forth and cannot be presumed.
This juridical relation does not arise in either of these instances:
1. When the property or business is not neglected or abandoned.
2. If in fact the manager has been tacitly authorized by the owner. (Art. 2144)
Art. 1158. Obligations derived from law are not presumed. Only those expressly
determined in this Code or in special laws are demandable and shall be regulated by
the precepts of the law which establishes them; and as to what has not been foreseen,
by the provisions of [Civil Code].
b. SOLUTIO INDEBITI – the juridical relation which is created when something is
received when there is no right to demand it and it was unduly delivered through
mistake.
Examples of obligations arising from law are:
a. Duty of support.
b. Duty to pay taxes.
Requisites:
1. There is no right to receive the thing delivered
2. The thing was delivered through mistake
1
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is
no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
Other example of Quasi-Contracts: When funeral expenses are borne by a third person,
without the knowledge of those relatives who were obliged to give support to the
deceased, said relatives shall reimburse the third person, should the latter claim
reimbursement. (Art. 2165)
Requisites:
a. There must be an act or omission;
b. There must be fault or negligence;
c. There must be damage caused;
d. There must be a direct relation of cause and effect between the act or omission and the
damage;
4. DELICT (Obligations ex maleficio or ex delicto) - is an act or omission punishable by
law which may be governed by the Revised Penal Code, other penal laws, or the Title on
Human Relations under the Civil Code.
Revised Penal Code:
Art. 100. Civil liability of a person guilty of felony. — Every person criminally liable for
a felony is also civilly liable
1.1.3 Kinds of Obligations
Note, also, that under the Rules of Court, whenever a criminal action is instituted, the civil
action for the civil liability is impliedly instituted therewith.
10 Kinds of Obligation
1. Pure
Art. 104. What is included in civil liability. — The civil liability established in Articles
100, 101, 102, and 103 of this Code includes:
1. Restitution.
2. Reparation of the damage caused.
3. Indemnification for consequential damages.
2. Conditional
3. Alternative
4. Facultative
Proof necessary:
a. Criminal liability – proof beyond reasonable doubt
b. Civil liability – preponderance of evidence
5. Joint
6. Solidary
Acquittal of accused:
a. Acquittal because the accused did not do the act complained of – no civil liability
b. Acquittal due to reasonable doubt – there can still be civil liability.
7. Divisible
8. Indivisible
9. Obligation with a period
5. QUASI-DELICTS (Obligations ex quasi-delicto or ex quasi-maleficio)
10. Obligation with a penal clause
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1. PURE OBLIGATION - without condition, demandable at once (pure has resolutory
condition/period)
a. By nature/time – benefit to creditor
b. at expense of debtor – debtor has no right than that granted to usufructuary (debtor
has no right to compensate amount for improvement)
2. CONDITIONAL OBLIGATION - there is condition in performance; future & uncertain
EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION
2 Kinds of Conditional Obligation:
General Rule: The obligation becomes effective retroactively to the day obligation was
constituted.
a. Suspensive condition – happening of condition gives RISE to obligation
b. Resolutory condition – happening of condition EXTINGUISHES obligation
Exceptions:
6 MISCELLANEOUS RULES ON CONDITIONAL OBLIGATION
1. In reciprocal obligation, fruits & interests during pendency of condition shall
compensate each other.
2. In unilateral obligation, debtor gets fruits & interests unless there is a contrary intent.
1.
2.
3.
4.
Impossible conditions, contrary to law, shall ANNUL obligation.
The condition not to do an impossible thing is considered not agreed upon.
The condition that happens in determinate time, EXTINGUISHES obligation.
The condition that happens in INDETERMINATE time, obligation only effective at
arrival.
5. The condition is fulfilled if DEBTOR prevents fulfillment.
6. The effect of conditional obligation, once fulfilled:
a. to give: retroact to the day of constitution of obligation
b. has reciprocal prestations: fruits & interests be mutually compensated
c. has unilateral obligation: debtor shall give fruits & interests
THREE EFFECTS OF FULFILLMENT OF RESOLUTORY CONDITION
1. Extinguish obligation.
2. Both parties restore what they received plus fruits & interests.
3. The rule on L, I, or D will apply to person who has to return the thing.
When one of debtors in reciprocal obligation does not comply w/ his obligation
●
RULES in case of Loss, Improvement, or Deterioration of thing during the pendency
of condition
The right of injured party is (1) cancel contract & damages; or (2) fulfill obligation &
damages
3 Kinds of Obligation (According to PERSON OBLIGED)
1. THE THING WAS LOST
1. UNILATERAL – only 1 party obliged to comply
2. BILATERAL – both parties; performance not same time
3. RECIPROCAL – both parties; performance same time
a. w/ debtor’s fault – damages
b. w/o debtor’s fault – extinguishes obligation
2. DETERIORATION
3. OBLIGATION W/ A PERIOD - demandability/extinguishment IS subject to the expiration
of period
a. w/ debtor’s fault - (1) cancel obligation & damages; or (2) fulfill obligation w/
damages
b. w/o debtor’s fault – creditor suffer impairment
●
●
3. IMPROVEMENT
3
Period – interval of time; either suspends demandability or produces extinguishment
Day Certain – must come, not known when
7 CASES CONSIDERED TO BE “OBLIGATION W/ A PERIOD”
1.
2.
3.
4.
5.
6.
7.
3. Impairment of guarantees/securities.
4. Failure to furnish guarantees/securities promised.
5. Violation of undertaking.
Little by little
In partial payment
Payable ASAP
When I can afford it
When I have the money
When I am able to
When my means permit me to do so
4. ALTERNATIVE OBLIGATION - with 2 or more prestations but only 1 is due.
5. FACULTATIVE OBLIGATION - with ONLY 1 prestation but can be substituted.
ALTERNATIVE prestations LOST w/ debtor’s fault
Creditor entitled to damages but needs ff requisites:
PERIOD
CONDITION
certain
uncertain
future only
future/past but unknown
(*influence upon obligation) only upon its
demandability
(*) on the very existence of obligation itself
1. Debtor can choose.
2. All prestations lost/become impossible due to debtor’s fault.
ALTERNATIVE OBLIGATION
several prestations
sufficient
due,
giving
FACULTATIVE OBLIGATION
one is
right to choose (debtor) unless granted to
creditor
one prestation
subtituted
due,
but
can
be
right to choose DEBTOR ONLY
If 1 of the prestation is illegal, others may be nullity of principal carries w/ it nullity of
valid, obligation remains
accessory/
FOR WHOSE BENEFIT IS THE PERIOD?
General Rule: Both the debtor & creditor.
substitute
Therefore, NEITHER of them can demand performance of obligation.
loss/impossibility of ALL prestations due, w/o loss/impossibility of presta-tion due, w/o
debtor’s fault, extinguishes obligation
debtor’s fault, extinguishes obligation
Exception: If the term of obligation has to favor one of them.
5 INSTANCES WHEN DEBTOR LOSES RIGHT TO USE “PERIOD”
(3) SUMMARY OF RULES, OBLIGATIONS, & RIGHTS OF DEBTOR IN ALTERNATIVE
OBLIGATION
1. Debtor is insolvent.
2. Debtor attempts to abscond.
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1. If one of the prestations is lost through fortuitous event, it shall still be performed by
choosing (creditor) from the remainder.
2. If one of prestations is lost through debtor’s fault, creditor may claim any of the
remainders w/ damages.
3. If ALL prestations lost through debtor’s fault, creditor will choose price w/ damages.
2 PRESUMPTIONS THAT OBLIGATION IS JOINT
1. The debts be divided as many shares as there are debtors/creditors.
2. The debtors/creditors are distinct from one another.
If not stated, or question is silent, presume it is a solidary obligation.
RULES on LOSS/DETERIORATION of the thing intended as SUBSTITUTE in
FACULTATIVE OBLIGATION
8. DIVISIBLE OBLIGATION - prestation is capable of partial performance
9. INDIVISIBLE OBLIGATION - prestation incapable of partial performance
1. If there is a loss or deterioration of the thing intended as substitute, debtor is NOT
liable if NOT HIS FAULT.
2. But if substitution is already made, debtor is liable for loss of substitute when in
DELAY, NEGLIGENCE, or FRAUD.
10. OBLIGATION W/ A PENAL CLAUSE - one with an accessory undertaking attached to
obligation to assume greater liablity in case of breach or non-fulfillment of obligation.
3 PURPOSES OF PENAL CLAUSE
6. JOINT OBLIGATION - obligation is to be paid proportionately by debtors or to be
demanded proportionately by creditors
1. Ensure performance of obligation
2. Substitute for damages & interest in case of noncompli-ance
3. Penalize debtor in case of breach
7. SOLIDARY OBLIGATION - each one of debtors has right to render or each one of
creditors has right to demand the entire compliance w/ prestation
In case obligation has a PENAL CLAUSE
MAXIMS & SYNONYMS
General Rule: Penalty takes the place of damages and interest in case of non-compliance.
MAXIMS
SYNONYMS
Exceptions:
JOINT
Obligation
“To each his own”
proportionate
SOLIDARY
Obligation
“One for all, all for one”
individually & collectively
1. Stipulation states.
2. Debtor refuse to pay penalty.
3. Debtor guilty of fraud in performance of obligation.
NULLITY OF PRINCIPAL OBLIGATION OR THE PENAL CLAUSE
Nullity of principal obligation = nullity of penal clause
(3) SOLIDARY OBLIGATION EXIST ONLY IF: RULES
Nullity of penal clause = NOT nullity of principal obligation
1. Law states
2. Stipulation states
3. Nature of obligation requires
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1.1.4 Specific circumstances affecting obligations in general
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.
FORTUITOUS EVENT: an event which could not be foreseen, or which though
foreseen, was inevitable/ not avoidable.
FRAUD (Dolo)
REQUIREMENTS:
There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to. (Art. 1338)
To constitute a fortuitous event, the following elements must concur:
●
●
●
●
The cause of the unforeseen and unexpected occurrence or of the failure of the
debtor to comply with obligations must be Independent of human will;
It must be impossible to foresee the event that constitutes the caso fortuito or, if it
can be foreseen, it must be impossible to avoid;
The occurrence must be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and,
The obligor must be free from any participation in the aggravation of the injury or
loss.
Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void. (Art. 1171)
TYPES OF FRAUD:
1. CAUSAL FRAUD (Dolo causante) – fraud in the execution of the contract by means
of obtaining consent.
2. INCIDENTAL FRAUD (Dolo incidente) – fraud in the performance of an existing
obligation and applicable to obligations arising from any source.
GENERAL RULE: No liability is constituted for fortuitous event
EXCEPTIONS TO THE RULE:
TYPE OF
FRAUD
1. Declared by stipulation or contract;
2. When the nature of the obligation requires the assumption of risk (e.g., insurance
contracts);
3. Expressly specified by law ( in bad faith, debtor is already in delay, generic subject
matter);
4. When negligence, delay or fraud concurred with the fortuitous event.
WHEN IS
FRAUD
PRESENT
EFFECTS OF FORTUITOUS EVENT:
DETERMINATE OBJECT
Obligation
EXTINGUISHED
GENERIC OBLIGATION
is Obligation is not extinguished based on the rule that the
genus never perishes (genus nunquam perit)
PURPOSE
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FRAUD IN THE
PERFORMANCE
(Art. 1170)
CAUSAL FRAUD
(Art. 1338)
During
the
performance of a During
pre-existing
execution
obligation.
contract.
of
INCIDENTAL
FRAUD (Art.1344)
the During
a perfection
contract
of
the
a
To
secure
the
consent of another
To
secure
the to enter into the
To
evade
the
consent of another contract but was
normal fulfillment
to enter into the not the principal
of the obligation.
contract.
inducement
in
making
the
contract.
EFFECT
REMEDY
Results in
breach
of
obligation.
3. Culpa Criminal – criminal negligence or that which results in the commission of a
crime or a delict.
the Results in vitiation Does not result in
an of
consent; the
vitiation
of
voidable contract
consent
Gives rise to a
right in favor of the
creditor to recover
damages.
Gives rise to a right
of an innocent party
to
annul
the
contract
Culpa Contractual
Gives rise to a right
of
an innocent
party to claim for
damages.
Negligence
merely
an
performance of an obligation
incident
Culpa Aquiliana
of
There is a pre-existing contractual relation
Negligence is substantive and independent
There may or may not be a pre-existing
contractual obligation
NOTE: Future fraud cannot be waived. However, the law does not prohibit renunciation of
the action for damages on the ground of fraud already committed.
Source of the obligation is the breach of the Source of the obligation is the negligence
contractual obligation
itself
REMEDIES OF DEFRAUDED PARTY
Proof of existing of the contract and its
breach is prima facie sufficient to warrant Negligence must be proved
recovery
1. Insist on specific performance (Art 1233)
2. Resolve contract (Art 1191)
3. Claim damages, in either case
Diligence in the selection and supervision of
the employees is not available as a defense
Diligence in the selection and supervision of
the employees is a defense
NEGLIGENCE (Culpa)
Negligence on the part of the supposed creditor:
Consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the
place.
●
●
Degree of care required:
1. That required by law (e.g., a common carrier is required to exercise extraordinary
care); or
2. That agreed upon by the parties.
3. In the absence of the two above, diligence of a good father of a family.
If his negligence was the immediate and proximate cause of the injury, there is no
recovery for damages.
If his negligence was only contributory, he may still recover damages, BUT the courts
can mitigate or reduce the same.
NOTE: Negligence can be waived except in cases where the nature of the obligation or
public policy requires another standard of care.
EXCEPTIONS: Nature of Obligation of a Common carrier
Kinds of Negligence as to SOURCE:
DELAY (Mora)
1. Culpa Contractual – contractual negligence or that which results in a breach of
contract.
2. Culpa Aquiliana – civil negligence or quasi-delict
●
●
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Ordinary Delay – failure to perform an obligation on time
Legal Delay/ Default – failure to perform an obligation on time which constitutes a
breach in the contract.
REQUISITES OF DELAY
●
1. Obligation must be due, demandable and liquidated;
2. Debtor fails to perform his positive obligation on the date agreed upon;
3. A demand (not merely a reminder or notice), judicial or extra-judicial, made by the
creditor upon the debtor to fulfill, perform or comply with his obligation otherwise, he
will be in default; and
4. Failure of the debtor to comply with such demand.
●
EFFECTS:
a. Debtor is guilty of breach of the obligation
b. Liability: If obligation to pay money- must pay interest. If no extra-judicial demand,
interest runs from the filing of the complaint. In other obligations, pay damages.
c. Obligations to deliver a determinate thing, liable for fortuitous events. If debtor can
prove that loss would have resulted even if he had not been in default, the court may
equitably mitigate the damages (Art. 2215[4])
d. Resolution (Art 1170, in proper cases)
KINDS OF DELAY
1. Mora Solvendi – default on the part of the debtor:
●
●
Mora Solvendi Ex re – default in real obligations
Mora Solvendi Ex persona – default in personal obligations
2. Mora Accipiendi – default on part of creditor when he unjustifiably refuses to accept
the performance of the obligation.
REQUISITES:
a. The obligation must be due, enforceable and already liquidated or determinate in
amount;
b. There must be non-performance; and
c. There must be a demand, unless demand is not required.
REQUISITES:
a. Offer of performance by the debtor
b. Offer must be to comply with the prestation as it should be performed
c. Creditor refuses the performance without just cause
GENERAL RULE: Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
EFFECTS:
a.
b.
c.
d.
e.
f.
WHEN CONSIDERED IN DEFAULT:
GENERAL RULE: upon demand, which may be judicial or extra-judicial.
EXCEPTIONS:
●
●
●
rendered was a controlling motive for the establishment of the contract – e.g.,
A florist for a wedding
When demand would be useless – e.g., when the debtor already transferred the
thing to another; or had it destroyed or hidden .
In reciprocal obligations, where the respective obligations must be performed
simultaneously, and one party was not ready
When stipulated – a due date in itself is not enough, what should be stipulated is
that there is no need for demand to consider the debtor in default
When the law so declares – e.g., delivery of a partner’s share in the partnership
When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be
Responsibility of debtor is limited to fraud and gross negligence
Debtor is exempted from risk of loss of thing; creditor bears risk of loss
Expenses by debtor for preservation of thing after delay is chargeable to creditor
If obligation bears interest, debtor does not have to pay from time of delay
Creditor liable for damages
Debtor may relieve himself of obligation by consigning the thing
3. Compensatio morae – both parties are in default (in reciprocal obligations); there is no
actionable default on the part of both parties
• Rule in Reciprocal Obligations: In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a proper manner with what is
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incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the
other begins.
1.1.6 Extinguishment of Obligation
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
• Performance must be simultaneous unless different dates for the performance of the
obligation were fixed by the parties
CESSATION OF THE EFFECTS OF MORA:
1. Renunciation (express or implied)
2. Prescription
Other causes of extinguishment of obligations:
a. Annulment
b. Rescission
c. Fulfillment of a resolutory condition
d. Prescription These other causes are governed elsewhere in the Civil Code
NOTE: There is no delay in negative obligations and natural obligations.
1.1.5 Nature and Effects of Obligations
Concurrent Obligations in Obligations to Give a Determinate Thing: To deliver the
thing, which may be either actual or constructive.
CHAPTER 2
1. To take care of it with the proper diligence of a good father of a family (bonus
pater familia), unless there is stipulation or the law requires another standard of care.
2. To deliver the fruits of the thing from the time the obligation to deliver it arises.
Note, however, that the creditor will not acquire real rights over the fruits until it is
delivered to him.
Kinds of Fruits:
a. Natural – spontaneous product of the soil, young and other products of
animals
b. Industrial – those derived from human intervention, cultivation or labor
c. Civil – those derived from the juridical relation of parties.
3. To deliver all accessions and accessories, even though they may not have been
mentioned.
Accessories – those joined to or included with the principal for the latter’s
better use, perfection or enjoyment. Example: keys to a house.
Accessions – additions or improvements upon a thing which may include an
alluvium and whatever is built, planted or sown on a parcel of land. Example: building
constructed on land.
NATURE AND EFFECTS OF OBLIGATIONS
ARTICLE 1163. EVERY PERSON OBLIGED TO GIVE SOMETHING IS ALSO OBLIGED
TO TAKE CARE OF IT WITH THE PROPER DILIGENCE OF A GOOD FATHER OF A
FAMILY, UNLESS THE LAW OR THE STIPULATION OF THE PARTIES REQUIRES
ANOTHER STANDARD OF CARE.
The “diligence of a good father of a family” is the diligence required on this article and if
extraordinary diligence is required, then the obligor shall exercise extraordinary diligence.
Another standard of care – The degree of diligence must not be inferior to the diligence of
a good father of the family. Anything lower than this would be against public policy and good
customs.
1.1.5.1 Concurrent Obligation to a specific/determinate thing
The article refers to obligation to give a determinate thing:
●
●
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Determinate/specific
Generic/indeterminate
Meaning of SPECIFIC or DETERMINATE thing
Examples:
A thing is said to be specific or determinate particularly designated or physically segregated
others of the same class.
1. a car
A determinate thing is determined by its individuality. The debtor cannot substitute it with
another although the substitute is of the same kind and quality without the consent of the
creditor.
3. A Rolex watch
Examples:
1. To deliver a thing which is of the quality intended by the parties taking into consideration
the purpose of the obligation and other circumstances. (Article 1246)
2. a horse
Duties of debtor in obligation to give a GENERIC (INDETERMINATE) THING.
1. the car sold by X last August 5, 2020
2. To be liable for damages in case of fraud, negligence, or delay, in the performance of his
obligation, or contravention of the tenor thereof.
2. my cat named “Kylie”
3. building located at No. 233, Lacson Street, Bacolod City
WHEN AN OBLIGATION TO DELIVER ARISES:
Duties of debtor in obligation to give a determinate thing:
a. If obligation is based on law, quasi-delict, quasi-contract or crime, the specific provisions
of applicable law shall determine when the delivery shall be effected; or
(1) To preserve or take care of the thing due.
⮚ In obligation to give (real obligations), the obligor has the incidental duty to take
care of the thing due with the diligence of a good father of a family pending
delivery.
b. If obligation is based on contracts.
(2) To deliver the fruits of the thing (See discussion under Article 1164)
GENERAL RULE: All fruits shall pertain to the vendee from the constitution or
perfection of the obligation. (CC, Art. 1187)
(3) To deliver its accessions and accessories (See discussion under Article 1166)
KINDS OF FRUITS:
(4) To deliver the thing itself
a. Natural Fruits - the spontaneous products of the soil, the young and other products of
animals produced without intervention of human labor
(5) To answer for damages in case of non-fulfillment or breach (See discussion under Article
1170)
Examples: Grass, all trees and plants on lands produced WITHOUT the intervention of
human labor.
Meaning of GENERIC or INDETERMINATE thing
b. Industrial Fruits - those produced by lands of any kind through cultivation brought by an
intervention of human labor.
A generic or indeterminate thing is not particularly designated or physically segregated from
all others of the same class.
Examples: Sugar cane, vegetables, rice; and all products of lands brought about by reason
of human labor.
It means that a thing cannot be specifically determined from things of the same class. The
thing can be replaced by another thing that is of the same quality.
c. Civil Fruits - those derived by virtue of juridical relation.
A generic thing is identified only by its specie. The debtor can give anything of the same
class as long as it is of the same kind.
Examples: Rents of buildings, price of leases of lands and other properties
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consideration.
Correlative Rights of the Obligee:
1. Right to Specific Performance
1.1.5.2 Obligation to do or not to do
2. Right to Rescission or Resolution
PERSONAL OBLIGATION (OBLIGATION TO DO) - Positive Personal Obligation
3. Right to damages due to the ff:
GENERAL RULE - In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee’s will. (CC, Art. 1244, par.2)
i. Fraud
EXCEPTIONS: In facultative obligations, where the debtor reserves the right to substitute
another prestation.
ii. Negligence in the performance of an obligation
iii. Delay or Default
Duties of the obligor in an obligation to do:
iv. Any manner in contravention of the tenor of the obligation.
1. To do it
EXCEPTIONS:
2. To shoulder the cost if someone does it
i. Subject to a suspensive condition, it arises from the happening of the condition;
3. To undo what has been poorly done
ii. If there is a contrary stipulation of the parties with respect to the time when the thing or
fruits shall be delivered.
4. To pay damages
GENERAL RULE: If due to fortuitous event, the obligor is not liable for failure to
deliver
OBLIGATION NOT TO DO – Negative Personal Obligation
EXCEPTIONS:
Duties of the obligor in an obligation not to do
a. Law
1. Not to do what should not be done
b. Stipulation to the contrary
2. To shoulder the cost to undo what should not have been done
i. Nature if the obligation requires assumption of risk
3. To pay damages
ii. Fraud or malice (bad faith)
iii. Debtor was already in delay when the fortuitous event took place.
1.1.5.3 Remedies in case of non-performance
4. Right to the fruits and interests from the time the obligation to deliver arises.
Forms of breach of Obligation
GENERAL RULE : To deliver a thing which is neither of superior nor inferior quality.
1. Voluntary - arises either by fraud, negligence, delay and in any manner contravene to the
tenor of the obligation.
EXCEPTIONS: When the purpose of the obligation and other circumstances shall have to
be taken into
2. Involuntary - arises due to fortuitous events
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3. Substantial - amount to non-performance which is the basis for rescission and payment
of damages, and
d. Action for Undoing (in obligation not to do)
GENERAL RULE: When the obligation consists in not doing, and the obligor does what has
been forbidden him, it shall be undone at his expense.
4. Casual - a part of the obligation has been performed and gives rise to liability for
damages.
EXCEPTIONS: When the only feasible remedy is indemnification for the damages cause by
reason that:
b. Poverty
c. War between the subjects of a neutral country.
i. It has become impossible to undo the thing physically or legally
Remedies of creditor in case of Breach:
ii. If the acts are definite and will not cease even if undone.
I. Primary Remedies
✔ Action for Damages
⮚ Action for Performance (Specific Performance or Substituted Performance)
⮚ Action for Damages (exclusively or in addition to action for performance); and
⮚ Action for Rescission
Recoverable damages include any and all damages that a human being may suffer.
Responsibility for damages is indivisible.
✔ Action for Rescission
The power to rescind obligation is implied in reciprocal obligations, in case one of the
obligors should not comply with what is incumbent upon him.
II. Subsidiary Remedies
⮚ Accion Subrogatoria
⮚ Accion Pauliana
⮚ Other Specific Remedies
Note: The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.
Breach by Both Parties:
o
I. Primary Remedies
✔ Action for Performance
o
a. Action for Specific Performance (in obligation to give a determinate thing) - when what is
to be delivered is a determinate thing, the creditor, in addition to his right for indemnification
of damages, may compel the debtor to make the delivery.
If first infractor can be determined, his liability shall be equitably tempered by
the courts.
If the first infractor cannot be determined, the obligation shall be extinguish
and each shall bear his own damages.
Note: The remedy of rescission is alternative. Party seeking rescission can only elect one
between fulfillment and rescission. There can be no partial performance and partial
rescission.
b. Action for Substituted Performance (in obligation to given indeterminate thing) - if the
thing is indeterminate or generic, he may ask the obligation be complied with at the expense
of the debtor.
The remedy only applies to reciprocal obligations as when there is reciprocity between the
parties.
c. Action for Substituted Performance or Undoing of Poor Work (in obligation to do) - if a
person obliged to do something fails to do it, the same shall be executed at his cost. This
same rule shall be observed if he does it on contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone.
Rescission requires judicial approval to produce legal effect.
Effects of Rescission:
1. Extinguishes obligatory relation as if it had never been created; extinction has a
retroactive effect.
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2. Mutual restitution - rescission creates the obligation to return the thing which were the
object of the contract, together with their fruits, and the price with its interest, consequently.
⮚ Inherent rights of the debtor
i. Right to existence
Subsidiary Remedies
ii. Rights or relations of a public character
Subsidiary remedy - the exhaustion of all remedies by the prejudiced creditor to collect
claims due to him before rescission is resorted to.
iii. Rights of an honorary character
iv. Rights consisting of powers which have not been used (i.e., the power to carry out an
agency or deposit)
1. To exhaust the property in possession of the debtor generally by attachment, subject to
exemptions provided by law.
v. Non-patrimonial rights (i.e., the action for legal separation or annulment of marriage)
2. Accion Subrogaatoria (Subrogatory Action) - action which the creditor may exercise in
place of the negligent debtor in order to preserve or recover for patrimony of the debtor the
product of such action, and then obtain therefrom the satisfaction of his own credit.
vi. Patrimonial rights not subject to execution (i.e., right to a government gratuity or
pension); and
Note: The creditor is entitled only to as much as is needed to satisfy his credit and any
balance shall pertain to the debtor.
vii. Patrimonial rights inherent in the person of the debtor (i.e., right to revoke a donation
by reason of ingratitude)
Right of the Creditor:
o
o
o
⮚ b. Only those who at the time of the donor’s death have a right to the legitime and
their successor’s in interest may ask for the reduction or inofficious donations.
Levy by attachment and execution upon all the property of the debtor, except
such as exempt by law from execution;
Exercise all the rights and action of the debtor, except such as inherently
personal to him;
To ask for rescission of the contracts made by the debtor in fraud of their
rights.
✔ Accion Pauliana
Creditors have the right to impugn the acts which the debtor may have done to defraud
them.
Requisites:
Requisites:
a. Creditor has a credit prior to the alienation by the debtor, although demandable later.
a. Debtor to whom the right of the property pertains must be indebted tot he creditor;
b. Debtor has made a subsequent contract, giving advantage to a 3rd person;
b. Creditor must be prejudiced by the inaction or failure of the debtor to proceed against the
third person;
c. Third person who received the property is an accomplice in the fraud; and
d. Act being impugned is fraudulent.
c. Creditor must have first pursued or exhausted all the properties of the debtor which are
not exempted for execution.
Note: The following are presumptions of fraud provided under Civil Code, Art. 1387 as
follows:
Note: In order to exercise the accion subrogatoria, a previous approval of the court is not
necessary.
i. Alienation of property by gratuitous title without reserving sufficient property to pay debts
prior to donation;
ii. Alienation by onerous title when there is judgment or attachment.
Exceptions to Accion Subrogatoria:
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3. Must be of such a character as to render it impossible for the obligor to fulfill his obligation
in a normal manner;
✔ ACCION DIRECTA
A person may directly sue another even if there is no privity of contract between them.
Transmissibility of Rights acquired by virtue of obligation.
4. Obligor must be free from any participation in the aggravation of the injury resulting to the
obligee.
GENERAL RULE: Right acquired by virtue of an obligation are transmissible in character.
Liability in case of Fortuitous Event:
EXCEPTIONS:
GENERAL RULE : No liability in case of fortuitous event.
a. When prohibited by law which are purely personal in character;
EXCEPTIONS :
b. When prohibited by personal qualification or circumstances of the transferor which is
material ingredient attendant in the obligation; and
a. When expressly declared by law;
c. When prohibited by stipulation of the parties.
c. When the nature of the obligation requires the assumption of risk;
b. When expressly declared by stipulation or contract
d. When the object of the prestation is generic.
Fortuitous Event- Extinguishment of Liability in case of Breach due to Fortuitous Event
Effects of Fortuitous Event:
Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen or which, though foreseen, were
inevitable.
a. On determinate obligation - the obligation is extinguished; and
b. On generic obligation - the obligation is not extinguished (genus nun quam peruit
– genus never perishes)
Principle of Assumed or Created Risk
Based on the document of volenti non fit injuria - no wrong is done to one who
consents. As applied to obligations, it refers to situations in which the obligor, with full
knowledge of the risk enters into some relation with the obligee.
Forms of Fortuitous Events:
1. By Acts of God or Force Majeure – absolutely independent of human will.
Ex. Earthquakes, storms, flood, etc.
2. By Acts of Man - an event which arises fro legitimate or illegitimate acts of persons other
than the obligor.
Extinguishment of Interest and Prior Installments: Receipt of the principal (or later
installment):
Ex. Robbery, war, attacks by bandits
Receipt of the principal (or later installment) without reservation as to the interest (or
prior installment) shall give rise to a disputable presumption that the interest or prior
installment has been paid. (Art. 1176, Civil Code)
Requisites of Fortuitous Events:
1. Must be independent of the human will;
Instances when presumptions in Art. 1176 of the Civil Code do not apply:
2. It must either unforeseeable or inevitable;
a.When there is a reservation made orally or in writing;
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b. If the receipt does not recite that it was issued for a particular installment due as
when the receipt is only dated;
1.1.6.1 Payment of debts of money
a. The payment of debts in money can be made in other foreign currency.
c. To payment of taxes; and
b. The payment of debts in money shall be made in the foreign currency stipulated.
d. Where non-payment of the prior obligations has been proven.
c. In case the delivery of the foreign currency stipulated is not possible, the payment of
debts in money shall be made in the currency (Philippine Peso) which is legal tender in the
Philippines.
1.1.5.4 Damages
Damages may be:
i. Legal Tender in Philippine Jurisdiction – refers to the currency (Philippine Peso)
which a debtor can compel a creditor to accept in an obligation to pay a sum of
money.
(1) Actual or compensatory;
(2) Moral;
(3) Nominal;
1. 1 centavo, 5 centavos, 10 centavos, 25 centavos – Up to P100 only.
(4) Temperate or moderate;
2. P1, P5, P10 – Up to P1,000 only.
(5) Liquidated; or
3. P20, P50, P100, P200, P500, P1,000 – Unlimited legal tender power.
ii. Note: The legal tender power of Philippine Peso coins is in their combination and
not per denomination.
(6) Exemplary or corrective.
NOTE: The principles of the general law on damages are hereby adopted insofar as they
are not inconsistent with this Code (Art. 2198).
d. The delivery of promissory notes payable to order or bills of exchange or other mercantile
documents shall produce the effect of payment only: (1) when they have been encashed or
(2) when through the fault of the creditor they have been impaired or (3) when the amount
has already been credited to the bank account of creditor. Negotiable instruments like
promissory note, bill of exchange and checks are not legal tender and not as good as cash.
1.1.6 Extinguishment of Obligation with special emphasis on
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
e. In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
value of the currency at the time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
(4) By the confusion or merger of the rights of creditor and debtor;
1.1.6.2 Mercantile documents as means of payment
(5) By compensation;
Payment by means of mercantile documents like checks and promissory notes in lieu of the
sum of money due does not extinguish the obligation until they have been accepted and
cashed by the creditor.
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are governed elsewhere in this Code. (1156a)
1.1.6.3 Special forms or mode of payment
a. Application of payment (Not really a special form of payment)
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b. Payment by cession
EFFECTS OF ASSIGNMENT:
c. Dation in payment
a. Creditors do not become the owner; they are merely assignees with authority to
sell
d. Tender of payment and consignation
b. Debtor is released up to the amount of the net proceeds of the sale, unless there
is a stipulation to the contrary
1.1.6.3.1 Dation in payment
DACION EN PAGO – mode of extinguishing an obligation whereby the debtor alienates in
favor of the creditor property for the satisfaction of monetary debt; extinguish up to amount
of property unless w/ contrary stipulation; A special form of payment because 1 element of
payment is missing: IDENTITY
c. Creditors will collect credits in the order of preference agreed upon, or in default of
agreement, in the order ordinarily established by law mode of extinguishing an
obligation whereby the debtor alienates in favor of the creditor property for the
satisfaction of monetary debt; extinguish up to amount of property unless w/ contrary
stipulation; A special form of payment because 1 element of payment is missing:
IDENTITY
CONDITIONS FOR A VALID DACION:
a. If creditor consents, for a sale presupposes the consent of both parties
1.1.6.3.2 Application of payments
b. If dacion will not prejudice the other creditors
APPLICATION OF PAYMENTS – the designation of the debt which payment shall be made,
out of 2 or more debts owing the same creditor: stipulation or application of party given
benefit of period – OK; to be valid: must be debtor’s choice or w/ consent of debtor
c. If debtor is not judicially declared insolvent
NOTE: DACION is governed by the law on sales CESSION/ASSIGNMENT IN FAVOR OF
CREDITORS – the process by which debtor transfer all the properties not subject to
execution in favor of creditors is that the latter may sell them and thus, apply the proceeds to
their credits; extinguish up to amount of net proceeds (unless w/ contrary stipulation)
REQUISITES FOR THE APPLICATION OF PAYMENT:
a. Various debts of the same kind
b. Same debtor
KINDS OF ASSIGNMENT:
a. Legal – governed by the insolvency law
c. Same creditor
b. Voluntary – agreement of creditors
d. All debts must be due
EXCEPTIONS: there may be application of payment even if all debts are not yet due if:
a. Parties so stipulate
REQUISITES OF VOLUNTARY ASSIGNMENT:
b. When application of payment is made by the party for whose benefit the term has
been
constituted
a. More than one debt
b. More than one creditor
c. Payment is not enough to extinguish all debts
c. Complete or partial insolvency of debtor
d. Abandonment of all debtor’s property not exempt from execution
HOW APPLICATION IS MADE:
e. Acceptance or consent on the part of the creditors
a. Debtor makes the designation
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b. If not, creditor makes it by so stating in the receipt that he issues – unless there is
cause for invalidating the contract
CONSIGNATION – the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment; generally requires prior
tender of payment
c. If neither the debtor nor creditor has made the application or if the application is
not valid, then application, is made by operation of law
REQUISITES OF VALID CONSIGNATION:
WHO MAKES APPLICATION OF DEBTS
a. Existence of valid debt
GENERAL RULE: Debtor
b. Consignation was made because of some legal cause - previous valid tender was unjustly
refused or circumstances making previous tender exempt
EXCEPTIONS: Creditor
c. Prior Notice of Consignation had been given to the person interested in performance of
obligation (1st notice)
a. Debtor without protest accepts receipt in which creditor specified expressly and
unmistakably the obligation to which such payment was to be applied – debtor in this case
renounced the right of choice
d. Actual deposit/Consignation with proper judicial authorities
e. Subsequent notice of Consignation (2nd notice)
b. When monthly statements were made by the bank specifying the application and the
debtor signed said statements approving the status of her account as thus sent to her
monthly by the bank
EFFECTS: EXTINGUISHMENT OF OBLIGATION
a. Debtor may ask judge to order cancellation of obligation
d. In case no application is made:
b. Running of interest is suspended
• Apply payment to the most onerous
c. Before creditor accepts or before judge declares consignation has been properly made,
obligation remains ( debtor bears risk of loss at the meantime, after acceptance by creditor
or after judge declares that consignation has been properly made – risk of loss is shifted to
creditor)
• If debts are of the same nature and burden, application shall be made to all proportionately
1.1.6.3.3 Payment by cession
CONSIGNATION W/O PRIOR TENDER – allowed in:
CESSION -refers to a special type of payment which involves the voluntary abandonment of
the universality of the property of the debtor for the benefit of his creditors, in order that such
property may be applied to the payment of the credits.
a. Creditor absent or unknown/ does not appear at the place of payment
b. Incapacitated to receive payment at the time it is due
1.1.6.3.4 Tender of payment and consignation
c. Refuses to issue receipt w/o just cause
TENDER -the act of offering the creditor what is due him together with a demand that the
creditor accept the same (When creditor refuses w/o just cause to accept payment, he
becomes in mora accepiendi and debtor is released from responsibility if he consigns the
thing or sum due)
d. 2 or more creditor claiming the same right to collect
e. Title of obligation has been lost
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1.1.6.4 Loss of the thing due, remission or condonation, confusion, compensation
and novation
OBLIGATION TO DO
LOSS OF THE THING DUE – partial or total/ includes impossibility of performance
GENERAL RULE: Debtor is released when prestation becomes legally or physically
impossible without fault on part of debtor.
WHEN IS THERE A LOSS?
EFFECT OF PARTIAL LOSS
a. When the object perishes (physically)
a. When loss is significant – may be enough to extinguish obligation
b. When it goes out of commerce
b. When loss insignificant – not enough to extinguish obligation
c. When it disappears in such a way that: its existence is unknown or it cannot be recovered
NOTE: judicial determination of extent is necessary
WHEN IS THERE IMPOSSIBILITY OF PERFORMANCE:
WHEN THING IS LOST IN THE POSSESSION OF THE DEBTOR
a. Physical impossibility
• Presumption: Loss due to debtor’s fault (disputable)
b. Legal impossibility
• Exception: natural calamity, earthquake, flood, storm
i. Directly – caused as when prohibited by law
CONTRACTS
ii. Indirectly – caused as when debtor is required to enter a military draft
1.2.1.1 Definition
OBLIGATION TO DELIVER A SPECIFIC THING
GENERAL RULE: Extinguished
EXCEPTIONS:
Art. 1305. A CONTRACT is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some service.
a. Debtor is at fault
b. Debtor is made liable for fortuitous event because of a provision of law, contractual
stipulation or the nature of the obligation requires assumption of risk on part of debtor
1.2.1.2 Classification of Contracts
1. According to Perfection
OBLIGATION TO DELIVER A GENERIC THING
a. Consensual - perfected by mere consent
b. Real - perfected only upon delivery
c. Formal - requires a certain form for it to be valid
GENERAL RULE: Not extinguished
EXCEPTIONS:
2. According to Degree of Dependence
a. If the generic thing is delimited
a. Principal - can stand on its own
b. Accessory - dependent upon other for its validity
c. Preparatory - contracts entered into for the creation of another contract
b. If the generic thing has already been segregated
c. Monetary obligation
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3. According to Parties Obliged
a. Bilateral - both contracting parties are reciprocally obligated
b. Unilateral - only one of the contracting parties is obliged
1.2.1.3 Characteristics of Contract
1) Obligatoriness: force of law
Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith (Arts. 1159, 1315.)
*Importance of Classification:
1. As to fruits
2. As to recission as a remedy
3. As to delay
2) Autonomy: free to stipulate
The parties may establish such stipulations, clauses, terms, and conditions as they may
deem convenient, provided, they are not contrary to law, morals, good customs, public order,
and public policy (Art. 1306.)
4. According to Equivalence of Prestation
a. Commutative – the prestation of one party is the equivalent of the value of the other
b. Aleatory – entitlement of the other party to a prestation is dependent upon chance
5.
According to Cause
a. Onerous – the cause is the prestation or promise of a thing or service by the other
b. Gratuitous or lucrative – cause is the liberality of the benefactor or giver
c. Remuneratory­– cause is service or benefit
6.
According to Risk
a. Commutative – equivalent values are given and received
b. Aleatory – fulfillment of the cause as to one party is dependent upon chance
7.
According to Degree of Execution
a. Executory – contract that is not yet performed; some are covered by Statute of
Fraud and shall be in writing in order to be enforceable
b. Executive – a contract that was already performed; not covered by Statute of Fraud
EXAMPLES OF VOID STIPULATIONS:
• Pactum commissorium: automatic appropriation of the things given by way of pledge or
mortgage, in case of non-payment of principal obligation
• Pactum de non alienado: forbidding the owner from alienating the immovable mortgaged
• Pactum leonina: excluding one or more partners from any share in the profits or loss
Should any of the foregoing is stipulated, it is considered as if not written at all
3) Mutuality: essential equality; in equal footing
Contracts must bind both and not one of the contracting parties; their validity or compliance
cannot be left to the will of one of them (Art. 1308.)
4) Relativity: binding upon contracting parties
Contracts take effect only between the parties, their assigns and heirs, except in cases
where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation, or by provision of law. (Art. 1311.)
8.
According to Name
a. Nominate – particular name has been designated; particular rules are applicable
b. Innominate – no particular designation
i. Do ut des – I give that you may give
ii. Do ut facias – I give that you may do
iii. Facio ut des – I do that you may give
iv. Facio ut facias – I do that you may do
* Order of priority on Rules that shall govern innominate contracts
(1) The stipulation of the parties
(2) The provisions of Obligations and Contracts
(3) The rules governing the most analogous contracts
(4) The customs of the place
General rule: Contracts take effect only between the contracting parties, as well as their
assigns and heirs.
Exceptions:
1) Where the contract contains a stipulation in favor of a third person;
2) Where the third person comes into possession of the object or a contract creating a real
right;
3) Where the contract is entered into in order to defraud a third person; and
4) Where the third person induces a contracting party to violate his contract
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1.2.1.4 Stages of Contract
1. ESSENTIAL – necessary for the contract to be valid. Absence of any of the essential
elements will render the contract void and the injured party’s remedy is declaration of
nullity.
a. Consensual contracts
i. Consent
ii. Object
iii. Cause/ consideration
b. Formal Contracts
i. 1,2,3 above
ii. Solemnity or required form
c. Real contract
i. 1,2,3
ii. Delivery
2. NATURAL – those that are deemed to exist in the contract despite not being
stipulated such as warranties
3. ACCIDENTAL – those that do not normally exist unless stipulated by the parties
1) Negotiation – covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is perfected
2) Perfection – takes place upon the concurrence of the essential elements of the contract
3) Consummation – begins when the parties perform their respective undertakings under
the contract resulting to the eventual extinguishment of the contract
1.2.1.5 Freedom to Contract & Limitation
Art. 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy. (1255a)
ESSENTIAL ELEMENTS OF A CONTRACT
Limitations on Contractual Stipulations
1. CONSENT. The meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract.
1.
a.
b.
c.
Law - contract must not intervene:
Expressly declare their obligatory character
Prohibitive
Express fundamental principle of justice cannot be overlooked by the contracting
parties
d. Impose essential requisites without which the contract cannot exist
Requisites of valid consent:
1. Intelligent – not a mistake or fraud
2. Free or voluntary – not subject of undue influence, intimidation, or violence
3. Spontaneous
4. Not vitiated
2. Morals - Man’s innate sense or notion of what is right and wrong.
3. Good customs - pertains to certain precepts that cannot be universally recognized
as moral, something they can only apply to certain communities or localities
Offer and Acceptance:
1.
2.
3.
4.
5.
4. Public order - consideration of the public good, will or welfare, peace and safety of
the public and health of the community
5. Public policy - court must find that the contract contravenes some established
interest of the society
Offer must be certain
Acceptance must be absolute
Qualified acceptance constitutes a counter-offer
An acceptance may be express or implied
Offeror may fix the time, place, and manner of acceptance.
Acceptance Through A Letter Or Telegram
1.2.1.6 Persons Bound
1.2.2. Elements of Contracts
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a. Cognition theory – acceptance is effective upon the time the offeror has knowledge of
offeree’s acceptance
Those who are “incompetent” who may be placed under guardianship:
1. Those who suffer civil interdiction
2. Hospitalized lepers
3. Prodigals
4. Deaf and dumb who are unable to read and write
5. Those of unsound mind even though they have lucid intervals
6. Those who cannot take care of themselves without outside aid, becoming
thereby an easy prey for deceit and exploitation
b. Manifestation theory – acceptance is effective once acceptance is declared or made by
offeree
Note: Philippines abide by the Cognition Theory.
Intervening events. An offer becomes ineffective upon the death, civil interdiction, insanity,
or insolvency of either of the parties before the acceptance of an offer is declared.
B. Relative incapacity. A person may be prohibited to entering specific
contracts or may be prohibited in a certain capacity
d. Both are incapacitated. Unenforceable.
e. Both parties have consented, but consent was vitiated.
Vices of consent (VIMFU)
1. Violence - serious or irresistible force is employed
2. Intimidation - compelled by a reasonable and well-grounded fear of an imminent
and grave evil upon his person or property
3. Mistake - wala description
4. Fraud - through insidious words or machinations of on of the contracting parties, the
other is induced to enter into a contract
5. Undue influence - taking improper advantage of his power over the will of another
Option Agreement. Offeror allows offeree a certain period to accept; offer may be
withdrawn before acceptance is communicated except when the option is founded upon a
consideration.
Advertisements. Are not definite offers but mere invitations to make an offer.
SITUATIONS CONCERNING CONSENT OF THE PARTIES
a. Both parties gave their consent as to the essential elements of the contract.
Contract is valid.
b. Simulation. Both parties have no intention to be bound by the contract (absolute
simulation), the contract is void. If the parties conceal their true agreement (relative
simulation), they shall be bound by their real agreement.
c.
2. OBJECT CERTAIN WHICH IS THE SUBJECT MATTER. May involve things, rights, or
services.
Incapacity of one of the parties
I.
II.
Kinds of Capacity
Juridical capacity. Fitness to be the subject of legal relations, is inherent in every
natural person and is lost only through death. Contract is void if incapacity pertains to
juridical capacity.
Legal capacity. Power to do acts with legal effect. Acquired, and may be lost.
A. Absolute incapacity - cannot give consent
1. Unemancipated minors or below 18 years of age
2. Insane persons (exception: making decisions during lucid interval)
3. Demented persons
4. Deaf-mutes who do not know how to write
5. Drunks or hypnotizes
● contract would be voidable as to the party who is incapacitated
Requisites:
a. Must be within the commerce of man
b. Must be transmissible
c. Must not be contrary to Law, Morals, Good conduct, Public order, or Public policy
(LaMoGcPoPp)
d. Must not be impossible
e. Must be determinable as to its kind or determinable without the need of a new
contract or agreement
Future inheritance: cannot be the subject matter of a contract.
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3. CAUSE. Essential or impelling reason why a party assumes an obligation.
a) Onerous
b) Gratuitous
c) Remuneratory
Requisites:
a.) It must exist
b.) It must be true
c.) It must be licit
GENERAL RULE: no form is required for the validity or perfection of a contract.
Exceptions: Formalities required for VALIDITY:
1. Donations of real property which requires a public instrument.
2. Donations of personal property which exceed P5,000 which require that the donation be
written.
3. Stipulation to pay interest on loans or for the use of money, which must be in writing.
4. The sale or transfer of large cattle which requires that it be in a public instrument,
registered, and that there should be a certificate of transfer.
Motive - purely private reason; illegality does not invalidate contract except when it
predetermines purpose of contract.
5. Contribution of real property in a partnership, which requires that there be an inventory
attached to a public instrument.
Rules on cause:
1. Unlawful cause (unlawful if contrary to LaMoGcPoPp) = contract has no effect
2. The statement of a false cause in contracts shall render them void.
3. Even though cause is not stated in the contract, it is presumed that it exists and is
lawful. Except: debtor proves the contrary.
4. Inadequacy of the price will not affect the contract. Except:
a. When expressly provided by law
b. When there has been fraud, mistake, or due influence
5. The particular motives of the parties in entering into a contract are different from the
cause thereof. Except: if it predominates the purpose of the party to enter into a
contract.
Formalities required for ENFORCEABILITY (STATUTE OF FRAUDS):
The following are unenforceable unless they are in writing, or some note or memorandum
and subscribed by the party charged, or by his agent:
1. An agreement that by its terms is not to be performed within a year from the making
thereof.
2. A special promise to answer for the debt, default, or miscarriage of another;
3. An agreement made in consideration of marriage, other than a mutual promise to marry;
4. An agreement for the sale of goods, chattels, or things in action, at a price not less than
five hundred pesos, unless the buyer accepts and receive part of such goods and chattels,
or the evidences, or some of them, of such things in action or pay at the time some part of
the purchase money; but when a sale is made by auction and entry is made by the
auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person on whose account the sale is
made, it is a sufficient memorandum;
1.2.2 Essential requisites
1.2.3 Forms of contracts
1.2.4 Reformation of instruments/contracts
1.2.5 Interpretation of contracts
1.2.6 Defective contracts
5. An agreement of the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
GENERAL PROVISIONS
ESSENTIAL REQUISITES
6. A representation as to the credit of a third person.
Formalities required for CONVENIENCE:
FORMS OF CONTRACT
To bind third persons, the following are required to appear in a public instrument:
22
1. Acts and contracts which have for their object the creation, transmission, modification, or
extinguishment of real rights over immovable property, sales of real property, or of an
interest therein governed by the Statute of Frauds.
3. Ignorance, lack of skill, negligence or bad faith on the part of the person drafting the
instrument or of the clerk or typist.
4. If two parties agree upon the mortgage or pledge of real or personal property, but the
instrument states that the property is sold absolutely or with a right of repurchase.
2. The cession, repudiation, or renunciation of hereditary rights or of those of the conjugal
partnership of gains.
Who can ask for reformation?
3. The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third person.
1. If the mistake was mutual, reformation may be ordered at the instance of either party or
his successor in interest
4. The cession of actions or rights proceeding from an act appearing in a public document.
2. Otherwise, the injured party, or his heirs and assigns.
Remedy to require a specific form:
No reformation is allowed:
If the law requires a document or other special form if the contract is VALID and
ENFORCEABLE, as in the acts and contracts required to appear in a public instrument for
convenience (where the requirement that they must be in writing for validity, if applicable, is
met), the contracting parties may compel each other to observe that form, once the contract
has been perfected.
a. Simple donations inter vivos wherein no condition is imposed.
b. Wills.
c. When the real agreement is void.
Likewise, when one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation.
REFORMATION OF INSTRUMENTS
Reformation: is the remedy by means of which a written instrument is made or construed
so as to express or conform to the true intention of the parties when some error or mistake
has been committed.
INTERPRETATION OF CONTRACTS
Requisites:
1. There is a meeting of the minds;
-
2. There is a written instrument; and
3. The written instrument does not reflect the true intention of the parties.
When reformation may be had:
1. Mutual mistake of the parties. If one party was mistaken and the other acted fraudulently
or inequitably in such a way that the instrument does not show their true intention, the
former may ask for the reformation of the instrument
Art. 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall
control
- Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
Primordial Consideration: is the intention of the parties. Such that even if the terms
of the contract are clear, but does not reflect the intention of the parties, it is the
intention which would prevail.
2. When one party was mistaken and the other knew or believed that the instrument did not
state their real agreement but concealed that fact from the former.
Contemporaneous and Subsequent Acts: may be considered to determine if the
parties’ intentions are different from the clear words of the agreement.
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GACTS
1. G🡪 made by guardians 🡪property ward
🡪 Lesion > ¼ value
*Those entered into by guardians where the ward suffers lesion of more than 1/4 of
the value of the things which are objects thereof
Specific rules in interpretation of contracts:
1. However general the terms of a contract may be, they shall not be understood to
comprehend things that are distinct and cases that are different from those upon
which the parties intended to agree.
2. If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.
3. The various stipulations of a contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them taken jointly.
4. Words which may have different significations shall be understood in that which is
most in keeping with the nature and object of the contract.
5. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract and shall fill the omission of stipulations which are ordinarily
established.
6. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.
2. A 🡪made by representative 🡪 property 🡪 Absentee
🡪lesion > ¼ value
7 years w/Out Any news
Presumed Death
2 years missing = Absentee
Agent = 5 years
PRESUMPTIVE DEATH (Old–4years; New–3 years = Missing):
1. He boarded an airplane then the latter is missing.
2. He boarded a vessel then the latter is missing.
3. He was sent to war then he was missing in action.
4. He was lost and he was endanger of death
Go to court 🡪 File a declaration of presumptive death
When none of the above rules will apply:
When it is absolutely impossible to settle doubts by the rules established in the
preceding articles, and the doubts refer to incidental circumstances of:
1. a Gratuitous contract - the least transmission of rights and interests shall prevail.
2. If the contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests. If the doubts are cast upon the principal object of the contract
in such a way that it cannot be known what may have been the intention or will of the
parties, the contract shall be null and void. (Art. 1378)
3. C🡪 undertaken to defraud the creditors
🡪deprive the right to enforce claim  accion pauliana
NOTE: Rescission will not take place if the object of the contract is in the
possession of a third person who acted in good faith.
4. T 🡪things in litigation
Litigant
= RESCISSIBLE
Court
*Those Which refer to things under litigation if they have been entered into by
the defendant Without the knowledge and approval Of the litigants and the
court.
5. S 🡪specially declared by law to be subject to rescission
RESCISSION
✔ The right to rescind in case of deterioration of the thing to be delivered.
(ARTICLE 1189)
✔ The right to rescind given to an unpaid seller. (ARTICLE 1526)
DEFECTIVE CONTRACTS
I.
🡺 If made without consent
RESCISSIBLE CONTRACTS
Those which have caused a particular economic damage either to one of the parties or to a
3rd person and which may be set aside even if valid. It may be set aside in whole or in part,
to the extent of the damage caused'
●
●
●
Valid until rescinded
Least defect among the others
Defect = Lesion/Damage
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or
✔ The right to rescind given to a vendee in sale of real property per unit measure
or lump sum price.
✔
✔
✔
✔
●
II.
VOIDABLE CONTRACTS
Intrinsic defect; the defect is due to vice of consent or legal incapacity.
Valid until annulled.
Annullable unless ratified.
Valid and enforceable but contains a flaw that may make it void.
Characteristics:
a. Effective until set aside.
b. May be assailed/ attacked only in an action for that purpose.
c. Can be confirmed or ratified.
d. Can be assailed/ attack only by either party.
REQUISITES:
i.
Refers to the subject of the thing which is the object of the contract
ii.
Refers to the nature of the contract
iii.
Refers to the principal conditions in an agreement
iv.
Error as to person - when it is the principal consideration of the
contract
v.
Error as to legal effect - when mistake is mutual and frustrates the real
purpose of parties
D. Fraud
● Through insidious words or machinations of contracting parties, other is induced to
enter into contract w/o w/c he will not enter (dolo causante).
● Kinds of Fraud
i. Causal Fraud (dolo causante) – deception of serious character without which
the other party would not have entered into;
Contracts that are considered Voidable or annullable contracts:
A. Incapacitated to give consent:
i.
Unemancipated minors (18 years old below)
ii.
Insane or Demented persons
iii.
Deaf mutes - who do not know how to write.
B. State of drunkenness
C. State of hypnotic spell
D. Persons specially disqualified (civil interdiction).
ii. Incidental Fraud (dolo incidente) – deception which are not serious and
without which the other party would still have entered into the contract; holds
the guilty party liable for DAMAGES.
iii. Tolerate Fraud - includes minimizing the defects of the thing, exaggeration of
its good qualities and giving it qualities, it does not have; LAWFUL
misrepresentation.
Vices on Consent (VIMFU)
A. Violence
● Serious or irresistible force is employed to wrest consent.
●
●
B. Intimidation
● One party is compelled by a reasonable and well-grounded fear of an
imminent and grave danger upon person and property of himself, spouse,
ascendants or descendants (moral coercion).
Expression of an opinion – not fraud unless made by expert and other party relied on
the former’s special knowledge.
Fraud by third person – does not vitiate consent; only action for damages except if
there is collusion between one party and the third person, or resulted to substantial
mistake, mutual between parties.
E. Undue influence
● person takes improper advantage of his power over will of another depriving
latter of reasonable freedom of choice.
C. Mistake
● False belief into something.
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Causes Of Extinction of Action to Annul
a. Prescription period - period to bring an action for Annulment.
Vices of Consent
Violence
Intimidation
Undue influence
Mistake
Fraud
✔ Applicable 🡪 executory = has not yet been performed
Contracts covered by Statute of Fraud (SALSAR):
(a) S ― A special promise to answer for the debt, default, or miscarriage of another.
*NOTE: If there is guaranty or surety, put them in writing.
Prescription period
4 years from time defect of consent ceases
(b) A ― An agreement by its terms is not be performed within a year from the making
thereof.
*NOTE: From the time of commencement.
4 years from time of discovery
Incapacity
(c) L ― Leasing for a longer period than one year of sale of real property or an interest
therein.
From time guardianship ceases
INTANCES COVERED:
✔ Lease 🡪 1 yr. or less 🡪real/personal🡪oral – enforceable
✔ Lease 🡪 > 1 year 🡪immovable 🡪 writing – enforceable
✔ Sale 🡪 immovable 🡪 irrespective of price🡪writing – enforceable
b. Ratification
● Ratification cleanses the contract of its defects from the moment it was
constituted.
● Requisites:
i.
Knowledge of reason rendering contract voidable.
ii.
Such reason must have ceased, except in case of ratification effected
by the guardian to contracts entered into by an incapacitated.
iii.
The injured party must have executed an act which expressly or
impliedly conveys an intention to waive his right.
III.
(d) S ― Sale of good, chattel, or things in action at a price of ₱500 or more.
(e) A ― an agreement made in consideration of marriage other than mutual promise to
marry. This must be in writing otherwise unenforceable.
EXCEPTION:
✔ A mutual promise to marry between the parties is an enforceable even if
orally entered into.
✔ One of the parties do not comply, the injured party cannot comply the other
party. His only right is to ask for damages because of the breach promise.
UNENFORCEABLE CONTRACTS
⮚ Cannot be enforced unless ratified
⮚ Defect = without effect
⮚ “Validable” contract
The following are unenforceable contracts:
(a) Both parties are incapable of giving consent.
(b) Contracts made without authority or in excess of such authority. (Unauthorized Contract)
(c) Do not comply with the Statute of Fraud.
STATUTE OF FRAUD
✔ A law which required that certain contracts must be in writing otherwise
unenforceable
✔ Not applicable 🡪executed = has been performed
(f) R ― A representation as to the credit of a third person.
UNENFORCEABLE
Produce No legal effect unless ratified by
competent court
Resistible & Annullable
Produce legal effect unless set aside by
competent court
Modes of ratification
1. A entered into in the name of another by one who has no authority, legal
representation or who acted beyond his powers, it is ratified expressly or impliedly,
by the person on whose behalf it has been executed, before it is revoked by the
other contracting party.
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2.
For contracts infringing the statute of fraud
a. Expressly
b. Impliedly- by failure to object to the representation of oral evidence to prow
the contract, or by the acceptance of benefits under the contract.
3. If both parties are incapacitated, ratification by their parents or guardian shall
validate the contract retroactively.
●
●
●
●
●
●
IV.
VOID CONTRACT
Most defective contract.
No force and without legal effect.
Inexistent from the beginning.
Cannot be validated either by time or ratification.
To question
period → imprescriptible
third person → if right → affected
The following are also considered void contracts:
a. Bigamous or Polygamous
b. Direct ascendants/descendants
c. Collateral → within fourth degree of consanguinity
d. Parent and surviving spouse of his child
e. Civil Code: Step brothers/sisters
f. Amendment – Family Code: Step brothers/sisters = VALID
g. Donation
⮚ Husband and Wife = VOID except
o family (rejoicing and celebration)
⮚ Guilty of adultery/ concubinage = VOID
h. Sale
⮚ Husband and wife = VOID except
o Separation of property – Pre-nuptial agreement
o and juridical separation – legally separated by court
Characteristics of Void Contract:
a. A void contract cannot be confirmed, ratified or cured.
b. The defense of illegality cannot be waived.
c. The action or defense for the declaration of the inexistence of a contract does not
prescribe.
d. The defense of illegality of contacts is not available to third persons whose interests
are not directly affected.
e. A contract is void / inexistent if it is the direct result of a previous illegal contract.
SALES
1.3.1 Nature
Contracts that are considered void from the beginning (O3 I C A D):
a. Object, cause or purpose is illicit. (Illicit → contrary to law, morals, good customs,
public order or public policy)
b. Object is outside the commerce of men.
c. Object or cause did not exist at the time of the transaction.
d. Intention of the parties relative to the principal object of the contract cannot be
ascertained.
e. Contemplate an impossible service.
f. Absolutely simulated or fictitious.
g. Declared void by law.
SALES
- A contract whereby:
- one of the contracting parties known as the seller or vendor, obligates
himself to transfer the ownership of and to deliver a determinate thing;
and
- the other party known as the buyer or vendee, obligates himself to pay the
price certain in money or its equivalent.
What are the kinds of delivery?
1. Actual Delivery – means actual physical transfer of control and possession to the
buyer
In marriage:
27
2. Constructive – delivery other than physical delivery
a. Traditio Symbolica – the seller delivers the symbol of possession of a property
e.g. keys; applicable to movables only.
b. Traditio Longa Manu – delivery of a movable by mere consent or agreement of
the parties usually made by pointing at the thing; applicable to movables only.
c. Traditio Brevi Manu – delivery that takes place when the buyer is already in
possession of the thing sold even before the sale; applicable to movables only.
d. Traditio Constitutum Possessorium – delivery that takes place when the
seller continues in possession of the thing sold after the sale but in another
capacity such as a lessee or depositary. Literally means “delivery by agreement
of possessors.”
e. Delivery by legal formalities – when the sale is made through a public
instrument, the execution thereof shall be equivalent to the delivery of the thing
sold, if from the deed the contrary does not appear or cannot be clearly inferred;
applies to both personal and real property; applicable to both movables and
immovable.
f. Quasi Traditio – delivery of incorporeal property.
i.
What are incorporeal properties? – shares, receivables, patents, trademarks,
bank deposits, etc.
2.
3.
4.
5.
6.
Principal
Bilateral
Onerous
Commutative
Nominate
Rules on Price
- The price is the sum that will be paid for the property that is sold.
- Price must be certain otherwise the sale is void because of lack of meeting of the minds
of the contracting parties.
- The price is considered certain if:
a. It is a fixed amount
b. It is certain with reference to another thing certain
c. If the determination is left to the judgment of a specified person or persons, subject
to the following rules:
1. Should such person or persons be unable or unwilling to fix it, the contract
shall be inefficacious, unless the parties subsequently agree upon the price.
2. If the third person or persons acted in bad faith or by mistake, the courts
may fix the price.
3. Where such third persons or persons are prevented from fixing the price or
terms by fault of the seller or the buyer, the party not in fault may have such
remedies against the party in fault as are allowed by the seller or the buyer,
as the case may be.
- Fixing of the price cannot be at the sole discretion of one party. However, if the price
fixed by one of the parties is accepted by the other, the sale is perfected.
- Effect if Price cannot be fixed: Where the price cannot be determined in accordance
with the above stated rules, the contract is inefficacious or without effect.
- Gross inadequacy of price: Does not affect the validity of a contract of sale. However
such gross inadequacy may indicate either:
a. Defect In Consent; or
b. The parties really intended a donation or some other act or contract.
Elements of a Contract of Sale
a. Essential Elements
- Consent of the contracting parties
- Subject matter which should be a determinate thing
- Price certain in money or its equivalent
b. Natural elements – those inherent in every contract of sale:
- Warranty against eviction – eviction means deprivation of the buyer of the
whole or part of the thing sold by virtue of a final judgment in court.
- Warranty against hidden defects and encumbrances – hidden defect is a
defect that is not patent or visible; an encumbrance means a burden or
impediment imposed upon a thing.
c. Accidental Elements – refer to particular stipulations of the parties such as terms,
place and time of payment and other conditions agreed upon.
Who may be Parties to a Contract of Sale?
- all parties who are capacitated may enter into a contract of sale.
Characteristics of a contract of sale
1. Consensual
28
a. Minors – where necessaries are sold and delivered to a minor or other person
without capacity to act, he must pay a reasonable price therefore. Necessaries are
those indispensable for sustenance, dwelling, clothing and medical attendance.
b. Sale between spouses is void; applies also to common law spouses. Exceptions:
- When a separation of property was agreed in the marriage settlement; or
- When there has been a Judicial Separation Of Property.
c. Notice must be given that the sale is subject to a right to bid by or on behalf
of the seller.
1.3.2 Earnest Money vs. Distinguished Money
Earnest money and Option Money
Earnest Money – the money given as part of the purchase price and as proof of the
perfection of the contract; paid by the buyer to show his legitimate interest and
earnest desire to purchase the thing.
Option Money – is the consideration paid for the purpose of holding one to his
promise to buy or sell a determinate thing for a certain period of time, which
consideration is separate and distinct from the purchase price.
A contract of sale is perfected:
When there is a meeting of the minds upon:
a. The thing which is the subject of the sale; and
b. The price.
Form of a contract of sale
- Subject to the provisions of the Statute of Frauds and of any other applicable statute,
a contract of sale may be in any of the following terms:
a. In writing
b. By word of mouth
c. Partly in writing and partly by word of mouth or may be inferred from the
conduct of the parties.
1.3.3 Rights & Obligations of Vendor and Vendee
Obligations of the Vendor
The following are the obligations of a seller:
a. To transfer ownership of the thing sold;
b. To deliver the thing sold – including its accessions and accessories in the
condition in which they were upon perfection of the contract. All of the fruits
shall pertain to the vendee from the day on which the contract is perfected;
c. To warrant the thing sold – the vendor is liable for breach of warranty
against eviction and warranty against hidden defects and encumbrances;
d. To take care of the thing sold with the diligence of a good father of a
family unless the law or the stipulation of the parties requires another
standard of care.
Rules in case of sale by auction
- When sale by auction is perfected? – when the auctioneer announces its
perfection by the fall of the hammer, or in any other manner.
- Rights of parties before perfection:
a. Any bidder may retract his bid – because the bid is merely an offer and an
offer may be withdrawn at any time before acceptance.
b. The auctioneer may withdraw the goods from sale unless the auction has
been announced to be without reserve.
- Rights of Parties after perfection
The winning bidder cannot retroact his bid nor can the auctioneer withdraw
the goods since there is already a perfected contract.
- Right of the seller to bid – The seller may bid at the auction provided the following
requisites are present:
a. The right to bid must have been reserved expressly by or on behalf of the
seller;
b. His right to bid must not be prohibited by law or stipulation;
Sale by a person who is not the owner of the thing sold
- The buyer acquires no better title than the seller had, except in the following cases:
a. When the sale is made under authority or with the consent of the owner;
b. When the owner is precluded by his conduct from the denying the vendor’s
authority;
c. When the sale is made under the provisions of any factor’s acts, recording
laws or any other provisions of law enabling the apparent owner to dispose of
the goods as if he were the true owner thereof;
29
d. When the sale is made under a statutory power of sale or under the order of
court of competent jurisdiction;
e. When the purchase is made in a merchant's store or in fairs or markets.
-
He will then become entitled to the goods as he would have had if he never parted
with the possession.
When right available –This right is available after the unpaid seller has parted with the
possession of the goods and the buyer is or becomes insolvent.
Unpaid Seller
- one who has not been paid or tendered the whole of the price or who has received a
bill of exchange or other negotiable instrument as conditional payment and the
condition under which it was received has been broken by reason of the dishonor of
the instrument, the insolvency of the buyer, or otherwise.
How Exercised:
- By obtaining actual possession of the goods;
- By giving notice of his claim to the carrier or other bailee in whose possession
the goods are.
Rights of an Unpaid Seller
Effects Of Exercise of Right of Stoppage In transit:
- The goods are no longer in transit
- The contract of carriage ceases; the carrier shall be liable as depositary or
other bailee
- The carrier must redeliver the goods to, or according to the instructions of,
the seller; However, if a negotiable document of title has been issued for the
goods, the carrier will not be bound to deliver the goods unless the document
of title is
Possessory lien – or a right on the goods or right to retain them while he is in possession of
them.
- When available - This right is available to the seller and notwithstanding that he may
be in possession of the goods as agent or bailee for the buyer in the following
instances:
a. Where the goods have been sold without any stipulation or credit;
b. Where the goods have been sold on credit, but the credit term has expired;
c. Where the buyer is insolvent.
- Lien Where There Is Partial Delivery:
a. Where an unpaid seller has made part delivery of the goods, he may exercise
his right of lien on the remainder, unless such part delivery has been made
under such circumstances as to show an intent to waive the lien or right of
retention.
b. When lien is lost – the unpaid seller loses his lien on the goods in the
following cases:
c. When he delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving the ownership in the goods or the
right to the possession thereof.
d. When the buyer or his agent lawfully obtains possession of the goods.
e. By waiver thereof.
When goods are in transit
- From the time are delivered to the carrier or other bailee for the purpose of
transmission to the buyer, until the buyer or his agent, takes delivery of them
from such carrier or other bailee;
- If the goods are rejected by the buyer, and the carrier or other bailee
continues in possession of them, even if the seller has refused to receive
them back.
When the goods are NO LONGER in transit
- If the buyer obtains delivery of the goods before arrival at the appointed
destination;
- If the carrier or other bailee acknowledges to the buyer or his agent, that he is
holding the goods on his behalf, after arrival of the goods at their appointed
destination.
- If the carrier or other bailee wrongfully refuses to deliver the goods to the
buyer or his agent.
Right of Stoppage in Transitu
- This right involves the right of the unpaid seller to resume possession of the goods at
any time while they are in transit
30
-
Obligations of the Buyer
1. To accept delivery; When are the goods deemed accepted?
- He intimates to the seller that he is accepting them;
- When he does any act in relation to the goods which is inconsistent with the
ownership of the seller;
- When he retains the goods after the lapse of a reasonable time without
intimating to the seller that he has rejected them.
2. To pay the price of the thing sold at the time and place stipulated in the contract.
- When can the vendee suspend payment of the price?
- Should the vendee be disturbed in the possession or ownership of the
thing acquired or;
- Should he have reasonable grounds to fear such disturbance, by a
vindicatory action or a foreclosure of mortgage.
- The suspension is effective until the vendor has caused the
disturbance or danger to cease, unless the latter gives security for the
return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to
make the payment. A mere act of trespass shall not authorize the
suspension of the payment of the price.
Has manifested his ability to perform his obligations, or;
Has committed a breach thereof, the seller may totally rescind the contract of sale of
his election so to do to the buyer.
1.3.4 Warranties
Warranties: Any affirmation of fact or any promise by the seller relating to the thing is an
express warranty if the natural tendency of such affirmation or promise is to induce the
buyer to purchase the same, and if the buyer purchase the thing relying thereon.
Opinion of the seller: is not understood to be a warranty unless the seller made such
affirmation or statement as an expert and it was relied upon by the buyer.
Express Warranty: is an affirmation of fact or promise by the seller relating to the thing
which would induce the buyer to buy the same. However, those relating to opinions of the
seller are not considered warranties unless they are made by experts and the buyer relies
upon them.
Warranties under the Consumer Act (RA No. 7394)
Applicability: Consumer products are goods which are primarily for personal, family,
household or agricultural purposes which shall include but not limited to goods, drugs,
cosmetics and devices;
What are the basic remedies of each party in case the other breaches his or her
obligation?
Specific Performance – action to recover price by seller of goods is available to the seller.
It can be maintained by the seller in three instances:
- The ownership of the goods has passed to the buyer and he wrongfully neglect
refuses to pay for the goods according to the terms of the contract of sale;
- The price is payable on a certain day, irrespective of delivery or of transfer of title and
the buyer wrongfully neglects or refuses to pay such price;
- When the buyer refused to receive the goods upon the seller’s offer to deliver.
Action for damages – Available when the buyer wrongfully neglects or refuses to accept
and pay for the goods.
Rescission by the seller – The seller can give notice of rescission where the goods have
not been delivered to the buyer and the buyer has:
- Repudiated the contract of sale;
Requirements: Any seller or manufacturer who gives an express warranty for consumer
products is required to do the following:
1. Set the terms of warranty in clear and readily understandable language and clearly
identify himself as the warrantor;
2. Identify the party to whom the warranty is extended;
3. State the products or parts covered;
4. State what the warrantor will do in the event of a defect, malfunction or failure to
conform to the written warranty and at whose expense;
5. State what the consumer must do to avail of the warranty rights;
6. Stipulate the warranty period.
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Period of Warranty – It is also mandated that all written warranties or guarantees issued by a
manufacturer, producer, or importer shall be operative from the moment of sale. The period
of
warranty shall be:
1. The parties may stipulate the period within which the express warranty shall be
enforceable. If the implied warranty on merchantability accompanies an express
warranty, both will be of equal durations;
2. Any other implied warranty shall endure not less than 60 days nor more than one
year following the sale of new consumer products.
f. The defendant vendee shall ask, within the time fixed in the Rules of Court for answering
the complaint, that the vendor be made a co-defendant.
Extent of Liability: First, it will depend whether the seller is in bad faith:
a. If the seller is in bad faith, he shall be liable for:
1. Value of the thing sold at the time of eviction;
2. Income or fruits, if he has been ordered to deliver them to the party who won the suit
against him;
3. Costs of the suit which caused the eviction, and, in a proper case, those of the suit
bought against the vendor for the warranty;
4. Expenses of the contract, if the vendee has paid them;
5. Damages and interests and ornamental expenses.
Implied Warranties:
1. Warranty against eviction – that the seller has a right to sell the thing at the time when
ownership is to pass, and that the buyer shall from that time have and enjoy legal and
peaceful possession of the thing;
b. If the seller is in good faith, the liability of the vendor shall depend whether there is a
waiver
executed by the buyer:
1. If there is no waiver, the seller is liable for VICE above except Damages.
2. If there is a waiver, the liability of the vendor shall depend whether the buyer is aware
of the risk of eviction:
a. Consciente – the buyer is not aware of the risk, or without knowledge of the
defect in the title of the seller: seller is still liable but only for the VALUE of the
thing at the time of eviction;
b. Intencionada – the buyer was aware of the risk of eviction or of the defect in
the title of the seller, the seller is no longer liable for anything.
Eviction; requisites:
a. The vendee is deprived of the whole or of a part of the thing purchased;
b. By virtue of a final judgment
c. The vendor is summoned in the suit for eviction at the instance of the vendee.
d. Such judgment is based on:
1. A right prior to the sale or
2. An act imputable to the vendor
Rules Applicable:
a. The warranty applies even if there is no agreement to such effect;
b. The vendee need not appeal from the decision in order that the vendor may become
liable for
eviction.
c. When the adverse possession had been commenced before the sale but the prescriptive
period is completed after the transfer, the vendor shall not be liable for eviction.
d. If the property is sold for non-payment of taxes due and not made known to the vendee
before the sale, the vendor is liable for eviction.
e. The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise
decreed in the judgment.
Partial Loss: should the vendee lose only a part of the thing sold but the same is of such
importance, in relation to the whole, that he would not have bought it without said part, he
may demand the rescission of the contract; but with the obligation to return the thing without
other encumbrances that those which it had when he acquired it, instead of enforcing the
vendor’s liability for eviction.
Two or more things sold: the same rules as to partial loss shall apply:
a. If they have been jointly sold for a lumpsum; or
b. Even if they were sold for a separate price for each of them if it should appear that
the vendee would not have purchased one without the other.
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an implied warranty that the goods shall be free from any defect rendering them
unmerchantable which would not be apparent on reasonable examination of the sample.
2. Warranty against hidden defects or of quality - the thing shall be free from any hidden
faults or defects.
Other rules on warranty against hidden defects or of quality:
a. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold,
even though he was not aware thereof, unless there is contrary stipulation.
b. An implied warranty or condition as to the quality or fitness for a particular purpose may
be annexed by the usage of trade.
Hidden Defects: it would render the thing unfit for its intended use; or diminish its fitness for
such use to such extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it.
Vendor not liable: in case:
a. The defects are patent or those which may be visible; or
b. Even if not visible, the vendee who is an expert, by reason of his trade or profession,
should have known.
Remedies of the vendee:
a. Withdraw from the contract plus damages;
b. Accion quanti minoris or demand a proportionate reduction of the price plus damages.
Warranty of Fitness of Goods: there is an implied warranty that the goods shall be
reasonably
fit for such purpose;
Loss of the thing with hidden defect; liability of the seller:
a. If the cause was the defect itself: the seller shall be liable for:
(1) Price
(2) Expenses of the contract
(3) Interest (if in good faith)
(4) Damages (if in bad faith)
a. The buyer, expressly or by implication, makes known to the seller the particular purpose
for which the goods are acquired, and
b. It appears that the buyer relies on the seller's skill or judgment (whether he be the grower
or manufacturer or not),
In the case of contract of sale of a specified article under its patent or other trade name,
there is no warranty as to its fitness for any particular purpose, unless there is a stipulation
to the contrary.
b. If the cause of the loss is a fortuitous event or through the fault of the vendee, the seller
shall
be liable to refund the price less the value at the time of loss, plus damages (if he was
aware).
Warranty of Merchantable Quality: there is an implied warranty that the goods shall be of
merchantable quality
Judicial sales: the above rules likewise apply to judicial sales, except the judgment debtor
shall not be liable for damages.
a. Where the goods are brought by description
b. From a seller who deals in goods of that description (whether he be the grower or
manufacturer or not),
Prescriptive period for the remedies: is 6 months from delivery.
REDHIBITORY DEFECTS IN ANIMALS
In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind,
there is
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Redhibitory Defect is the hidden defect on animals that, even in case a professional
inspection has been made, should be of such nature that expert knowledge is not sufficient
to discover it.
3. Warranty against non-apparent encumbrances: an encumbrance (or an easement or
servitude) is a burden imposed upon an immovable for the benefit of another immovable
belonging to a different owner. It is non-apparent, when there are no external indications of
their existence.
But if the veterinarian, through ignorance or bad faith shall fail to discover or disclose it, he
shall be liable for damages.
The warranty against non-apparent encumbrances arises when the same is:
a. Not mentioned in the agreement; or
b. Not recorded in the Registry of Property (now Registry of Deeds).
Sale of more than 1 animal: General Rule: The redhibitory defect of one shall only give rise
to its redhibition, and not of the others; Except: if the vendee would not have purchased the
sound animal or animals without the defective one, which is presumed when a team, yoke
pair, or set is bought, even if a separate price has been fixed for each one of the animals
composing the same.
In which case, the buyer has the following remedies, within 1 year, counted from:
a. Ask for the rescission of the contract – from execution of the deed;
b. Ask for damages – from discovery.
No warranty: There is no warranty against hidden defects of animals sold at fairs or at public
auctions, or of livestock sold as condemned.
Not applicable to: the implied warranties are not applicable to a sheriff, auctioneer,
mortgagee, pledgee or other person professing to sell by virtue of authority in fact or law, for
the sale of a thing in which a third person has a legal or equitable interest.
Void sale of animals:
1.3.5 Installment Basis
a. The sale of animals suffering from contagious diseases shall be void.
b. If the use or service for which they are acquired has been stated in the contract, and they
are found to be unfit therefore.
Sale of Real Property in Installments
Recto Law (Art. 1484) – In a contract of sale of PERSONAL PROPERTY on installment
basis, the vendor may exercise any of the following alternative remedies:
Remedies and Prescriptive Period: Remedies of the vendee in case of sale of animals
with redhibitory defects are similar to the remedies for breach of warranty against
hidden defects; but he must make use thereof within the same period which has been fixed
for the exercise of the redhibitory action or 40 days.
1. Exact fulfillment of the obligation should the vendee fail to pay;
2. Cancel the sale, should the vendee’s failure to pay cover two or more
installments; or ▪ Foreclose the chattel mortgage.
●
It contemplates a situation wherein personal property is sold on
installment and the said property is used as security for the loan under
a chattel mortgage;
● Applies only if the seller is also the creditor-mortgagee;
● The remedies are alternative, not cumulative;
● Foreclosure of chattel mortgage on the thing sold shall bar recovery of
any deficiency
Other Rules:
a. If the animal should die within three days after its purchase, the vendor shall be liable if
the disease which caused the death existed at the time of the contract.
b. If the sale be rescinded, the animal shall be returned in the condition in which it was sold
and delivered, the vendee being answerable for any injury due to his negligence, and not
arising from the redhibitory fault or defect.
c. Sale of large cattle is governed by special laws.
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●
A stipulation that the installments or rents paid shall not be returned
to the buyer shall be valid insofar as the same may not be
unconscionable under the circumstances.
Maceda Law (RA No. 6552) – The Maceda Law applies to contracts of sale of real estate
on installment payments including residential condominium apartments. It likewise covers
contracts to sell.
●
●
●
■
Maceda Law does not apply to:
○ Sale of industrial lots;
○ Sale of commercial buildings;
○ Sales to agricultural tenants;
○ Straight sale or sale not on installment basis.
Maceda Law cannot be invoked by the following persons:
○ The highest bidder in the foreclosure sale, if the seller opted to foreclose the
mortgage;
○ The developer-seller or his successor.
Rules in Maceda Law:
○ If the buyer has paid at least two years installment:
■ In case the buyer defaults in paying the installment payments, The
buyer has a grace period of of one month for every year of installment
payment. The buyer can pay the unpaid installment interest free
during this grace period.
■ The foregoing right shall be exercised by the buyer only once in every
five years of the life of the contract.
■ The seller can cancel the sale if the buyer still failed to pay within the
grace period. The following must be complied with if the seller wishes
to cancel:
● Give a notarized notice of cancellation or demand for
rescission of the contract by a notarial act; o There must be full
payment of the cash surrender value, if any.
● The actual cancellation shall take place after 30 days from
receipt by the buyer of the notice of cancellation or the notarial
demand for rescission and upon full payment of the cash
surrender value. o Amount of cash surrender value – 50% of
the total payments made plus after five years of installments,
an additional 5% every year.
● The amount of CSV should not exceed 90% of the total
payments made; and downpayments, deposits and options on
the contract shall be included in the computation of the total
number of installment payments made.
If the buyer has paid less than two years installment:
● Grace period – the buyer may pay within 60 days from the
date the installment became due.
● Cancellation – in case of non payment within the 60-day grace
period, the seller may cancel the sale after 30 days from
receipt of the buyer of the notice of cancellation or demand fro
rescission.
1.3.6 Extinguishment of Sale
A contract of sale is extinguished by:
▪ The same causes as all other obligations;
▪ Conventional redemption;
▪ Legal redemption
Conventional Redemption
- is also known as Sale con pacto de retro.
- By express agreement, the seller has the right to repurchase the sold item.
▪ Period – The right of redemption should be exercised within the following period:
• Within the period agreed upon which should not exceed ten years from the date
of the contract;
• In the absence of an express agreement, the seller should redeem within four
years from the date of the contract.
How exercised – the seller must:
• Give his express intention to repurchase;
• Payment or valid tender of the redemption price.
The redemption price consists of the following:
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o The price of the sale;
o The expenses of the contract
o Necessary and useful expenses made on the thing sold
Rule if two or more adjoining owners desire to exercise the right of redemption:
1.
2.
Effects of redemption – redemption has the following effects:
• Any money, fruits, or other benefits to be received by the vendee as rent or
otherwise shall be considered as interest which shall be subject to usury laws;
• The apparent seller may ask for the reformation of the instrument;
• The buyer is subrogated to the seller’s rights and actions.
o Failure to redeem shall have the effect of consolidation of ownership in
the person of the vendee.
The owner of the adjoining land of smaller area shall be preferred.
If both lands have the same area, thee one who first requested the
redemption, shall be preferred.
When right not available
If adjacent lands are separated by brooks, drains, ravines, roads, and other
apparent servitudes for the benefit of other estates.
c. Legal redemption by adjoining owner of urban land
If a small piece of urban land which was bought for speculation has been resold, the
owner of the adjoining land has a right of redemption at a reasonable price.
1.3.7 Legal Redemption
Legal redemption is the right to be subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who acquires a thing by purchase or dation in
payment or by any other transaction whereby ownership is transmitted by onerous title.
Right of pre-emption by adjoining owner
If such small piece of urban land is about to be resold, the adjoining owner
shall have the right of pre-emption at a reasonable price, i.e., the adjoining owner
shall be given the right to buy the property before it is offered to others.
This right is not available if the transfer of ownership is by gratuitous title.
Instances of Legal Redemption
Rule if two or more adjoining co-owners wish to exercise the right of redemption or
pre-emption
a. Instances by co-owner
A co-owner of the thing may exercise the right of redemption in case the
shares of all the other co-owners or of any of them, are sold to a third person.
Preference shall be given to the owner whose intended use of the land in
question appears to be justified.
If two or more co-owners desire to exercise the right of redemption, they may
only do so in proportion to the share they may respectively have in the thing owned
in common.
Note: The right of redemption of co-owners excludes that of adjoining owners.
3.
Period of pre-emption or redemption
a. Pre-emption – Within 30 days from written notice by prospective
vendor.
b. Legal redemption by adjoining owner of rural land
If a piece of land not exceeding one hectare is alienated, the adjoining owner shall
have the right if legal redemption unless the grantee does not own any rural land.
b. Redemption – Within 30 days from written notice by vendor.
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4.
Recording of sale in the Registry of Property
2. Pledgor not the debtor – compensation stipulated or mere liberality.
The deed of sale shall not be recorded in the Registry of Property,
unless accompanied by an affidavit of the vendor that he has given
written notice of the sale to all possible redemptioners.
OBJECT:
1. Movable property;
2. Incorporeal rights, evidenced by negotiable instruments, bills of lading, shares of
stock, bonds, warehouse receipts and similar documents may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if
negotiable, must be indorsed.
CREDIT TRANSACTIONS
1.4.1 Pledge, Real Mortgage and Chattel Mortgage
RULES:
1. Within the commerce of men and capable of possession;
2. If the pledge earns or produces fruits, income, dividends, or interests, the creditor
shall compensate what he receives with those which are owing him; but if none
are owing him, or insofar as the amount may exceed that which is due, he shall apply
it to the principal.
3. Unless there is a stipulation to the contrary, the pledge shall extend to the interest
and earnings of the right pledged.
4. In case of a pledge of animals, their offspring shall pertain to the pledgor or
owner of animals pledged, but shall be subject to the pledge, if there is no stipulation
to the contrary.
5. Unless the thing pledged is expropriated, the debtor continues to be the owner
thereof.
6. Nevertheless, the creditor may bring the actions which pertain to the owner of
the thing pledged in order to recover it from, or defend it against a third person.
PLEDGE is a contract by virtue of which the debtor delivers to the creditor or to a third
person movable (Art. 2094) or document evidencing incorporeal rights (Art. 2095) for the
purpose of securing the fulfillment of a principal obligation with the understanding that when
the obligation is fulfilled, the thing delivered shall be returned with all its fruits and
accessions.
Delivery: in addition to the above-mentioned essential requisites of contracts of
pledge, it is necessary, in order to constitute the contract of pledge, that the thing
pledged be placed in the possession of the creditor, or of a third person by common
agreement.
KINDS OF PLEDGE:
1. Voluntary or conventional – created by agreement of the parties; or
2. Legal – created by operation of law.
DEPOSIT OF THE THING PLEDGED WITH A THIRD PERSON:
CHARACTERISTICS:
1. REAL CONTRACT – perfected by the delivery of the thing pledged;
2. ACCESSORY CONTRACT – no independent existence of its own;
3. UNILATERAL – creates an obligation solely on the part of the creditor to return
the thing;
4. SUBSIDIARY – obligation incurred does not arise until the fulfillment of the
principal obligation which is secured.
1. On the part of the pledgee – if there is stipulation granting such right;
2. On the part of the pledgor:
a. If through the negligence or willful act of the pledgee, the thing pledged is
in danger of being lost or impaired.
b. If the pledgee uses or misuses the thing.
FEAR OF DESTRUCTION, LOSS OR IMPAIRMENT WITHOUT PLEDGEE’S FAULT
CAUSE OR CONSIDERATION:
1. Pledgor/debtor – the principal obligation;
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1. The pledgor may demand the return of the thing, upon offering another thing in
pledge, provided the latter is of the same kind as the former and not of inferior
quality; or
4. If the creditor is deceived on the substance or quality of the thing pledged, he may
either claim another thing in its stead, or demand immediate payment of the principal
obligation.
2. The pledgee may cause the same to be sold at a public sale.
Use of the Thing Pledged:
Note:
● The proceeds of the auction shall be a security for the principal obligation in the
same manner as the thing originally pledged.
● The pledgee is bound to advise the pledgor, without delay, of any danger to the
thing pledged.
● Form: there is no form required to constitute a contract of pledge.
GENERAL RULE: The creditor cannot use the thing pledged, without the authority of the
owner.
EXCEPTIONS:
1. Authority from the owner (pledgor); or
2. When the preservation of the thing pledged requires its use, it must be used
by the creditor but only for that purpose.
1.4.2 Requirements to Bind the Parties and Third Persons
Note: Use (when there is no right) or misuse will authorize the owner to ask that the thing be
judicially or extrajudicially deposited.
In order to affect third persons:
1. There must be a public instrument
2. The public instrument contains:
a. The description of the thing pledged; and
b. the date of the pledge.
Pledgor:
1. The pledgor who, knowing the flaws of the thing pledged, does not advise the
pledgee of the same, shall be liable to the latter for the damages which he may suffer
by reason thereof.
2. The debtor cannot ask for the return of the thing pledged against the will of the
creditor, unless and until he has paid the debt and its interest, with expenses in a
proper case.
Note: Alienation (Sale) of the thing pledged is allowed with the consent of the pledgee.
● The ownership of the thing pledged is transmitted to the vendee or transferee as
soon the pledgee consents to the alienation,
● But the creditor-pledgee shall continue in possession.
1.4.4 Obkligations and rights of mortgagor and mortgagee
1.4.3 Obligations and rights of pledgor and pledgee
1.4.5 Modes of Extinguishment
Creditor-pledgee:
1. The creditor shall take care of the thing pledged with the diligence of a good father
of a family;
2. He has a right to the reimbursement of the expenses made for its preservation,
and is liable for its loss or deterioration, in conformity with the Civil Code.
3. The pledgee is responsible for the acts of his agents or employees with respect to
the thing pledged.
Extinguishment of a Contract of Pledge can be by any mode of extinguishment of
obligations or the extinguishment of the principal obligation or contract, but also:
1. Thing Pledged is Returned: If the thing pledged is returned by the pledgee to the
pledgor or owner, the pledge is extinguished. Any stipulation to the contrary shall be void.
Presumption: If subsequent to the perfection of the pledge, the thing is in the
possession of the pledgor or owner, there is a prima facie presumption that the
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same has been returned by the pledgee. This same presumption exists if the thing
pledged is in the possession of a third person who has received it from the pledgor or
owner after the constitution of the pledge.
2. If the price of the sale is less, the creditor shall not be entitled to recover the
deficiency, notwithstanding any stipulation to the contrary.
The sale of the thing pledged shall extinguish the principal obligation, whether or not the
proceeds of the sale are equal to the amount of the principal obligation, interest and
expenses in a proper case.
2. Renunciation or Abandonment of Pledge: A statement in writing by the pledgee that
he renounces or abandons the pledge is sufficient to extinguish the pledge. For this
purpose, neither the acceptance by the pledgor or owner, nor the return of the thing pledged
is necessary, the pledgee becoming a depositary.
Credit as the object of a contract of pledge: If a credit which has been pledged becomes
due before it is redeemed, the pledgee may collect and receive the amount due. He shall
apply the same to the payment of his claim, and deliver the surplus, should there be any, to
the pledgor.
FORECLOSURE SALE:
1. The creditor to whom the credit has not been satisfied in due time, may proceed
before a Notary Public to the sale of the thing pledged.
2. This sale shall be made at a public auction, and
3. With notification to the debtor and the owner of the thing pledged in a proper case,
stating the amount for which the public sale is to be held.
Other Rules:
1. After the public auction, the pledgee shall promptly advise the pledgor or owner of
the result thereof.
2. Any third person who has any right in or to the thing pledged may satisfy the
principal obligation as soon as the latter becomes due and demandable.
3. If two or more things are pledged, the pledgee may choose which he will cause to
be sold, unless there is a stipulation to the contrary. He may demand the sale of only
as many of the things as are necessary for the payment of the debt.
4. If a third party secures an obligation by pledging his own movable property, he shall
have the same rights as a guarantor to be:
a. Indemnified for the total amount of the debt, including interest, expenses or
damages, if they are due; b. Subrogated to all the rights the creditor had
against the debtor;
b. He is not prejudiced by any waiver of defense by the principal obligor.
Creditor’s right of appropriation:
1. If at the first auction the thing is not sold, a second one with the same formalities
shall be held; and
2. If at the second auction there is no sale either, the creditor may appropriate the
thing pledged.
In this case he shall be obliged to give an acquittance for his entire claim.
Pledgor’s Right to bid: At the public auction, the pledgor or owner may bid. He shall,
moreover, have a better right if he should offer the same terms as the highest bidder.
The pledgee may also bid, but his offer shall not be valid if he is the only bidder.
5. With regard to pawnshops and other establishments, which are engaged in
making loans secured by pledges, the special laws and regulations concerning them
shall be observed, and subsidiarily, the provisions of this Title.
All bids at the public auction shall offer to pay the purchase price at once. If any other bid is
accepted, the pledgee is deemed to have received the purchase price, as far as the pledgor
or owner is concerned.
REAL ESTATE MORTGAGE
OBJECT: Only the following property may be the object of a contract of mortgage:
1. Immovables
2. Alienable real rights in accordance with the laws, imposed upon immovables.
Sale of the thing; proceeds thereof:
1. If the price of the sale is more than said amount, the debtor shall not be entitled to
the excess, unless it is otherwise agreed.
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KINDS OF REAL MORTGAGE
The third person's liability, however, is limited to the value of the property
mortgaged. The third person cannot be compelled to pay any deficiency after the
mortgage is foreclosed unless he expressly assumed liability for the principal
obligation.
1. CONVENTIONAL OR VOLUNTARY MORTGAGE - One which is created by the
agreement of the parties.
2. LEGAL MORTGAGE - One executed pursuant to an express requirement of a
provision of law.
3. EQUITABLE MORTGAGE - One in which, although it lacks certain formality, form or
words or other requisites prescribed by statute, shows the intention of the parties to
charge a real property as a security for a debt and contains nothing contrary to law.
4. REAL RIGHT - It creates a lien on the property mortgaged whereby the mortgagee has
a right to have the mortgaged property sold to satisfy his claim.
5. REAL PROPERTY - It is a real right over immovable property.
FORM OF REAL MORTGAGE
REQUISITES OF REAL MORTGAGE
1.
1. That it be constituted to secure the fulfillment of a principal obligation.
2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the person constituting the mortgage must have the free disposal of his
property, and in the absence thereof, that he be legally authorized for the purpose.
(Art. 2085)
4. That the document in which the mortgage appears be recorded in the Registry of
Property (Art. 2125)
Between the parties
The real mortgage may be in any form since it is a consensual contract. The contract is
binding between the parties even if not registered in the Registry of Property.
However, since a real mortgage creates a real right, the same must be in a public instrument
for the convenience of the parties. (See Art. 1358)
2.
Note: This requirement is necessary to bind third persons but not for the validity of the
real mortgage which may be entered into in any form.
As regards third persons
The real mortgage must be recorded in the Registry of Property. (Art. 2125) However,
the real mortgage is nevertheless binding against third persons who have knowledge of the
same.
IMPORTANT CHARACTERISTICS OF REAL MORTGAGE
EXTENT OF REAL MORTGAGE
1. ACCESSORY - It cannot exist without a principal obligation.
2. INDIVISIBLE - It creates a lien on the whole or all of the properties mortgaged, which
lien continues until the obligation it secures has been fully paid.
3. INSEPARABLE - It subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation for whose security it was
constituted. (Art. 2126)
A contract of real mortgage shall cover the following:
The creditor may claim from a third person in possession of the mortgaged
property, the payment of the part of the credit secured by the property which said
third person possesses, in the terms and with the formalities which the law
establishes. (Art. 2129)
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1.
The property mortgaged.
2.
Natural accessions.
3.
Improvements.
4.
Growing fruits.
5.
Rents and income not yet received when the obligation becomes due.
6.
Indemnity granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriations for public use. (Art. 2127)
2. Judicial - Posting in 3 public places at least 20 days prior to sale and publication of the
notice of sale in a newspaper of general circulation.
Principal Obligation Covered:
Proceeds: if the proceeds of the foreclosure sale:
General Rule: covers only that which is stated in the deed even if less than the amount of
loan.
1. Is more than the unpaid amount – the mortgagor shall be entitled to the excess
2. Is less than the unpaid amount – the mortgagee shall be entitled to recover the deficiency.
Exception: if there is stipulation to cover future advancements called a dragnet clause.
NOTE: The generic treatment is that the mortgage is still a separate contract and merely
stands as a means to recover the unpaid amount. That’s why any excess is returned to the
mortgagor and any deficiency, the debtor remains liable thereto.
Mortgage credit is transferable: The mortgage credit may be alienated or assigned to a third
person, in
whole or in part, with the formalities required by law.
REDEMPTION: exists only in Real Estate Mortgage foreclosures. The period to redeem
shall depend if the
Pactum de non-aliendo: the owner is allowed to alienate the immovable property
mortgaged. A stipulation prohibiting/forbidding such right is called pactum de non-aliendo
and is considered void.
foreclosure is:
1. Extrajudicial:
Third party transferee: Buyers or transferees of the property mortgaged are not affected by
an unregistered mortgage. However, if the mortgage is registered (Art. 1312) they are:
a. General Rule: 1 year from date of foreclosure
b. Exception: Under the General Banking Law, 3 months from sale or registration of
the certificate of sale, whichever is earlier, whenever:
1. Bound by a foreclosure sale on the property
2. Not bound to answer the deficiency
i. The debtor – juridical person
3. Unless there is novation in the person of the debtor
ii. The creditor – bank
FORECLOSURE: in case of non-payment of the principal obligation, the creditor-mortgagee
may foreclose the mortgage either:
2. Judicial – although the Rules of Court provide that the equity of redemption is 90 to 120
days, it has been held that the equity of redemption exists as long as there is no
confirmation of sale by the court.
1. Judicially – under Rule 68 of the Rules of Court
2. Extra-judicially – under Act No. 3135.
Notice of Foreclosure Sale:
ACT NO. 1508 – The Chattel Mortgage Law (Short title)
1. Extrajudicial – not required, unless stipulated.
41
Complete title: AN ACT PROVIDING FOR THE MORTGAGING OF PERSONAL
PROPERTY AND FOR THE REGISTRATION OF THE MORTGAGES SO EXECUTED
Disposal of the object during the pendency of the mortgage: is considered a criminal
act under Art. 319 of the Revised Penal Code: Removal of Mortgaged Property.
Definition: A chattel mortgage is a conditional sale of personal property as security for the
payment of a debt, or the performance of some other obligation specified therein, the
condition being that the sale shall be void upon the seller paying to the purchaser a sum of
money or doing some other act named.
Foreclosure: it shall be done extrajudicially. Rule 68 of the Rules of Court does not apply to
foreclosure of a Chattel Mortgage.
Notice: It is required 10 days prior to sale; posting in two or more public places 10 days
before auction.
Object: all personal property shall be subject to mortgage, agreeably to the provisions of
this act, and a mortgage executed in pursuance thereof.
Proceeds of Foreclosure Sale: Amount of the proceeds is:
1. More than the unpaid amount – excess shall belong to the mortgagor
2. Less than the unpaid amount:
Major distinction between Chattel Mortgage and Contract of Pledge: Movable is not
delivered to the creditor or a third person. Such property is only recorded in the Chattel
Mortgage Register.
a. General Rule: creditor is entitled to the deficiency
Affidavit of Good Faith: a document stating that the parties swear that the mortgage is
made for the purpose of securing the obligations specified in the conditions thereof, and for
no other purposes, and that the same is a just and valid obligation and not one entered into
for purposes of fraud, is also required under the law. Making it a formal contract.
b.
Exception: if the object is subject of a sale in installment and covered by the
Recto Law which prohibits collection of unpaid amount once the creditor
(unpaid seller) already foreclosed the chattel mortgage on the property itself.
NOTE: The absence of it does not affect the validity of the contract between the
parties. However, it makes the contract non-binding to third persons who acted in
good faith. While, it is a formal contract, the absence of an affidavit of good faith would
make the parties in pari delicto (both parties are at equal fault, hence, no remedy against
each other), thus having the effect of leaving the chattel mortgage in place.
Redemption: no right of redemption exists in a foreclosure of chattel mortgage.
That being said, there must be an Affidavit of Good Faith and the same is registered with
the Chattel Mortgage Registry to affect third persons.
1. The making, drawing, and issuance of any check to apply for account or for value;
In cases of:
2. The knowledge* of the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of the check in full upon its
presentment; and
2.0 Bouncing Checks
ELEMENTS OF VIOLATION (Requisites for liability under BP 22)
1. Vessels – Maritime Industry Authority (MARINA)
2. Vehicles – Land Transportation Authority (LTO)
3. (a) The subsequent dishonor of the check by the drawee bank for insufficiency of funds or
credit or (b) would have been dishonored for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.
Coverage: shall be the debts existing at the time the contract was entered into and
indicated in the Affidavit of Good Faith.
As a rule: it is necessary for the affidavit be amended to cover subsequent obligations.
42
*Knowledge of the maker/drawer: The making, drawing and issuance of a check payment
of which is refused by the drawee (bank) because of insufficient funds in or credit with such
bank, when presented within ninety (90) days from the date of the check, shall be prima
facie evidence of knowledge of such insufficiency of funds or credit.
EFFECT OF ACQUITTAL ON CIVIL LIABILITY: An acquittal does not entail the
extinguishment of the civil liability for the dishonored checks. An acquittal based on lack of
proof beyond reasonable doubt does not preclude the award of civil damages. (Mateo v.
People, GR 200090, March 6, 2013)
Valid Defense – Payment. Such maker or drawer will not be liable if he pays the holder
thereof the amount due thereon, or makes arrangements for payment in full by the drawee
of such check within (5) banking days after receiving notice* that such check has not
been paid by the drawee.
PENALTY:
1. Imprisonment – not less than 30 days but not more than 1 year
2. Fine – not less than but not more than double the amount of the check, which fine
shall not exceed the amount of P200,000; or
3. Both, at the discretion of the court.
Requirement of Notice: Similar to the Cognition Theory, notice to the maker of the check is
made when it has come to the knowledge of such person that an issued check has bounced.
Prescriptive period: Prescriptive period of BP 22 Violation of B.P. Blg. 22 prescribes in four
(4) years from the commission of the offense or, if the same be not known at the time, from
the discovery. thereof
DUTY OF THE DRAWEE: It shall be the duty of the drawee of any check, when refusing to
pay the same to the holder thereof upon presentment, to cause to be written, printed, or
stamped in plain language thereon, or attached thereto, the reason for drawee's dishonor or
refusal to pay the same. Where there are no sufficient funds in or credit with such drawee
bank, such fact shall always be explicitly stated in the notice of dishonor or refusal.
DIFFERENCE WITH ESTAFA BY POST-DATING OR ISSUING A CHECK:
a. GOOD FAITH IS A DEFENSE IN ESTAFA: So that when the accused who issued the
check believing that he would be able to make the corresponding deposit, informed the
complainant, when he sensed that he could not make the deposit, not to present the check
to the bank for cancellation, he could not be held liable for Estafa. (See People vs.
Villapando) By informing the payee, there is no deceit. (Firestone Tire and Rubber Co. of the
Philippines vs. Ines Chavez) In BP Blg. 22, good faith is NOT a valid defense.
In all prosecutions under BP Blg 22, the introduction in evidence of any unpaid and
dishonored check, having the drawee's refusal to pay stamped or written thereon or
attached thereto, with the reason therefor as aforesaid, shall be prima facie evidence of:
1.
2.
3.
4.
The making or issuance of said check, and
The due presentment to the drawee for payment, and
The dishonor thereof, and
That the same was properly dishonored for the reason written, stamped or attached
by the drawee on such dishonored check.
b. PAYMENT OF A PRE-EXISTING OBLIGATION – NO ESTAFA: If the check is in
payment of a pre-existing obligation there is no deceit and hence, the crime of Estafa cannot
exist. In BP Blg. 22, even if the check is issued to pay a pre-existing obligation, there may
still be liability.
Notwithstanding receipt of an order to stop payment, the drawee shall state in the notice that
there were no sufficient funds in or credit with such bank for the payment in full of such
check, if such be the fact.
c. ESTAFA MAY BE COMMITTED BY MERELY ISSUING A WORTHLESS CHECK –
unlike in BP Blg. 22 which requires that the accused BOTH drew and issued the check.
CREDIT CONSTRUED: The word "credit" as used herein shall be construed to mean an
arrangement or understanding with the bank for the payment of such check.
d. PERIOD TO MAKE GOOD THE CHECK – is only 3 days in estafa, but 5 banking days in
BP Blg. 22.
43
LIABLE FOR BOTH ESTAFA AND BP 22: Under Sec. 5 of BP Blg. 22, the prosecution
thereof shall be without prejudice to any liability for violation of any provision of the RPC. It is
now well settled that a single act can give rise to Estafa and at the same time to violation of
BP Blg. 22.
1. Department of Health (DOH)
2. Department of Agriculture (DA)
3. Department of Trade and Industry (DTI)
●
3.0 Consumer Protection
3.1 Consumer Product Quality and Safety
3.2 Deceptive Sales Acts and Practices
3.3 Product Service and Warranty
3.4 Labelling and Packaging
3.5 Consumer Rights
3.0 CONSUMER PROTECTION
●
It is the policy of the State to protect the interests of the consumer, promote his
general welfare and to establish standards of conduct for business and industry.
●
Objectives
1. Protection against hazards to health and safety;
2. Protection against deceptive, unfair and unconscionable sales acts and
practices;
3. Provision of information and education to facilitate sound choice and the
proper exercise of rights by the consumer;
4. Provision of adequate rights and means of redress; and
5. Involvement of consumer representatives in the formulation of social and
economic policies.
If no standards exist, the department shall form specialized technical committees
composed of equal representatives from the government, business, and consumer
sectors to formulate, develop, and propose consumer product quality and safety
standards.
3.1 Consumer Product Quality and Safety
●
●
The concerned department shall adopt existing government domestic product quality
and safety standards.
Duties of the State:
1. Develop and provide safety and quality standards for consumer products;
2. Assist consumers in evaluating the quality, safety, performance, and utility of
consumer products;
3. Protect the public against unreasonable risks of injury associated with
consumer products;
4. Undertake research on quality improvement and prevention of
product-related deaths, illnesses, and injuries;
5. Assure the public of the consistency of standardized products.
●
In case the department, upon petition by an interested party or its own initiative
and after due notice and hearing, determines a consumer product to be substandard
or materially defective, it shall so notify the manufacturer, distributor or seller thereof
of such finding and order such manufacturer, distributor or seller to:
1) give notice to the public of the defect or failure to comply with the product
safety standards; and
2) give notice to each distributor or retailer of such product.
●
The department should also direct the manufacturer or seller to extend any or all og
the following remedies to the injured person:
1. To bring such product into conformity or to repair the defect in order to
conform with the same;
2. Replace the product with an equivalent product which complies with
applicable consumer product standards without defect;
3. Refund the purchase price;
4. Pay the consumer reasonable damages.
●
The manufacturer shall avail of the Philippine Standard Certification Mark which
the concerned department shall grant after determining the product’s compliance
with the relevant standard in accordance with the implementing rules and
regulations.
●
Imported Products
1. Refused admission if it;
a) Fails to comply with an applicable consumer product quality and
safety standard or rule;
b) Is or has been determined to be injurious;
c) Is substandard; or
Implementing agencies:
44
d) Has material defect.
2. Owner or the consignee of the imported products may manifest under bond
that none of the above ground for non-admission exists or that measures
have been taken to cure them before they are sold, distributed or offered for
sale to the general public.
3. Any consumer product that has been banned or withdrawn in the country of
manufacture, shall not be imported into the country.
4. Non-admitted imported products may be released from customs custody
under bond for the purpose of permitting the owner or consignee an
opportunity to so modify such product.
5. Consignee is not proceeding to satisfactorily modify such product → refused
admission, and direct redelivery into customs custody, or seize the product if
redelivered.
6. Non-admitted imported products must be exported. Otherwise, products
undergo destruction.
4. Consumer product/service is available to the consumer for a reason that is
different from the fact;
5. Consumer product/service has been supplied in accordance with the
previous representation when in fact it is not;
6. Consumer product/service can be supplied in a quantity greater than the
supplier intends;
7. Service, or repair of a consumer product is needed when in fact it is not;
8. Specific price advantage of a consumer product exists when in fact it does
not;
9. Sales act or practice involves or does not involve a warranty, a disclaimer of
warranties, particular warranty terms or other rights, remedies or obligations
if the indication is false; and
10. Seller or supplier has a sponsorship, approval, or affiliation he does not
have.
●
●
Exported Products – shall not apply to any consumer product if:
1. Can be shown that the product is manufactured or held for sale for export
from the Philippines, unless such consumer product is in fact distributed in
commerce for use in the Philippines; and
2. Such consumer product or packaging thereof bears a stamp or label intended
for export and actually exported.
II.
3.2 Deceptive, Unfair and Unconscionable Sales Act and Practices
I.
●
Deceptive Sales Acts and Practices
Act or practice where the producer, manufacturer, supplier or seller through
concealment, false representation or fraudulent manipulation, induces a consumer to
enter into a sales or lease transaction of any consumer product or service.
●
Act or practice of a seller or supplier is deceptive when it represents that:
1. Consumer product/service has the sponsorship, approval, performance,
characteristics, ingredients, accessories, uses or benefits it does not have;
2. Consumer product/service is of a particular standard, quality, grad, style, or
model when in fact it is not;
3. Consumer product is new, original or unused, when in fact, it is in a
deteriorated, altered, reconditioned, reclaimed or second-hand state;
Deceptive act or practice by seller or supplier in connection with a consumer
transaction violates this Act whether it occurs before, during or after the transaction.
Unfair or unconscionable sales acts or practices
●
Act or practice where the producer, manufacturer, distributor, supplier or seller, by
taking advantage of the consumer’s physical or mental infirmity, ignorance, illiteracy,
lack of time or the general conditions of the environment or surroundings, induces
the consumer to enter into a sales or lease transaction grossly inimical to the
interests of the consumer or grossly one-sided in favor of the producer,
manufacturer, distributor, supplier or seller.
●
Circumstances to be considered:
1. Producer, manufacturer, distributor, supplier or seller took advantage of the
inability of the consumer to reasonably protect his interest because of his
inability to understand the language of an agreement of similar factors;
2. When consumer transaction was entered into, the price grossly exceeded the
price at which similar products or services were readily obtainable in similar
transaction by like consumers;
3. When consumer transaction was entered into, the consumer was unable to
receive a substantial benefit from the subject of the transaction;
4. When the consumer was entered into, the seller or supplier was aware that
there was no reasonable probability or payment of the obligation in full by the
consumer; and
45
5. Transaction that the seller or supplier induced the consumer to enter into was
excessively one-sided in favor of the seller or supplier.
●
every transaction consummated by said seller with the persons referred by
said buyer or for subsequent sales that said buyers has helped the seller
enter into.
Unfair or unconscionable sales act or practice by a seller or supplier in connection
with a consumer transaction violates this Act whether it occurs before, during or after
the consumer transaction.
III. Penalties
1. Fine 3 5k to 10k
2. Imprisonment 3 not more than 1yr
3. Both, at the discretion of the court
II.1 Chain distribution plans or pyramid sales schemes
●
Sales devices whereby a person, upon condition that he makes an
investment, is granted by the manufacturer or his representative a right
to recruit to profit one or more additional persons who will also be granted
such right to recruit upon condition of making similar investments.
3.2 PRODUCT AND SERVICE WARRANTY
I.
A. Terms of express warranty. - Any seller or manufacturer who gives an
express warrant shall:
The profits of the person employing such a plan are derived primarily from
the recruitment of other plans into the plan rather than from the sale of
consumer products, services or credit.
●
1. Set forth the terms of warranty in clear and readily understandable
language and clearly identity himself as warrantor;
2. Identify the party to whom the warranty is extended;
3. State the products or parts covered;
4. State what the warrantor will do in the event of a defect,
malfunction or failure to conform to the written warranty and at
whose expense;
5. State what the consumer must do to avail of the rights which
accrue to the warranty; and
6. Stipulate the period within which, after notice of defect,
malfunction or failure to conform to the warranty, the warrantor will
perform an obligation under the warranty.
Not be employed in the sale of consumer products
II.2 Home solicitation sales
●
●
●
●
Allowed if with permit from the DTI
Conducted only between 9AM and 7PM of each working day. XPN: othertimes, if
agreed upon.
Conducted only by a person who has the proper identification and authority from his
principal to make such solicitations.
HSS shall not represent that: (a) the buyer has been specially selected; (b) a survey,
test or research is being conducted; or (c) the seller is making a special offer to a few
persons only for a limited period of time.
B. Express warranty - All written warranties or guarantees issued by a
manufacturer, producer, or importer shall be operative from the moment of
sale.
II.3 Referrals sales
●
Takes places when an existing consumer provides the name and contact
information of a prospect to his sales representatives.
●
GR: Not be used in the sale of consumer products.
In addition to the Civil Code provisions on sale with warranties, the following
provisions shall govern the sale of consumer products with warrants:
C. Designation of warranties - A written warranty shall clearly and
conspicuously designate such warranty as:
XPN: Seller executes in favor of the buyer a written undertaking that will grant
a specified compensation or other benefit to said buyer in return for each and
Full warranty- if the written warranty meets the minimum requirements set
forth in paragraph.
46
- In case the refund of the purchase price is elected, the
amount directly attributable to the use of the consumer prior to
the discovery of the non-conformity shall be deducted.
Limited warranty- the written warranty does not meet such minimum
requirements.
2. Implied warranty - The consumer may retain in the goods and
recover damages, or reject the goods, cancel the contract and
recover from the seller so much of the purchase price as has been
paid, including damages.
D. Minimum standards for warranty - For the warrantor of a consumer
product to meet the minimum standards for warranty, he shall:
1. Remedy such consumer product within a reasonable time and
without charge in case of a defect, malfunction or failure to
conform to such written warranty:
2. Permit the consumer to elect whether to ask for a refund or
replacement without charge of such product or part. as the case
may be, where after reasonable number of attempts to remedy the
defect or malfunction, the product continues to have the defect or
to malfunction.
●
II.
Warranties in supply of services
- There is an implied warranty that the service will be rendered with due care and
skill and that any material supplied in connection with such services will be
reasonably fit for the purpose for which it is supplied.
- When consumer, expressly or by implication, makes known to the seller the
particular purpose for which the services are required, there is an implied warranty
that the services supplied under the contract and any material supplied in connection
therewith will be reasonably fit for that purpose or are of such a nature or quality that
they might reasonably be expected to achieve that result, unless the circumstances
show that the consumer does not rely or that it is unreasonable for him to rely, on the
seller's skill or judgment.
The warrantor will not be required to perform the above duties if he can show that the
defect, malfunction or failure to conform to a written warranty was caused by damage
due to unreasonable use thereof.
E. Duration of warranty - The seller and the consumer may stipulate the
period within which the express warranty shall be enforceable. If the
implied warranty on merchantability accompanies an express warranty,
both will be of equal duration.
- Any other implied warranty shall endure not less than sixty (60) days
nor more than one (1) year following the sale of new consumer
products.
III.
Professional services - This Act on warranty shall not apply to professional
services of CPAs architects, engineers, lawyers, veterinarians, optometrists,
pharmacists, nurses, nutritionists, dietitians, physical therapists, salesmen,
medical and dental practitioners and other professionals engaged in their
respective professional endeavors.
IV.
Guaranty of Service firms - shall guarantee workmanship and replacement of
spare parts for a period not less than 90 days which shall be indicated in the
pertinent invoices.
F. Breach of warranties
1. Express warranty - The consumer may elect to have the goods
repaired or its purchase price be refunded by the warrantor.
- In case the repair of the product in whole or in part is elected,
the warranty work must be made to conform to the express
warranty within thirty (30) days by either the warrantor or his
representative. The thirty-day period, however, may be
extended by conditions which are beyond the control of the
warrantor or his representative.
V.
Prohibited acts
1. Refusal without any valid legal cause by the local manufacturer or any person
obligated under the warranty or guarantee to honor a warrant or guarantee issued:
47
2. Unreasonable delay by the local manufacturer or any person obligated under the
warranty or guarantee in honoring the warranty;
1. Its correct and registered trade name or brand name;
2. Its duly registered trademark;
3. 3) Its duly registered business name;
4. 4) The address of the manufacturer, importer, repacker of the consumer
5. product in the Philippines;
6. 5) Its general makes or active ingredients;
7. 6) The net quality of contents, in terms of weight, measure or numerical
8. count rounded of to at least the nearest tenths in the metric system;
9. 7) Country of manufacturer; and
10. 8) If a consumer product is manufactured, refilled or repacked under
11. license from a principal, the label shall so state the fact.
3. Removal by any person of a product's warranty card for the purpose of evading
said warranty obligation;
4. Any false representation in an advertisement as to the existence o a warranty or
guarantee.
VI. Penalties
1. Any person who shall violate the provisions of Art. 67:
B. Any word, statement or other information required by or under authority:
1. Whether it is flammable or inflammable;
2. Directions for use, if necessary;
3. Warning of toxicity;
4. Wattage, voltage or amperes; or
5. Process of manufacture used if necessary.
a. Fine - P500 to P5,000; or
b. Imprisonment - 3 months to 2 years; or
c. Both upon the discretion of the court.
2. Prohibited acts other than Art. 67
a. Fine - P1,000 to P50,000; or
b. Imprisonment - 1 to 5 years; or
c. Both upon the discretion of the court.
●
●
● Any imposition of any of the penalties is without prejudice to any liability
incurred under the warranty or guarantee.
●
3.4 LABELLING AND PACKAGING
●
The State requires compulsory labeling and fair packaging to provide consumers
with accurate information about the nature, quality, and quantity of consumer
products and to make it easier for them to compare the value of such products.
●
Prohibited acts: It is illegal for anyone, as principal or agent, to label or package any
consumer product that does not conform to the provisions stated in the law.
However, the prohibition does not apply to wholesale or retail distributors of
consumer products.
●
The label may contain the Philippine Product Standard Mark if it is certified to
have passed the consumer product standard prescribed by the concerned
department.
A package is nonfunctionally slack-filled if it's filled substantially less than its
capacity for reasons other than (a) protecting the contents, (b) machine
requirements, or (c) inherent package characteristics.
Standards for special packaging of consumer products for children can be
established if the hazard to children from the product's packaging is high enough to
require protection from serious personal injury or illness.
The department responsible for establishing these standards will consider available
scientific, medical, and engineering data on accidental ingestions, illnesses, and
injuries caused by consumer products, manufacturing practices of industries affected
by this act, and the nature and use of consumer products.
C. Additional labeling requirements:
1. For food: Expiry or expiration date, where applicable, whether the consumer product
is semi-processed, fully processed, ready-to-cook, ready-to-eat, prepared food, or
just a plain mixture, nutritive value, if any, whether the ingredients use are natural or
synthetic, as the case may be, and such other labeling requirements as the
concerned department may deem necessary and reasonable.
Labeling requirements for consumer products:
A. Minimum labeling requirements:
48
2. For cosmetics: Expiry or expiration date, whether or not it may be an irritant,
precautions or contra-indications, and such other labeling requirements as the
concerned department may deem necessary and reasonable.
3. For drugs: Generics Act shall apply.
4. For cigarettes: All cigarettes for sale or distribution within the country shall be
contained in a package that bears the following statement or its equivalent in Filipino:
"Cigarette Smoking is Dangerous to Your Health." Such statement shall be located in
a conspicuous place on every cigarette package and shall appear in conspicuous
and legible type in contrast by typography, layout, or color with other printed matter
on the package. Any advertisement of a cigarette shall contain the name warning as
indicated in the label.
Penalties (ART. 95)
●
Consumer product is one which is not a food, cosmetic, drug, device or
hazardous substance: Penalty shall be a fine of not less than Two hundred pesos
(P200.00) but not more than Five thousand pesos (P5,000.00) or imprisonment of
not less than one (1) month but not more than one (1) year or both, at the discretion
of the Court.
3.5 CONSUMER RIGHTS
First time: subject to a fine of not less than Two hundred pesos (P200.00) but not
more than Five thousand pesos (P5,000.00) or by imprisonment of not less than one
(1) month but not more than six (6) months or both, at the discretion of the Court.
3.5.1 Price Tag
Price Tag Requirement (Title III, Chapter IV SEC. 81.)
●
A second conviction: carry with it the penalty of revocation of business permit and
license.
It shall be unlawful to offer any consumer product for retail sale to the public without
an appropriate price tag, label or marking publicly displayed to indicate the price of
each article and said products shall not be sold at a price higher than that stated
therein and without discrimination to all buyers:
● Provided, that lumber sold, displayed or offered for sale to the public shall be
tagged or labeled by indicating thereon the price and the corresponding
official name of the wood:
● Provided, further, that if consumer products for sale are too small or the
nature of which makes it impractical to place a price tag thereon price list
placed at the nearest point where the prod- cuts are displayed indicating the
retail price of the same may suffice.
3.5.2 Lemon Law (RA 10642)
This law applies to following:
●
●
●
●
Manner of Placing Price Tags (Title III, Chapter IV ART. 82.)
●
Fine of not less than Five hundred pesos (P500.00) but not more than Twenty
thousand pesos (P20,000.00) or imprisonment of not less than three (3) months but
not more than two (2) years or both, at the discre- tion of the Court.
Price tags, labels or markings must be written clearly, indicating the price of the
consumer prod- uct per unit in pesos and centavos.
Brand new motor vehicles
Purchased in the Philippines
Reported by a consumer to be in nonconformity with the vehicle's manufacturer or
distributor's standards or specifications
Within twelve (12) months from the date of original delivery to the consumer, or up to
twenty thousand (20,000) kilometers of operation after such delivery, whichever
comes first.
Excluded:
Regulations for Price Tag Placement (Title III, Chapter IV ART. 83.)
●
1. Noncompliance by the consumer of the obligations under the warranty;
2. Modifications not authorized by the manufacturer, distributor, authorized dealer or
retailer;
3. Abuse or neglect of the brand new motor vehicle; and
The concerned de- partment shall prescribe rules and regulations for the visible
placement of price tags for specific consumer products and services. There shall be
no erasures or alterations of any sort of price tags, labels or mark- ings.
49
4. Damage to the vehicle due to accident or force majeure.
In case the nonconformity issue persists and the parties cannot resolve their dispute, the
DTI shall exercise exclusive and original jurisdiction over the controversies and settle the
disputes through the following dispute resolution mechanisms:
Repair attempts
⮚ At any time within the Lemon Law rights period, and after at least four (4) separate
repair attempts by the same manufacturer, distributor, authorized dealer or retailer for
the same complaint, and the nonconformity issue remains unresolved, the consumer
may invoke his or her rights under the Lemon Law.
Dispute resolution mechanisms
1) Mediation - principles of negotiation, conciliation and mediation towards amicable
settlement between the MDA and the consumer shall be strictly observed.
2) Arbitration – if there is failure to settle the complaint during the mediation
proceedings, both parties may voluntarily decide to undertake arbitration
proceedings.
3) Adjudication:
a. In case there is finding of non-conformity, the DTI shall rule in favor of the
consumer and direct the MDA to grant either the following remedies:
i.
Replace the MV with a similar or comparable MV in terms of
specifications and values, subject to availability; or
ii.
Accept the return of the MV + pay purchase price + collateral
damages.
b. If the nonconformity of the MV is not found by the DTI, it shall rule in favor of
the MDA, and direct the consumer to reimburse the MDA the costs incurred
by the latter in validating the consumer’s complaints.
Notice of availment
●
●
●
●
●
●
Before availing of any remedy, the consumer shall, in writing, notify the MDA of (1)
the unresolved complaint, and (2) the consumer’s intention to invoke his rights under
this Act within the Lemon Law rights period.
After filing the notice, the consumer shall bring the vehicle to the MDA from where
the vehicle was purchased for a final attempt to address the complaint of the
consumer to his satisfaction.
In case the nonconformity issue remains unresolved despite the MDA’s efforts to
repair the vehicle, pursuant to the consumer’s availment of his Lemon Law rights, the
consumer may file a complaint before the DTI.
If the vehicle is not returned for repair, based on the same complain, within 30CD
from the date of notice of release of the MV to the consumer following this repair
attempt within the Lemon Law rights period, the repair is deemed successful.
If the nonconformity issue still exists or persists after the 30-day period but still within
the Lemon Law rights period, the consumer may be allowed to invoke his rights
under this Act.
During the period of availment of the Lemon Law rights, the consumer shall be
provided a reasonable daily transportation allowance, an amount which covers the
transportation of the consumer from his residence to his regular workplace or
destination and vice versa, equivalent to:
1) Air-conditioned taxi fare, as evidenced by OR;
2) in such amount to be agreed upon by the parties;
3) a service vehicle at the option of the manufacturer, distributor, authorized
dealer or retailer.
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●
In case DTI rules in favor of the consumer, it may direct the manufacturer, distributor,
authorized dealer or retailer to grant either of the following remedies to the
consumer: (i) replace the motor vehicle with a similar or comparable motor vehicle in
terms of specifications and values, subject to availability; or (il) accept the return of
the motor vehicle and pay the consumer the purchase price plus the collateral
charges.
●
If the consumer decides to purchase another vehicle with a higher value and
specifications from the same manufacturer, distributor, authorized dealer or retailer,
the consumer shall pay the difference in cost. On the other hand, if DTI rules in favor
of the manufacturer, distributor, authorized dealer or retailer, the consumer will be
directed to reimburse the manufacturer, distributor, authorized dealer or retailer the
costs it incurred in validating the consumer's complaints.
4.0 Financial Rehabilitation and Insolvency
1. all claims of the government, whether national or local, including taxes, tariffs and
customs duties; and
2. claims against directors and officers of the debtor arising from acts done in the
discharge of their functions falling within the scope of their authority: Provided, That,
this inclusion does not prohibit the creditors or third parties from filing cases against
the directors and officers acting in their personal capacities.
DECLARATION OF POLICY: It is the policy of the State to encourage debtors, both juridical
and natural persons, and their creditors to collectively and realistically resolve and adjust
competing claims and property rights. In furtherance thereof, the State shall ensure a timely,
fair, transparent, effective and efficient rehabilitation or liquidation of debtors. The
rehabilitation or liquidation shall be made with a view to ensure or maintain certainty and
predictability in commercial affairs, preserve and maximize the value of the assets of these
debtors, recognize creditor rights and respect priority of claims, and ensure equitable
treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in
the interest of the State to facilitate a speedy and orderly liquidation of debtor’s assets and
the settlement of their obligation.
d. Commencement date shall refer to the date on which the court issues the
Commencement Order, which shall be retroactive to the date of filing of the petition for
voluntary or involuntary proceedings.
e. Commencement Order shall refer to the order issued by the court under Section 16 of
this Act.
4.1 Definition of Terms
As used in this Act, the term:
f. Control shall refer to the power of a parent corporation to direct or govern the financial
and operating policies of an enterprise so as to obtain benefits from its activities. Control is
presumed to exist when the parent owns, directly or indirectly through subsidiaries or
affiliates, more than one-half (1/2) of the voting power of an enterprise unless, in exceptional
circumstances, it can clearly be demonstrated that such ownership does not constitute
control. Control also exists even when the parent owns one-half (1/2) or less of the voting
power of an enterprise when there is power:
a. Administrative expenses shall refer to those reasonable and necessary expenses:
1. incurred or arising from the filing of a petition under the provisions of this Act;
2. arising from, or in connection with, the conduct of the proceedings under this Act,
including those incurred for the rehabilitation or liquidation of the debtor;
3. incurred in the ordinary course of business of the debtor after the commencement
date;
4. for the payment of new obligations obtained after the commencement date to finance
the rehabilitation of the debtor;
5. incurred for the fees of the rehabilitation receiver or liquidator and of the
professionals engaged by them; and
6. that are otherwise authorized or mandated under this Act or such other expenses as
may be allowed by the Supreme Court in its rules.
1. over more than one-half (1/2) of the voting rights by virtue of an agreement with
investors;
2. to direct or govern the financial and operating policies of the enterprise under a
statute or an agreement;
3. to appoint or remove the majority of the members of the board of directors or
equivalent governing body; or
4. to cast the majority votes at meetings of the board of directors or equivalent
governing body.
b. Affiliate shall refer to a corporation that directly or indirectly, through one or more
intermediaries, is controlled by, or is under the common control of another corporation.
g. Court shall refer to the court designated by the Supreme Court to hear and determine, at
the first instance, the cases brought under this Act.
c. Claim shall refer to all claims or demands of whatever nature or character against the
debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or
contingent, matured or unmatured, disputed or undisputed, including, but not limited to:
h. Creditor shall refer to a natural or juridical person which has a claim against the debtor
that arose on or before the commencement date.
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i. Date of liquidation shall refer to the date on which the court issues the Liquidation Order.
r. Involuntary proceedings shall refer to proceedings initiated by creditors.
j. Days shall refer to calendar days unless otherwise specifically stated in this Act.
s. Liabilities shall refer to monetary claims against the debtor, including stockholder’s
advances that have been recorded in the debtor’s audited financial statements as advances
for future subscriptions.
k. Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole
proprietorship duly registered with the Department of Trade and Industry (DTI), a partnership
duly registered with the Securities and Exchange Commission (SEC), a corporation duly
organized and existing under Philippine laws, or an individual debtor who has become
insolvent as defined herein.
t. Lien shall refer to a statutory or contractual claim or judicial charge on real or personal
property that legally entitles a creditor to resort to said property for payment of the claim or
debt secured by such lien.
l. Encumbered property shall refer to real or personal property of the debtor upon which a
lien attaches.
u .Liquidation shall refer to the proceedings under Chapter V of this Act.
v. Liquidation Order shall refer to the Order issued by the court under Section 112 of this
Act.
m. General unsecured creditor shall refer to a creditor whose claim or a portion thereof is
neither secured, preferred nor subordinated under this Act.
w. Liquidator shall refer to the natural person or juridical entity appointed as such by the
court and entrusted with such powers and duties as set forth in this Act: Provided, That, if
the liquidator is a juridical entity, it must designate a natural person who possesses all the
qualifications and none of the disqualifications as its representative, it being understood that
the juridical entity and the representative are solidarily liable for all obligations and
responsibilities of the liquidator.
n. Group of debtors shall refer to and can cover only: (1) corporations that are financially
related to one another as parent corporations, subsidiaries or affiliates; (2) partnerships that
are owned more than fifty percent (50%) by the same person; and (3) single proprietorships
that are owned by the same person. When the petition covers a group of debtors, all
reference under these rules to the debtor shall include and apply to the group of debtors.
o. Individual debtor shall refer to a natural person who is a resident and citizen of the
Philippines that has become insolvent as defined herein.
x. Officer shall refer to a natural person holding a management position described in or
contemplated by a juridical entity’s articles of incorporation, bylaws or equivalent documents,
except for the corporate secretary, the assistant corporate secretary and the external
auditor.
p. Insolvent shall refer to the financial condition of a debtor that is generally unable to pay
its or his liabilities as they fall due in the ordinary course of business or has liabilities that are
greater than its or his assets.
y. Ordinary course of business shall refer to transactions in the pursuit of the individual
debtor’s or debtor’s business operations prior to rehabilitation or insolvency proceedings and
on ordinary business terms.
q. Insolvent debtor’s estate shall refer to the estate of the insolvent debtor, which includes
all the property and assets of the debtor as of commencement date, plus the property and
assets acquired by the rehabilitation receiver or liquidator after that date, as well as all other
property and assets in which the debtor has an ownership interest, whether or not these
property and assets are in the debtor’s possession as of commencement date: Provided,
That trust assets and bailment, and other property and assets of a third party that are in the
possession of the debtor as of commencement date, are excluded therefrom.
z. Ownership interest shall refer to the ownership interest of third parties in property held
by the debtor, including those covered by trust receipts or assignments of receivables.
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aa. Parent shall refer to a corporation which has over another corporation either directly or
indirectly through one or more intermediaries.
jj. Secured claim shall refer to a claim that is secured by a lien.
kk. Secured creditor shall refer to a creditor with a secured claim.
bb. Party to the proceedings shall refer to the debtor, a creditor, the unsecured creditors’
committee, a stakeholder, a party with an ownership interest in property held by the debtor, a
secured creditor, the rehabilitation receiver, liquidator or any other juridical or natural person
who stands to be benefited or injured by the outcome of the proceedings and whose notice
of appearance is accepted by the court.
ll. Secured party shall refer to a secured creditor or the agent or representative of such
secured creditor.
mm. Securities market participant shall refer to a broker, dealer, underwriter, transfer
agent or other juridical persons transacting securities in the capital market.
cc. Possessory lien shall refer to a lien on property, the possession of which has been
transferred to a creditor or a representative or agent thereof.
nn. Stakeholder shall refer, in addition to a holder of shares of a corporation, to a member
of a nonstock corporation or association or a partner in a partnership.
dd. Proceedings shall refer to judicial proceedings commenced by the court’s acceptance
of a petition filed under this Act.
oo. Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting stock
of which is owned or controlled directly or indirectly through one or more intermediaries by
another corporation, which thereby becomes its parent corporation.
ee. Property of others shall refer to property held by the debtor in which other persons
have an ownership interest.
pp. Unsecured claim shall refer to a claim that is not secured by a lien.
ff. Publication notice shall refer to notice through publication in a newspaper of general
circulation in the Philippines on a business day for two (2) consecutive weeks.
qq. Unsecured creditor shall refer to a creditor with an unsecured claim.
gg. Rehabilitation shall refer to the restoration of the debtor to a condition of successful
operation and solvency, if it is shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present value of payments projected in
the plan, more if the debtor continues as a going concern than if it is immediately liquidated.
rr. Voluntary proceedings shall refer to proceedings initiated by the debtor.
hh. Rehabilitation receiver shall refer to the person or persons, natural or juridical,
appointed as such by the court pursuant to this Act and which shall be entrusted with such
powers and duties as set forth herein.
EXCLUSIONS. — The term debtor does not include banks, insurance companies,
pre-need companies, and national and local government agencies or units.
ss. Voting creditor shall refer to a creditor that is a member of a class of creditors, the
consent of which is necessary for the approval of a Rehabilitation Plan under this Act.
a. Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually
subject to conservatorship, receivership or liquidation proceedings under the New Central
Bank Act (Republic Act No. 7653) or successor legislation;
ii. Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of
an insolvent debtor can be restored using various means including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago,
debt-equity conversion and sale of the business (or parts of it) as a going concern, or
setting-up of new business entity as prescribed in Section 62 hereof, or other similar
arrangements as may be approved by the court or creditors.
53
b. Insurance company shall refer to those companies that are potentially or actually subject
to insolvency proceedings under the Insurance Code (Presidential Decree No. 1460) or
successor legislation; and
1. Creditors having claims for: (60 days immediately prior to the filing of the petition)
● Personal Labor
● Maintenance
● Expense of last illness and funeral of the wife or children of the debtor
2. Secured Creditors: 3 months shall pass without the proposed agreement being
accepted by the creditor or as soon as such agreement is denied.
c. Pre-need company shall refer to any corporation authorized/licensed to sell or offer to
sell pre-need plans. Provided, That government financial institutions other than banks and
government-owned or -controlled corporations shall be covered by this Act, unless their
specific charter provides otherwise.
PROHIBITED ACTS OF THE DEBTOR: after filing and during pendency, the debtor
cannot:
4.2 Suspension of payments
1. Sell, transfer encumber or dispose in any manner his property, except those used
in the ordinary operations of commerce or industry in which the petitioning
individual is engaged.
2. Making any payment outside of the necessary or legitimate expenses of his
business or industry.
This involves calling the creditors to a meeting to propose and agree on a schedule of
payments and to prevent the debtor from making any payment outside the necessary
expenses of the business, and the issuance of a suspension order to prevent pending
executions against the debtor.
CREDITORS’ MEETING: Proposal for the Schedule of Payment, which shall be approved in
a creditors’ meeting.
COVERAGE: only INDIVIDUAL DEBTORS (no partnerships/corporations)
1. Quorum: Presence of the creditor holding at least ⅗ of the liabilities of the debtor
2. Approval:
FEATURES:
1. Debtor has sufficient properties to cover ALL THE DEBTS but he foresees the
impossibility of meeting his debt when they respectively fall due.
2. Purpose is to SUSPEND/DELAY the payment of debts.
3. AMOUNT OF INDEBTEDNESS is not affected
4. The number of creditors is IMMATERIAL.
Double Majority is REQUIRED:
a. ⅔ of the creditors voting
b. Claims of the majority vote amount to at least ⅗ of the total liabilities
Not entitled to vote:
SUSPENSION ORDER
a. Claim is incurred within 90 days prior to the filling of the suspension order
b. Creditors not affected by the suspension order (Exception: They may join the
voting)
GENERAL RULE: No creditor shall sue or institute to collect his claim from the debtor from
the time of the filing of the petition for suspension of payments and for as long as the
proceedings remain pending.
Disapproval:
EXCEPTIONS:
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a. Proceedings shall be terminated
b. Creditors shall be at liberty to enforce their rights
Who will pay?
Creditors with claims: whichever is HIGHER
4.3 Rehabilitation
a. At least P1M or
b. 25% of the subscribed capital stock or partner’s contribution
Restoration of the debtor to a condition of successful operation and solvency. If it is shown
that its continuance of operation is economically feasible; and its creditors can recover by
way of the present value of payments projected in the plan, more if the debtor continues as
a going concern than if it is immediately liquidated.
COMMENCEMENT/STAY ORDER: Issued within 5 days from the filing of the petition.
1. Suspend all actions or proceedings, in court or otherwise for the enforcement of
claims against the debtor
2. Suspend all actions to enforce any judgment, attachment or other provisional
remedies against the debtor
3. Prohibit the debtor from selling, encumbering, transferring or disposing in any
manner any of its properties except in the ordinary course of business
4. Prohibit the debtor from making any payment of its liabilities outstanding as of
commencement date except as may be provided for the law
ULTIMATE GOAL: To pay the creditors while the business is operating.
TYPES OF REHABILITATION:
Voluntary (Initiated by the Debtor)
a. Debtor is Insolvent
b. Viability of Rehabilitation
Commencement Date: Date when the court issues the commencement order, retroactive
to the date of filing of the petition for voluntary/involuntary proceedings.
Who will pay?
GENERAL RULE: Entire duration of the rehabilitation proceedings (1 year)
a. Sole Proprietor - Owner/Proprietor
b. Partnership - Majority of partners
c. Corporation - Majority of the directors or trustees; stockholders representing ⅔ of
outstanding capital of non-stock corporation
EXCEPTION: Lifted anytime if there is no substantial likelihood for the debtor to be
successfully rehabilitated.
INVOLUNTARY (Initiated by the Creditor)
Effect On Secured Credits: Preference of creditor is retained, but enforcement of
preference is suspended.
a. No genuine issue of fact or law on the claims of the petitioners
b. No payments on the due and demandable debts have been made for at least 60
days
c. Debtor has failed generally to meet its liabilities as they fall due
d. Creditor, other than petitioners has initiated foreclosure proceedings against the
debtor that will prevent the debtor from paying its debt as they become due
EXCEPTIONS TO THE STAY ORDER:
1. Pending cases in SC, special court or quasi-judicial agency
2. Enforcement of claims against sureties, other person solidarily liable with the debtor,
third party or accommodation mortgagors, as well as issuers of letters of credit
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3. Customers/Clients of a securities market participant to recover claim moneys and
securities
4. Licensed broker or dealer
5. Clearing and settlement of financial transactions through facilities of clearing agency
6. Criminal action against debtor/owner, partner, director, or officer
1. Dispose or cause to be disposed of any property of the debtor other than in the
ordinary course of business or approve any transaction in fraud of creditors.
2. Conceal or approve concealment, from the creditors, or embezzles or
misappropriate, any property of the debtor.
EXTENT OF LIABILITY: whichever is higher between:
FILING PETITION FOR REHABILITATION:
a. Double the value of the property cold, embezzled or disposed
b. Double the value of the transaction involved
GRANT: Due course to the petition if:
REHABILITATION PLAN
a. Debtor is insolvent
b. Substantial likelihood for the debtor to be successfully rehabilitated
DENY the petition if:
a. Debtor is solvent
b. Sham filing intended to delay enforcement of creditor’s rights
c. Petition and attachments are false statements
d. Misrepresentation acts to defraud creditor
LIQUIDATE
a. No substantial likelihood for the debtor to be successfully rehabilitated
Plan by which the financial well-being and viability of an insolvent debtor can be restored as
may be approved by the court or creditors, using various means including:
1.
2.
3.
4.
5.
6.
7.
WHO WILL MANAGE THE BUSINESS OF THE DEBTOR: during the rehabilitation
proceeding, the management shall be done by the:
1. Existing Board/Management
2. Court may appoint: (a) Management Committee (b) Rehabilitation Receiver
Debt forgiveness
Debt rescheduling
Reorganization or quasi-reorganization
Dacion en pago
Debt-equity conversion
Sale of the business as a going concern
Setting up of new business entity
APPROVAL REQUIRED:
1. Creditors representing 50% of total claims and the confirmation of the court
2. The court even without approval of creditors or even over the objections of the
creditors, in the following cases:
(a) Rehabilitation Plan complies with the requirements
(b) Rehabilitating receiver recommends the confirmation of the plan
(c) Shareholders, owners or partners of the juridical debtor lose at least their controlling
interest as a result of the plan
(d) Rehabilitation plan would provide the objecting class of creditors with compensation
GROUNDS FOR APPOINTMENT:
1. Actual or eminent danger of dissipation, loss, wastage, or destruction of the debtor’s
assets or properties
2. Paralyzation of the business operations of the debtor
3. Gross mismanagement of the debtor, fraud, or wrongful conduct on the part of, or
gross or willful violation of FRIA by management of the debtor, owner, partner,
director, officer.
PROHIBITED ACTS OF DEBTORS/OWNERS/PARTNERS/DIRECTORS OR OFFICERS:
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SUBMISSION: If the Rehabilitation plan is approved, the rehabilitation receiver shall submit
the same to the court for confirmation. Within 5 days from receipt, the court shall notify the
creditors that the plan has been submitted for confirmation.
5.0 Philippine Competition Act
5.1 Definition and scope of application
5.2 Prohibited acts
5.3 Covered transactions
OBJECTION OF CREDITORS: may be filed within 20 days from receipt of notice from the
court, on the following grounds:
PHILIPPINE COMPETITION ACT
Republic Act No. 10667, also known as “Philippine Competitive Act”, is an act providing for
a national competition policy prohibiting anti-competitive agreements, abuse of dominant
position and anti-competitive mergers and acquisitions, establishing the Philippine
competition commission and appropriating funds therefor.
1. Creditors’ support was induced by fraud
2. Documents relied upon the plan are materially false
3. Plan is in fact not supported by the voting creditors
CONFIRMATION OF THE REHABILITATION PLAN: The court shall issue an order
confirming if:
5.1 DEFINITION AND SCOPE OF APPLICATION
1.
2.
3.
4.
No objections are filed within the relevant period
If objections are filed, the court finds them lacking in merit
Court determines that the basis for the objection has been cured
Court determines that the debtor has complied with an order to cure the objection
ACQUISITION - refers to the purchase of securities or assets, through contract or
other means, for the purpose of obtaining control by:
One (1) entity of the whole or part of another;
Two (2) or more entities over another; or
One (1) or more entities over (1) or more entities;
PERIOD OF CONFIRMATION: Must be within 1 year from the date of filing the petition
AGREEMENTS - refers to any type or form of contract, arrangement, understanding,
collective recommendations, or concerted action, whether formal or informal, explicit
or tacit, written or oral;
CRAM DOWN EFFECT
The Rehabilitation Plan approved by the court shall be binding upon the:
CONDUCT - refers to any type or form of undertaking, collective recommendation,
independent or concerted action or practice, whether formal or informal;
1. Debtor and
2. All persons who may be affected by it, including creditors, whether or not such
persons:
a. have participated in the proceedings
b. opposed the plan
c. whether or not the claims have been scheduled
COMMISSION - refers to the Philippines Competition Commission
CONFIDENTIAL BUSINESS INFORMATION - refers to information which concerns
or relates to the operations, production, sales, shipments, purchases, transfers,
identification of customers, inventories, or amount or source of any income, profits,
losses, expenditures
4.4 Liquidation
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CONTROL - refers to the ability to substantially influence or direct the actions or
decisions of an entity, whether by contract, agency or otherwise
effects in trade, industry, or commerce in the Republic of the Philippines, including those that
result from acts done outside the Republic of the Philippines.
DOMINANT POSITION - refers to a position of economic strength that an entity or
entities hold which makes it capable of controlling the relevant market independently
from any or a combination of the following: competitors, customers, suppliers, or
consumers
Exclusion: This Act shall not apply to the combinations or activities of workers or employees
nor to agreements or arrangements with their employers when such combinations, activities,
agreements, or arrangements are designed solely to facilitate collective bargaining in
respect of conditions of employment.
ENTITY - refers to any person, natural or juridical, sole proprietorship, partnership,
combination or association in any form, whether incorporated or not, domestic or
foreign, including those owned or controlled by the government, engaged directly or
indirectly in any economic activity;
5.2 PROHIBITED ACTS
Prohibited Acts under the Philippine Competition Act includes:
1. Anti-Competitive Agreements
2. Abuse of Dominant Position
3. Prohibited Mergers
MARKET - refers to the group of goods or services that are sufficiently
interchangeable or substitutable and the object of competition, and the geographic
area where said goods or services are offered
5.2.1 ANTI-COMPETITIVE AGREEMENTS
MERGER - refers to the joining of two (2) or more entities into an existing entity or to
form a new entity
❖ The following agreements, between or among competitors, are per se prohibited:
1.) Restricting competition as to price, or components thereof, or other terms of
trade;
2.) Fixing price at an auction or in any form of bidding including cover bidding,
bid suppression, bid rotation and market allocation and other analogous
practices of bid manipulation;
❖ The following agreements, between or among competitors which have the object or
effect of substantially preventing, restricting or lessening competition shall be
prohibited:
1.) Setting, [limiting], or controlling production, markets, technical development,
or investment;
2.) Dividing or sharing the market, whether by volume of sales or purchases,
territory, type of goods or services, buyers or sellers or any other means;
❖ Agreements other than those specified in (a) and (b) of this section which have the
object or effect of substantially preventing, restricting or lessening competition shall
also be prohibited.
RELEVANT MARKET - refers to the market in which a particular good or service is
sold and which is a combination of the relevant product market and the relevant
geographic market, defined as follows:
A relevant product market comprises all those goods and/ or services which are
regarded as interchangeable or substitutable by the consumer or the customer, by
reason of the goods and/ or services characteristics, their prices and their intended
use, and the relevant geographic market comprises the area in which the entity
concerned is involved in the supply and demand of goods and services, in which the
conditions of competition are sufficiently homogeneous and which can be
distinguished from neighboring areas because the conditions of competition are
different in those areas
APPLICABILITY: This Act shall be enforceable against any person or entity engaged in any
trade, industry and commerce in the Republic of the Philippines. It shall likewise be
applicable to international trade having direct, substantial, and reasonably foreseeable
5.2.2 ABUSE OF DOMINANT POSITION ( SEC. 15)
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❖ It shall be prohibited for one or more entities to abuse their dominant position by
engaging in conduct that would substantially prevent, restrict or lessen competition:
(a) Selling goods or services below cost with the object of driving competition out of
the relevant market: Provided, That in the Commission’s evaluation of this fact, it
shall consider whether the entity or entities have no such object and the price
established was in good faith to meet or compete with the lower price of a competitor
in the same market selling the same or comparable product or service of like quality;
(e) Imposing restrictions on the lease or contract for sale or trade of goods or
services concerning where, to whom, or in what forms goods or services may be sold
or traded, such as fixing prices, giving preferential discounts or rebate upon such
price, or imposing conditions not to deal with competing entities, where the object or
effect of the restrictions is to prevent, restrict or lessen competition substantially:
Provided, That nothing contained in this Act shall prohibit or render unlawful:
(1) Permissible franchising, licensing, exclusive merchandising or exclusive
distributorship agreements such as those which give each party the right to
unilaterally terminate the agreement; or
(b) Imposing barriers to entry or committing acts that prevent competitors from
growing within the market in an anti-competitive manner except those that develop in
the market as a result of or arising from a superior product or process, business
acumen, or legal rights or laws;
(2) Agreements protecting intellectual property rights, confidential information,
or trade secrets.
(c) Making a transaction subject to acceptance by the other parties of other
obligations which, by their nature or according to commercial usage, have no
connection with the transaction;
(f) Making supply of particular goods or services dependent upon the purchase of
other goods or services from the supplier which have no direct connection with the
main goods or services to be supplied;
(d) Setting prices or other terms or conditions that discriminate unreasonably
between customers or sellers of the same goods or services, where such customers
or sellers are contemporaneously trading on similar terms and conditions, where the
effect may be to lessen competition substantially:
(g) Directly or indirectly imposing unfairly low purchase prices for the goods or
services of, among others, marginalized agricultural producers, fisherfolk, micro-,
small-, medium-scale enterprises, and other marginalized service providers and
producers;
Provided, That the following shall be considered permissible price differentials:
(h) Directly or indirectly imposing unfair purchase or selling price on their
competitors, customers, suppliers or consumers, Provided that prices that develop in
the market as a result of or due to a superior product or process, business acumen
or legal rights or laws shall not be considered unfair prices; and
(1) socialized pricing for the less fortunate sector of the economy;
(2) price differential which reasonably or approximately reflect differences in
the cost of manufacture, sale, or delivery resulting from differing methods,
technical conditions, or quantities in which the goods or services are sold or
delivered to the buyers or sellers;
(i) Limiting production, markets or technical development to the prejudice of
consumers, provided that limitations that develop in the market as a result of or due
to a superior product or process, business acumen or legal rights or laws shall not be
a violation of this Act;
(3) price differential or terms of sale offered in response to the competitive
price of payments, services or changes in the facilities furnished by a
competitor; and
Provided, That nothing in this Act shall be construed or interpreted as a prohibition on
having a dominant position in a relevant market or on acquiring, maintaining and increasing
market share through legitimate means that do not substantially prevent, restrict or lessen
competition.
(4) price changes in response to changing market conditions, marketability of
goods or services, or volume;
59
Provided further, That any conduct which contributes to improving production or distribution
of goods or services within the relevant market, or promoting technical and economic
progress while allowing consumers a fair share of the resulting benefit may not necessarily
be considered an abuse of dominant position.
i. Socialized pricing for the less fortunate sector of the economy;
ii. Price differentials which reasonably or approximately reflect
differences in the cost of manufacture, sale, or delivery resulting from
differing methods, technical conditions, or quantities in which the
goods or services are sold or delivered to the buyers or sellers; iii.
Price differential or terms of sale offered in response to the
competitive price of payments, services, or changes in the facilities
furnished by a competitor; and iv. Price changes in response to
changing market conditions, marketability of goods or services, or
volume.
Provided finally, That the foregoing shall not constrain the Commission or the relevant
regulator from pursuing measures that would promote fair competition or more competition
as provided in this Act.
RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS
SECTION 2. Abuse of Dominant Position.
(5) Imposing restrictions on the lease or contract for sale or trade of goods or
services concerning where, to whom, or in what forms goods or services may
be sold or traded, such as:
(a) It shall be prohibited for one or more entities to abuse their dominant position by
engaging in conduct that would substantially prevent, restrict, or lessen competition,
including:
i. fixing prices, or
(1) Selling goods or services below cost with the object of driving competition
out of the relevant market. Provided, that in the Commission’s evaluation of
this fact, it shall consider whether such entity or entities had no such object
and that the price established was in good faith to meet or compete with the
lower price of a competitor in the same market selling the same or
comparable product or service of like quality.
ii. giving preferential discounts or rebate upon such price, or
iii. imposing conditions not to deal with competing entities, where the
object or effect of the restrictions is to prevent, restrict or lessen
competition substantially: Provided, that nothing contained in the Act
shall prohibit or render unlawful:
(2) Imposing barriers to entry or committing acts that prevent competitors
from growing within the market in an anticompetitive manner, except those
that develop in the market as a result of or arising from a superior product or
process, business acumen, or legal rights or laws;
1) Permissible franchising, licensing, exclusive merchandising,
or exclusive distributorship agreements, such as those which
give each party the right to unilaterally terminate the
agreement, unless found by the Commission to have
substantial anti-competitive effect;
(3) Making a transaction subject to acceptance by the other parties of other
obligations which, by their nature or according to commercial usage, have no
connection with the transaction;
2) Agreements protecting intellectual
confidential information, or trade secrets;
(4) Setting prices or other terms or conditions that discriminate unreasonably
between customers or sellers of the same goods or services, where such
customers or sellers are contemporaneously trading on similar terms and
conditions, where the effect may be to lessen competition substantially;
Provided, that the following shall be considered permissible price differentials:
property
rights,
(6) Making supply of particular goods or services dependent upon the
purchase of other goods or services from the supplier which have no direct
connection with the main goods or services to be supplied;
60
(7) Directly or indirectly imposing unfairly low purchase prices for the goods
or services of, among others, marginalized agricultural producers, fisherfolk,
micro-, small-, medium- scaled enterprises, and other marginalized service
providers and producers;
(9) Limiting production, markets, or technical development to the prejudice of
consumers, Provided, that limitations that develop in the market as a result of
or due to a superior product or process, business acumen, or legal rights or
laws shall not be a violation of this Act.
a) The concentration has brought about or is likely to bring about gains in
efficiencies that are greater than the effects of any limitation on competition that result or
likely to result from the merger or acquisition agreement; or
b) A party to the merger or acquisition agreement is faced with actual or imminent
financial failure, and the agreement represents the least anti-competitive arrangement
among the known alternative uses for the failing entity's assets.
2. An entity shall not be prohibited from continuing to own and hold the stock or other share
capital or assets of another corporation which it acquired prior to the approval of this Act
or acquiring or maintaining its market share in a relevant market through such means
without violating the provisions of this Act.
3. The acquisition of the stock or other share capital of one or more corporations solely for
investment and not used for voting or exercising control and not to otherwise bring
about, or attempt to bring about the prevention, restriction, or lessening of competition in the
relevant market shall not be prohibited.
(b) Nothing in the Act or these Rules shall be construed or interpreted as a
prohibition on having a dominant position in a relevant market, or on acquiring,
maintaining, and increasing market share through legitimate means that do not
substantially prevent, restrict, or lessen competition.
Burden of Proof: The burden of proof for exemptions above lies with the parties seeking
the exemption. A party seeking to rely on the exemption specified in 1(a) above must
demonstrate that if the agreement were not implemented, significant efficiency gains would
not be realized.
(c) Any conduct which contributes to improving production or distribution of goods or
services within the relevant market, or promoting technical and economic progress,
while allowing consumers a fair share of the resulting benefit may not necessarily be
considered an abuse of dominant position.
Finality of Ridings on Mergers and Acquisitions: Merger or acquisition agreements that
have received a favorable ruling from the Commission, except when such ruling was
obtained on the basis of fraud or false material information, may not be challenged under
this Act.
(8) Directly or indirectly imposing unfair purchase or selling price on their
competitors, customers, suppliers, or consumers, Provided that prices that
develop in the market as a result of or due to a superior product or process,
business acumen or legal rights or laws shall not be considered unfair prices;
and
(d) The foregoing shall not constrain the Commission or the relevant regulator from
pursuing measures that would promote fair competition or more competition as
provided in the Act.
5.3 COVERED TRANSACTIONS
5.3.1 THRESHOLDS FOR COMPULSORY NOTIFICATION
5.2.3 PROHIBITED MERGERS AND ACQUISITIONS
Merger or acquisition agreements that substantially prevent, restrict or lessen
competition in the relevant market or in the market for goods or services as may be
determined by the Commission shall be prohibited.
COMPULSORY NOTIFICATION: Parties to the merger or acquisition agreement
wherein the value of the transaction exceeds one billion pesos (P1,000,000,000.00) are
prohibited from consummating their agreement until thirty (30) days after providing
notification to the Commission in the form and containing the information specified in the
regulations issued by the Commission. The Commission shall promulgate other criteria,
such as increased market share in the relevant market in excess of minimum thresholds,
that may be applied specifically to a sector, or across some or all sectors, in determining
5.2.4 EXCEPTIONS
1. Merger or acquisition agreement may, nonetheless, be exempt from prohibition by the
Commission when the parties establish either of the following:
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whether parties to a merger or acquisition shall notify the Commission.
A favorable recommendation by a governmental agency with a competition mandate
shall give rise to a disputable presumption that the proposed merger or acquisition is not
violative of this Act.
Effect of no notice:
1. An agreement consummated in violation of this requirement to notify the Commission
shall be considered void and
2. Subject the parties to an administrative fine of 1% to 5% of the value of the transaction.
5.3.2 NOTIFYING ENTITY
(a) Parties to a merger or acquisition that satisfy the thresholds in Section 3 of this
Rule are required to notify the Commission before the execution of the definitive
agreements relating to the transaction.
Request for further information; effect: Should the Commission deem it necessary, it
may request further information that are reasonably necessary and directly relevant to the
prohibition under Section 20 (Prohibited Mergers and Acquisitions) from the parties to the
agreement before the expiration of the thirty (30)-day period.
(b) If notice to the Commission is required for a merger or acquisition, then all
acquiring and acquired pre-acquisition ultimate parent entities or any entity
authorized by the ultimate parent entity to file notification on its behalf must each
submit a Notification Form (the “Form”) and comply with the procedure set forth in
Section 5 of this Rule. The parties shall not consummate the transaction before the
expiration of the relevant periods provided in this Rule.
The issuance of such a request has the effect of extending the period within which
the agreement may not be consummated for an additional sixty (60) days, beginning on the
day after the request for information is received by the parties. In no case shall the total
period for review by the Commission of the subject agreement
exceed ninety (90) days from initial notification by the parties.
(c) In the formation of a joint venture (other than in connection with a merger or
consolidation), the contributing entities shall be deemed acquiring entities, and the
joint venture shall be deemed the acquired entity.
Expiration of the period of review: When the period has expired and no decision has
been promulgated for whatever reason, the merger or acquisition shall be deemed approved
and the parties may proceed to implement or consummate it.
5.3.3 PERIOD OF NOTIFICATION
Effect of Notification: If within the relevant periods mentioned above, the Commission
determines that such agreement is prohibited and does not qualify for exemption, the
Commission may:
1. Prohibit the implementation of the agreement;
2. Prohibit the implementation of the agreement unless and until it is modified by changes
specified by the Commission.
3. Prohibit the implementation of the agreement unless and until the pertinent party or
parties enter into legally enforceable agreements specified by the Commission.
Confidentiality: All notices, documents and information provided to or emanating from
the Commission shall be subject to confidentiality rule except when the release of
information contained therein is with the consent of the notifying entity or is mandatorily
required to be disclosed by law or by a valid order of a court of competent
jurisdiction, or of a government or regulatory agency, including an exchange.
Effect on the requirement of favorable recommendation: In the case of the merger or
acquisition of banks, banking institutions, building and loan associations, trust companies,
insurance companies, public utilities, educational institutions and other special corporations
governed by special laws, a favorable or no-objection ruling by the
Commission shall not be construed as dispensing of the requirement for a favorable
recommendation by the appropriate government agency under Section 79 of the
Corporation Code of the Philippines.
Notification Threshold: The Commission shall, from time to time, adopt and publish
regulations stipulating:
a) The transaction value threshold and such other criteria subject to the notification
requirement of Section 17 of this Act;
b) The information that must be supplied for notified merger or acquisition;
62
c) Exceptions or exemptions from the notification requirement; and Other rules relating to
the notification procedures.
-
5.3.4 EXCEPTIONS
The Commission shall not consider the acquisition, maintenance and increase of
market share through legitimate means that does not substantially prevent, restrict, or
lessen competition in the market, such as but not limited to, having superior skills, rendering
superior service, producing or distributing quality products, having business acumen, and
enjoying the use of protected intellectual property rights as violative of the Act and these
Rules, Provided, that the concerned entity or entities invoking the exception shall clearly
establish to the Commission’s satisfaction, that the barrier to entry or anti-competitive act is
an 23 indispensable and natural result of the superior product or process, business acumen,
or legal rights or laws.
Competitiveness
Streamlined procurement process
System of accountability
Public monitoring
Scope and Application
1. Procurement of Infrastructure Projects
2. Goods and Consulting Service
Preparation of Bidding Documents
-
6.0 Government Procurement Law
6.1 General principles
6.2 Scope and application
6.3 Definition of terms
6.4 Procurement procedures
6.5 Disclosure of relations
6.6 Alternative methods of procurement
-
REVIEWER ON REPUBLIC ACT 9184
Approved Budget for the Contract
Instructions to Bidders, including criteria for eligibility, bd evaluation and
post-qualification, as well as the date, time and place of the pre-bid Conference
(where applicable), submission of bids and opening of bids
Terms of Reference
Eligibility Requirements
Plans and Technical Specifications
Form of Bid, Price Form, and List of Goods or Bill of Quantities
Delivery Time or Completion Schedule
Form and Amount of Bid Security
Form and Amount of Performance Security and Warranty
Forms of Contract, and General and Special Conditions of Contract
The Procuring Entity may require additional document requirements or specifications
necessary to complete the information required for the bidders to prepare and submit their
respective bids.
AN ACT PROVIDING FOR THE MODERNIZATION, STANDARDIZATION AND
REGULATION OF THE PROCUREMENT ACTIVITIES OF THE GOVERNMENT AND FOR
OTHER PURPOSES. (GOVERNMENT PROCUREMENT REFORM ACT)
Invitation to Bid
PRE-PROCUREMENT CONFERENCE
Declaration of the Policy
•
•
It is the declared policy of the State to promote the ideals of good governance in all its
branches, departments, agencies, subdivisions, and instrumentalities, including
government-owned and/or controlled corporations, and local government units.
ADVERTISING AND CONTENTS OF THE INVITATION TO BID
Government Principles:
-
BAC is mandated to hold a pre-procurement conference on each and every procurement.
Pre-procurement conference shall assess the readiness of the procurement, reviewing all
relevant documents and draft invitation to Bid, as well as consultants hired by the agency.
•
Transparency
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It shall be advertised by the Procuring entity in order to ensure the widest possible
dissemination.
•
The Invitation to Bid shall contain:
a) Brief description of the subject matter of the Procurement
b) General statement on the criteria to be used by the Procuring entity
c) Date, time and place of the deadlines for the submission and receipt of the
eligibility requirements, the pre-bid conference, and submission and receipt of bids
d) Approved budget for the Contract to be Bid
e) The source of funds
f) Period of availability of the Bidding Documents, and the place where these may
be secured
g) Contract duration
h) Other necessary information relevant by the Procuring entity
● At least one pre-bid conference shall be conducted for each procurement, unless
otherwise provided in the IRR.
● Subject to the approval of the BAC, pre-bid conference may be conducted upon the
written request of any prospective bidder.
● Pre-bid conference shall be held within a reasonable period before the deadline for the
receipt of the bids.
Submission and Receipt of Bids
Components:
1. Technical components
2. Financial components
Bids shall be received by the Bids and Awards Committee (BAC) on the date, time, and
place specified in the Invitation to Bid/Request for Expression of Interest. The following
periods from the last day of posting of the Invitation to Bid/Request for Expression of Interest
up to the submission and receipt of bids shall be observed:
a) For goods, a maximum period of forty-five (45) calendar days
b) For infrastructure projects, the following maximum periods:
● With ABC of 50M and below – 50 calendar days
● With ABC above 50 million – 65 calendar days
c) For consulting services, a maximum period of seventy-five (75) calendar days
Modification of Bids
A bidder may modify his bid, provided that this is done before the deadline for the receipts of
bids. The modification shall be submitted in a sealed envelope duly identified as a
modification of the original bid and stamped received by the BAC.
Receipt and Opening of Bids
Withdrawal of Bids
A bidder may, through a letter, withdraw his bid or express his intention not to participate in
the bidding before the deadline for receipts of bids. In such case, he shall no longer be
allowed to submit another Bid or the same contract either directly or indirectly.
Eligibility requirements for the procurement of Goods and infrastructure projects
Bids and Awards Committee (BAC)
●
Shall determine the eligibility of prospective bidders for the procurement of Goods &
Infrastructure Projects
Bid Security
All bids shall be accompanied by Bid Security, which shall serve as a guarantee that, after
receipt of the notice of award, the winning bidders shall enter into the contract with the
Procuring Entity within the stipulated time and furnish the required performance security.
Determination of the eligibility: Bidders’ compliance with the eligibility requirements within
the period set forth in the invitation to Bid.
Eligibility requirements & short listing for Consulting Services
●
Bid Validity
Bids and Bid Securities shall be valid for such reasonable period of time indicated in the
Bidding Documents. The duration for each undertaking shall take into account the time
involved in the process of Bid evaluation and award of contract.
Shall be determined by their compliance with the eligibility requirements prescribed for
the competitive bidding concerned, within the period stated in the invitation to bid.
NOTE:
Evaluation of Eligible Prospective Bidders
●
●
Bid Opening
The BAC shall publicly open all bids at the time, date and place specified in the bidding
documents.
Using numerical ratings
Basis: Short listing requirements
64
Negotiation and/or clarification on the following terms (after approval)
id Evaluation
1.
2.
3.
4.
5.
6.
7.
Preliminary Examination of Bids
The BAC shall examine FIRST the technical components of the bids using "PASS/FAIL"
criteria to determine whether all required documents are present.
Only bids that are determined to contain all the bid requirements of the technical component
shall be considered for opening and evaluation of their financial component.
Financial proposal submitted by the bidder
Terms of reference
Scope of services
Methodology and work program
Personnel to be assigned to job
Services/facilities/data to be provided by the Procuring Entity concerned, and
Provisions of the contract.
When negotiation FAILS
Ceiling for Bid Prices
The ABC shall be the upper limit or ceiling for the Bid prices.
❖ Financial proposal of the second rank bidder shall be opened for negotiations
→ The amount indicated in the financial envelope shall be made as the basis for
negotiation
→ The total contract amount shall not exceed the amount indicated in the envelope
and the ABC
Bid prices that exceed this ceiling shall be disqualified outright from further participating in
the bidding.
Whenever necessary the same process shall be repeated until the bid awarded to the
winning bidder
Bid for the Procurement of Goods and Infrastructure Projects
For the procurement of Goods and Infrastructure Projects, the BAC shall evaluate the
financial component of the bids.
POST-QUALIFICATION
The bids that passed the preliminary examination shall be ranked from lowest to highest in
terms of their corresponding calculated price shall be referred to as the "Lowest Calculated
Bid."
Objective and Process of Post-Qualification
Bid Evaluation of Shor Listed Bidders for Consulting Services
Bidder with the Lowest Calculated Bid or the Highest Rated Bid, undergoes verification
and validation whether he has passed all the requirements and conditions
- shall be evaluated and ranked using numerical ratings
If the bidder passes all the criteria for post-qualification, his Bid shall be considered:
1. The "Lowest Calculated Responsive Bid,” in the case of Goods and Infrastructure
or
2. the "Highest Rated Responsive Bid," in the case of Consulting Services.
Criteria but not limited to the following:
1.
2.
3.
4.
5.
Experience
Performance
Quality or Personnel
Price and
Methodology
However, if a bidder fails to meet any of the requirements or conditions, he shall be
"post-disqualified" and the BAC shall conduct the post-qualification on the bidder with the
second Lowest Calculate Bid or Highest Rated Bid.
The Bids shall be ranked from highest to lowest in terms of their corresponding calculated
ratings. The Bid with the highest calculated rating shall be the "Highest Rated Bid."
Same procedure shall be repeated if the bidder with the second Lowest Calculated Bid or
Highest Rated Bid is post-disqualified
65
Failure of Bidding
➔ Procuring Entity issues NTP to the winning bidder not later than 7 calendar days
from date of approval of contract
a. No bids are received;
b. No bid qualifies
c. Whenever the bidder with the highest rated/lowest calculated responsive bid
refuses, without justifiable cause to accept the award of contract
PERIOD OF ACTION ON PROCUREMENT ACTIVITIES
➔ Shall not exceed 3 months, or a shorter period to be determined by the head of
procuring entity
➔ NO ACTION TAKEN = Contract shall be deemed approved
Under any of the above instances, the contract shall be re-advertised and re-bid.
After the second failed bidding, however, the BAC may resort to NEGOTIATED
PROCUREMENT, as provided below.
PERFORMANCE SECURITY
➔ Prior to contract signing, the winning bidder shall be required to post a performance
security in such form and amount as specified in the Bidding Documents
➔ Failure to do so will result the bid security be forfeited
◆ BAC shall disqualify the bidder and shall undertake post-qualification for
next-ranked LCB/HRB (Lowest Calculated Bid/Highest Rated Bid.)
◆ Procedure is repeated until award is made.
Single Calculate/Rated and Responsive Bid Submission
a. only one prospective bidder submits a Letter of Intent and/or applies for eligibility check,
and meets the eligibility requirements or criteria
b. more than one prospective bidder applies for eligibility check, but only one bidder meets
the eligibility requirements or criteria
RESERVATION CLAUSE
➔ Head of the Agency reserves rights to:
◆ Reject any and all bids
◆ Declare a failure of bidding
◆ Not award the contract in the following circumstances:
● If there is prima facie evidence of collusion
● If BAC is found to have failed in following the prescribed bidding
procedures
● For any justifiable as stated in the IRR
c. more than one bidder meets the eligibility requirements, but only one bidder submits a bid
In all instances, the Procuring Entity shall ensure that the ABC reflects the most
advantageous prevailing price for the government
Award, Implementation and Termination of the Contract
NOTICE AND EXECUTION OF AWARD
➔ Should be within a period not exceeding 15 calendar days from the
recommendation of award
➔ The Head of Procuring Entity or any duly authorized representative shall approve or
disapprove the recommendation of award
◆ In cases that it is approved, a Notice of Award is issued
SPLITTING OF GOVERNMENT CONTRACTS
➔ Splitting of Government Contracts is not allowed
Termination of Contracts
Requisites of Entering into the Contract
1. Should be within 10 days from receipt
2. Only a maximum of 20 days, any further extension requires approval by authority
3. If GOCC, should be within 30 days from date of receipt
Grounds of Termination
A. Termination for default
NOTICE TO PROCEED
1. In case of goods, failure to deliver at least 10% of contract price.
66
2. In case of infrastructure, due to contractors fault, negative slippage of 15% or more while
project ongoing, 10% or more completion of work,neglect,negligence, sublets any part of the
contract without approval.
3. In case of consulting service, failure to deliver or perform not less than 60 days.
7.1.1 NATURE OF PARTNERSHIP
Partnership - it is a contract whereby two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits
among themselves.
B. Termination for convenience
-part of government agencies
-impractical
-changes in policy, fortuitous event.
- Two or more persons may also form a partnership for the exercise of a profession.
- Has a juridical personality.
Juridical Personality - separate and distinct from that of each of the partners, even in case
of failure to comply with the requirements of the law.
C. Termination of Insolvency
- allows the suppliers or winning bidder to terminate if not an economical, impractical,
fortuitous event and/or cannot provide the contracting party.
D. Termination by unlawful acts
- corrupt, fraudulent, collusive and coercive practice
-forged docs
E. Termination by contractor/consultant
Infrastructure/ Contractor: if the works stopped for continuous 60 calendar days
Consultant: material breach of its obligation and has not remedied the same within 60
calendar days.
Characteristics (PNB OC2P)
1. Principal - does not depend for its for its existence on other contracts.
2. Nominate - has a designation in law.
3. Bilateral - entered by two or more persons and the rights and obligations arising
therefrom are always reciprocal.
7.0 Law on Business Organizations
7.1 Partnerships
7.1.1 Nature and as distinguished from corporation
7.1.2 Kinds of partnerships
7.1.3 Formalities required
7.1.4 Rules of management
7.1.5 Obligations of partners
7.1.6 Rights of a partner
7.1.7 Sharing of profits and losses
7.1.8 Dissolution and winding up
7.1.9 Limited Partnership
4. Onerous - certain contributions have to be made.
5. Consensual - perfected by mere consent.
6. Commutative - undertaking of each one is considered equal with the others.
7. Preparatory - entered as a means to an end.
Essential Features
1. There must be a valid contract.
67
Purpose
Realization of profits
2. The parties must have legal capacity to enter into the contract.
3. There must be a mutual contribution of money, property, or industry to a common
fund.
Duration/ Term
of existenc e
No limitation
Common
enjoyment of a
thing
or right
10 years
maximum
4. The object must be lawful
5. The primary purpose must be to obtain profits and to divide the same among the
parties.
Depends on AOI
50 years maximum,
extendible to not
more than 50 years in
any one
instance
Disposal
/ Transfer
ability of
interest
Partner may not dispose
of his individual interest
unless agreed upon by
all partners
Co-owner may
freely do so
Stockholde r has a
right to transfer
shares without prior
consent of other
stockholder s
Power to
act with 3rd
In absence of stipulation
to
contrary, a
Co-owner cannot
represent
Manageme nt is
vested
with the
6. There must be at least one general partner.
PARTNERSHIP DISTINGUISHED FROM CO-OWNERSHIP AND CORPORATION
PARTNERS HIP
Creation
Juridical
personal ity
Created by a contract,
by mere
agreement of the parties
Has a juridical
personality separate and
distinct from that of each
partner
CO- OWNERS
HIP
CORPORATION
Created by law
Created by law
None
persons
Effect of
death
Has a juridical
personality separate
and distinct from that
of each
stockholder
68
partner may bind
partnership (each
partner
is agent of
partnership)
Death of partner
results in dissolution of
partnership
the co- ownership
Death of co-owner does not
necessarily dissolve
co- ownership
Board of Directors
Death of stockholder
does not dissolve
corporation
Dissoluti
on
May be dissolved at
any time by the will of
any or all of the
partners
May be dissolved anytime by
the will of any or all of the coowners
Can only be
dissolved with the
consent of the state
# of incorporators
Minimum of 2 persons
Minimum of 2 persons
Minimum of 5
incorporato rs
Commen
cement of
juridical
personal
ity
From the moment of
execution of contract of
partnership
None
i. Universal partnership of all profits-comprises all that the partners may acquire by
their industry or work during the existence of the partnership and the usufruct Of
movable or immovable property which each of the partners may possess at the time
of the celebration of the contract.
- Partners retain their ownership over their present and future property. What
passes to the partnership are the profits and the use of the same.
From date of
issuance of certificate
of incorporati on by
the
SEC
*The following persons are prohibited from entering into a universal
partnership:
● Husband and wife
● Those guilty of adultery or concubinage
● Those guilty of the same criminal offense, if the partnership was entered
inconsideration of the same.
7.1.2 KINDS OF PARTNERSHIPS
Classifications of partnership
1. As to the extent of its subject matter
●
a) Universal partnership
●
i. Universal partnership of all present
Property - the partners contribute all the property which actually belongs to them to
a common fund, with the intention of dividing the same among themselves, as well
as the profits which they may acquire therewith.
●
Only the usufruct of future property is allowed including those of donation, inheritance,
and legacy.
Adultery refers to married women while concubinage refers to married man in which the
act is considered as scandalous.
(3) can only enter into a particular partnership
b) Particular partnership - has for its object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession.
EXCEPTION: Those properties acquire subsequently by inheritance, legacy, or
donation except their use and fruits thereof. (+usufruct)
2. As to liability of the partners
69
a) General partnership-one consisting of general partners who are liable pro rata and
subsidiary liable, sometimes solidarily, with their separate property.
a) Commercial or trading partnership - one formed for the transaction of business.
b) Professional or non-trading partnership - one formed for the exercise of a
profession.
b) Limited partnership-one formed by two or more persons having as members one or
more general partners and one or more limited partners, the latter not being personally
liable for the obligations of the partnership.
Kinds of partners
3. As to its duration
a) Partnership at will - one in which no time is specified and is not formed for a
particular undertaking or venture and which may be terminated anytime by mutual
agreement of the partners.
1. As to liability
a) General partner-one whose liability to third persons extends to his separate property;
he may either be a capitalist or industrial partner.
b) Limited partner-one whose liability to third persons is limited to his capital
contribution; he can only be a capitalist and can never be an industrial partner.
b) Partnership with a fixed term - one in which the term for which the partnership is to
exist is fixed or agreed upon or one formed for a particular undertaking, and upon
expiration of the term.
2. As to contribution
a) Capitalist partner - one who contributes money and/or property to the common fund.
4. As to the legality of its existence
a) De jure partnership - one which has complied with all the legal requirements for its
establishment.
b) Industrialist partner - one who contributes only his industry or personal service.
b) De factor partnership - one which has failed to comply with all the legal requirements
for its establishment.
c) Capitalist-industrialist partner - one who contributes money and/or property, and
industry.
5. As to representation to others
a) Ordinary or real partnership - one which actually exists among the partners and also
to third persons.
3. Other classification
a) Managing partner - one who manages the affairs or business of the partnership.
b) Liquidating partner - one who takes charge of the winding up of partnership affairs
upon dissolution.
b) Ostensible partnership or partnership by estoppel - one which in reality is not a
partnership, but is considered a partnership only in relation to those who, by their
conduct or admission, are precluded to deny or disproved its existence.
c) Partner by estoppel or nominal partner or partner by implication - one who is not
really a partner, not being a party to a partnership agreement, but is liable as a partner
for the protection of innocent third persons.
6. As to publicity
a) Secret partnership - one wherein the existence of certain persons as partners is not
avowed or made known to the public by any of the partners.
d) Subpartner - one who, not being a member of the partnership, contracts with a partner
with reference to the latter's share in the partnership.
b) Open or notorious partnership - one whose existence is avowed or made known to
the public by the members of the firm.
e) Ostensible partner - one who takes active part and known to the public as a partner
in the business, whether or not he has an actual interest in the firm.
7. As to purpose
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f) Secret partner - one who takes active part in the business but is not known to be a
partner by outside parties.
g) Silent partner - one who does not take any active part in the business although he
may be known to be a partner.
Rules in determining the existence of a partnership:
1. Persons who are not partners as to each other are not partners as to third persons.
h) Dormant partner - one who does not take active part in the business and is not known
or held out as partner.
2. Co-ownership or co-possession does not of 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.
i) Incoming partner - a person lately, or about to be, taken into a partnership as a
member.
j) Retiring partner - one withdrawn from the partnership. Relations created by a contract
of partnership:
3. The 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 for which
the returns are divided.
7.1.3 FORMATION OF PARTNERSHIP
General rule:
A partnership may be constituted in any form.
4. The receipt by a person of a 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:
Exceptions:
2) In case of money and/or personal property:
a) If capital is less than P3,000, no special form is required for its validity or existence.
b) If capital is P3,000 or more, in money or personal property, the same shall appear
in a public instrument and must be recorded in the office of the SEC.
a)
b)
c)
d)
As a debt by installments or otherwise;
As wages of an employee or rent to a landlord;
As an annuity to a widow or representative of a deceased partners;
As interest on a loan, though the amount of payment vary with the profits of the
business;
e) As the consideration for the sale of a goodwill of a business or other property by
installments.
3) In case of real property, it must appear in a public instrument and an inventory of said
real property should be made, signed by the parties, and attached to the public
instrument, and the same must be recorded in the office of the SEC, otherwise, the
contract of partnership is VOID.
Tests of partnership existence:
71
1. When the appointment is without specification of their respective duties and without
stipulation that one of them shall not act without the consent of the other, each one may
execute all act of administration, except if any such partner should oppose:
1. Whether or not there is an agreement to contribute money, property, or industry to a
common fund; and
2. Whether or not there is intent of the contracting parties to divide the profits among
themselves.
a) Decision of the majority of the managing partner shall prevail.
Relations created by a contract of Partnership
1. Relations among the partners themselves
2. Relations of the partners with the partnership
3. Relations of the partnership with third persons
4. Relations of the partners with third persons
b) In case of a tie, decision of all the partners having the controlling interest.
2. With stipulation requiring unanimity of action, unanimous consent of all the managing
partners shall be necessary for the validity of the acts and absence or disability of any
managing partner cannot be alleged, except when there is an imminent danger of grave
or irreparable injury to the partnership.
7.1.4 RULES OF MANAGEMENT
*When the manner of management has not been agreed upon, the following rules
shall be observed:
1. All the partners shall be considered agents and whatever any one of them may do alone
shall bind the partnership.
Management of the Partnership Affairs
2. None of the partners may, without the consent of the others, make any important
alteration in the immovable property of the partnership, even if it may be useful to the
partnership. But if the refusal of consent by the other partners is manifestly prejudicial to
the interest of the partnership, the court's intervention may be sought.
Two modes of appointing a manager:
1. Appointment as manager in the articles of partnership
a) The power of the manager is irrevocable without just and lawful cause.
b) To remove him for just cause, the controlling partners should vote to oust him.
c) To remove him without cause, or for an unjust cause, there must be unanimity
(including his own vote).
d) He may execute all acts of administration despite the opposition of his partners,
unless he should act in bad faith.
7.1.5 OBLIGATIONS OF PARTNERS
2. Appointment as manager made in an instrument other than the articles of partnership
or made orally
a) The appointment can be revoked any time for any cause whatsoever.
Obligations of the partners among themselves
1. Obligations with respect to contribution of property
a) To contribute at the beginning of the partnership or at the stipulated time the money,
property, or industry he had promised;
.
b) To answer for eviction in case the partnership is deprived of the determinate
property contributed;
Rules when two or more managers are appointed:
72
c) To answer to the partnership for the fruits of the property the contribution of which
he delayed, from the date they should have been contributed up to the time of actual
delivery;
iv. Things contributed to be sold-the partnership bears the risk of loss for there cannot be
any doubt that the partnership was intended to be the owner.
v. Things brought and appraised in the inventory-the partnership bears the risk of loss
because the intention of the parties was to contribute to the partnership the price of the
things contributed with appraisal in the inventory.
d) To preserve said property with the diligence of a good father of a family pending
delivery:
2. Obligations with respect to contribution of money and money converted to
personal use
a) To contribute on the date due the amount promised to be given;
e) To indemnify the partnership for any damage caused to it.
b) To reimburse any amount he may have taken from the partnership coffers and
converted to his own personal use;
c) To indemnify the partnership for the damages caused to it by the delay in the
contribution; and
d) To pay the agreed or legal interest, if he fails to pay in due time.
3. Obligation not to engage in another business for himself
a) Industrial partner cannot engage in business for himself, unless the partnership
expressly permits him to do so.
Three important duties of every partner:
1. The duty to contribute what had been promised;
2. The duty to deliver the fruits of what should have been delivered; and
3. The duty to warrant.
b) Capitalist partner cannot engage for their own account in any operation which is of the
kind of business in which the partnership is engaged, unless there is a stipulation to
the contrary.
Remedies:
i. Industrial partner- the capitalist partners may either exclude him from the firm with
damages or avail themselves of the benefits which he may have obtained therefrom
damages.
ii. Capitalist partner- the capitalist shall bring to the common funds any profits accruing
to him from his transactions, and shall personally bear all the losses.
Risk of loss of the things contributed:
i. Specific and determinate things, fungible or non-fungible, the ownership of which is
transferred to the partnership- the risk of loss is for the account of the partnership,
being the owner.
4. Obligation to contribute additional capital
● If there is no agreement to the contrary, in case of an imminent loss of the business of
the partnership, any partner who refuses to contribute an additional share to the
capital, except an industrial partner, to save the venture, shall he obliged to sell his
interest to the other partners.
ii. Specific and determinate things which are not fungible, only the usufruct is
contributed-the risk of loss is borne by the partner because he remains the owner of
the things.
iii. Fungible things-the risk of loss is borne by the partnership since use is impossible
without the things being consumed or impaired.
5. Obligation of the managing partner who collects debt
73
●
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 latter.
Responsibilities of the partnership to the partners:
1. of firm plus interest from the time expenses where made;
2. To answer to each partner for obligations, he may have entered into in good faith in
the interest of the partnership; and
3. To answer for risks in consequence of its management.
●
The rule is not applicable if the collecting partner is not a managing partner.
Obligations of Partnership/Partners to third to persons:
●
The rule is subject to the right of the debtor to prefer payment of the credit (application
of payment), but only if the personal credit of the partner should be more onerous to
him.
1. Solidary liability of the partnership for the e partnership wrongful act of the
partner/s
a) for loss or injury caused to a third person or any penalty is incurred by reason of the
wrongful act or omission of any partner acting in the ordinary course of the business of
the partnership or with the authority of his co-partners.
6. Obligation of partner who receives share in partnership credit
● A partner who has received, in whole or in part, his share of a partnership credit,
when the other partners have not collected theirs, shall be obliged, if the debtor
should thereafter become insolvent, to bring to the partnership capital what he
received even though he may have given receipt for his share only.
b) Where one partner acting within the scope of his apparent authority receives money or
property of a third person and misapplies it.
c) Where the partnership in the course of the business receives money or property of a
third person and such money or property is misapplied by any partner while it is in the
custody of the partnership.
7. Obligation of partner for damages to partnership
●
Every partner is responsible to the partnership for damages suffered by it through his
fault, and he cannot compensate them with the profits 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.
8. Duty to render information
● Partners shall render on demand true and full information of all things affecting the
partnership to any partner or the legal representative of any deceased partner or of
any partner under legal disability.
2. Those who, not being members of the partnership, include their names in the firm
name, shall be subject to the liability of a partner..
3. All partners, including industrial ones, shall be liable pro rata with all their property
and after all the partnership assets have been exhausted, for the contract which may
be entered into in the name and for the account of the partnership (liability for contractual
obligations). Any stipulation to the contrary shall be void, except as among the partners.
9. Obligation to account for any benefit and hold as trustee unauthorized personal
profits
●
Every partner 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 its property.
4. Liability of partnership to third persons for acts of partners
74
a) When the partnership is bound
i. if the partner is authorized to act for the partnership, the partnership is bound
whether or not the act is for apparently carrying on in the usual way the business of
the partnership.
ii. if the partnership is not authorized to act for the partnership the partnership is
bound if:
b) Where title to real property is in the name of one or more but not all the partners, and
the record does not disclose the right of the partnership, the partners in whose name
the title stands may convey title to such property.
*the act is apparently carrying on in the usual way of business of the partnership;
and
*the third person has no knowledge of the partner's lack of authority.
c) Where title to real property is in the name of the partnership, a conveyance executed
by a partner, in his own name, passes the equitable interest of the partnership,
provided the act is one within the authority of the partner.
b) When the partnership is not bound
i. when although the act is for apparently carrying on in the usual way the business
of the partnership, the partner is not authorized to act for the partnership and the
third person has knowledge of the partner's lack of authority.
d) Where the title to real property is in the name of one or more or all the partners, or in
a third person in trust for the partnership, a conveyance executed by a partner in the
partnership name, or in his own name, passes the equitable interest of the
partnership, provided the act is one within the authority of the partner.
ii. when the partner is not authorized to act for the partnership and the act is not for
apparently for the carrying on in the usual way the business of the partnership
whether or not the third person has knowledge of the partner's lack of authority.
One or more but less than all the partners have no authority to (acts of authority
to strict dominion):
Equitable interest/title is one not duly recognized by law but in equity alone; it is a right
or interest in property which is imperfect and unenforceable at law but which under
well-recognized equitable principles should and is convertible into a legal right or title. e.
Where the title to real property is in the name of all the partners a conveyance executed
by all the partners passes all their rights in such property
a) Assign the partnership property in trust for creditors or on the assignee's promise
to pay the debts of the partnership;
b) Dispose of the good-will of the business;
c) Do any other act which would make it impossible to carry on the ordinary business
of a partnership;
d) Confess a judgment;
e) Enter into a compromise concerning a partnership claim or liability;
f) Submit a partnership claim or liability to arbitration; and
g) Renounce a claim of the partnership.
6. Effect of admission of a partner
Admission or representation made by any partner concerning partnership affairs within
the scope of his authority is evidence against the partnership.
5. Effect of conveyance of real property of the partnership
a) Where title to real property is in the partnership name, any partner may convey title to
such property by a conveyance executed in the partnership name.
7. Effect of notice or knowledge of a partner
a) notice to any partner of any matter relating to partnership affairs operates as notice to
the partnership
75
b) knowledge of the partner acting in the particular matter acquired while a partner is
knowledge to the partnership
c) knowledge of the partner acting in the particular matter then present to his mind is
knowledge to the partnership
d) knowledge of any other partner who reasonably could or should have communicated
it to the acting partner is knowledge to the partnership
1. Property rights of a partner (principal rights)
a) his rights in specific partnership property
b) his interest in the partnership
i. share in the profit
ii. share in the surplus
8. A person admitted as a partner into an existing partnership is liable for all the
obligations of the partnership arising before his admission as though he had been a
partner when such obligations were incurred, unless there is a stipulation to the contrary.
9. Liabilities of partners by estoppel
Estoppel arises when a person by any means represents himself or consents to another
representing him to anyone, as partner in an existing partnership, or with one or more
persons not actual partners; he is liable to any such person to whom such representation
has been made, who has, on the faith of such representation given credit to the actual or
apparent partnership.
c) his right to participate in the management
2. Right to reimbursement for amounts advanced to the partnership and to
indemnification for risks in consequences of management
Partner by estoppel-a person not a partner may become a partner by estoppel and thus
liable to third persons as if he was a partner when by his words or conduct he:
a) Directly represents himself to anyone as a partner in an existing partnership or in
a non-existing partnership (with one or more persons not actual partners); or
b) Indirectly represents himself by consenting to another representing him as a
partnership in an existing partnership or in a non-existing partnership.
3. Right to associate with another person in his share
Liabilities of partners by estoppel:
4. Right of access and inspection of partnership books
a) When partnership liability results-if all actual partners consented to the
representation, it is considered a partnership liability. This is a case of partnership by
estoppel.
b) Liability is pro rata-when there is no existing partnership and all or some of those
represented as partners consented to the representation, or none or only some of
the partners of an existing partnership consented to the representation, the liability of
all those who made and consented to the representation is joint or pro rata.
5. Right to true and full information of all things affecting the partnership
6. Right to a formal account of partnership affairs under certain circumstances
a) If he is wrongfully excluded from the partnership business or possession of its property
by his co-partners;
b) If the right exists under the terms of any agreement;
c) If a partner has derived profits from any transaction connected with the formation,
conduct, or liquidation of the partnership or from any use by him of its property; and
d) Whenever other circumstances render itjust and reasonable.
10. The creditors of the partnership shall be preferred to those of each partner's
personal creditors as regards the partnership property.
7. Right to have partnership dissolved under certain conditions.
7.1.6 RIGHTS OF A PARTNER
7.1.7 SHARING OF PROFIT AND LOSSES
Rights of a partner in a partnership:
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Distribution of profits and losses
1. Profits
a) Agreement
b) In the absence of any agreement, the industrial partner shall first receive a just and
equitable share of the profits and thereafter, each capitalist partner shall share in the
profits in proportion to his capital contribution.
2. Losses
a) Agreement
b) In the absence of any agreement, the industrial partner will not share in the losses and
each capitalist partner shall share in the losses in the same proportion as the share in
the profits and in the absence thereof, in proportion to his capital contribution.
Winding up-is the process of settling the business partnership affairs after dissolution.
Termination-is that point in time when all partnership affairs are completely wound up and
finally settled. It signifies the end of the partnership life.
Kinds of Dissolution
1. Extrajudicial dissolution (automatic dissolution)
a) without violation of the agreement between the partners
i. by the termination of the definite term or particular undertaking specified in the
agreement.
ii. by the express will of any partner, who must act in good faith, when no definite term
or particular undertaking is specified.
iii. by express will of all the partners who have not assigned their interests or suffered
them to be charged for their separate debts, either before or after the termination of
any specified term or particular undertaking.
iv. by the expulsion of any partner form the business bona fide in accordance with such
a power conferred by the agreement between the partners.
b) in contravention of the agreement between the partners, where the circumstances do
not permit a dissolution under any other provision of this article, by the express will of
any partner at any time.
c) by any 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.
7.1.8 DISSOLUTION AND WINDING UP
d) when a specific thing which a partner had promised to contribute to the partnership,
perishes before the delivery.
Dissolution and Winding Up
Dissolution - is the change in the relation of the partners caused by any partner ceasing to
be associated in the carrying on of the business.
e) by the death of any partner
f) by the insolvency of any partner or of the partnership
g) by the civil interdiction of any partner
77
2. Judicial dissolution (requires order of the court)
a) a partner has been declared insane or is shown to be of unsound mind
a) where the partnership is dissolved because it is unlawful to carry on the business,
unless the act is appropriate for winding up partnership affairs; or
b) a partner becomes in any other way incapable of performing his part of the
partnership contract
b) where the partner has become insolvent; or
c) where the partner has no authority to wind up partnership affairs provided that a
notice has been given to third persons, except by a transaction with one who:
i. had extended credit to the partnership prior to dissolution and had no knowledge or
notice of his want of authority; or
ii. had not extended credit to the partnership prior to dissolution, and, having no
knowledge or notice of his want of authority, the fact of his want of authority has not
been advertised in the manner provided for advertising the fact of dissolution.
c) a partner has been guilty of such conduct as tends to affect prejudicially the carrying
on of the business
d) a partner willfully or persistently commits a breach of the partnership agreement, or
otherwise so conducts himself in matters relating to the partnership business that it is
not reasonably practicable to carry on the business in partnership with him
e) the business of the partnership can only be carried on at a loss
Manner of winding up
1. Extrajudicial-by the partners themselves without the intervention of the court.
f) other circumstances render dissolution equitable.
g) on the application of the purchaser of a partner's interest:
i. after the termination of the specified term or particular undertaking; or
ii. at any time if the partnership was a partnership at will when the interest was
assigned or when the charging order was issued.
2. Judicial-under the control and direction of the court upon proper cause shown by any
partner, his legal representative or his assignee.
Persons authorized to wind up
1. Partners designated by the agreement;
2. In the absence of such agreement, all partners who have not wrongfully dissolved
the partnership; or
3. Legal representative of las surviving partner not insolvent.
The general rule is dissolution terminates all authority of any partner to act for the
partnership, except:
a)
acts necessary to wind up partnership affairs
b)
acts necessary to complete transactions begun but unfinished.
The liabilities of the partnership shall rank in order of payment, as follows:
a) those owing to creditors other than partners
b) those owing to partners other than for capital and profits
c) those owing to partners in respect of capital
d) those owing to partners in respect of profits
When dissolution is not by act, insolvency or death of a partner, dissolution terminates the
actual authority of a partner to undertake new business for the partnership
When dissolution is by act, insolvency or death of partner, authority of partners to act
for the partnership is not deemed terminated, except:
a)
the cause of dissolution is the act of a partner and the acting partner had
knowledge of such dissolution.
b)
the cause of dissolution is the death or insolvency of a partner and the
acting partner had knowledge or notice of such dissolution.
7.1.9 LIMITED PARTNERSHIP
The partnership is in no case bound by any act of a partner after dissolution:
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Limited Partnership
- is one formed by two or more persons having as members one or more general partners
and one or more limited partners.
- it must be in writing and registered with the SEC for its validity,
- must contain the word limited or Ltd.
A limited partner may loan money to and transact other business with the
partnership, except:
1. receive or hold as collateral security any partnership property, or
2. prior to the time when the limited partner became such, the business had been carried on
under a name in which his surname appeared.
Characteristics:
1. A limited partnership is formed by compliance with the statutory requirements
Additional limited partners may be admitted upon filing an amendment to the original
certificate of limited partnership.
2. One or more general partners control the business and are personally liable to
creditors
A limited partner may loan money to and transact other business with the
partnership, except:
1. receive or hold as collateral security any partnership property, or
2. receive from a general partner or the partnership any payment, conveyance, or release
from liability if at the time the assets of the partnership are not sufficient to discharge
partnership liabilities to third persons.
3. One or more limited partners contribute money or property, but not services, to the
capital and share in the profits but do not participate in the management of the
business and are not personally liable for partnership obligations beyond their
capital contributions
Rights of a limited partner:
1. to require that the partnership books be kept at the principal place of business of
the partnership;
4. The limited partners may ask for the return of their capital contributions under the
conditions prescribed by law.
2. to inspect and copy at a reasonable hour partnership books or any of them;
5. The partnership debts are paid out of the common fund and the individual
properties of the general partners.
3. to demand true and full information of all things affecting the partnership;
4. to demand a formal account of partnership affairs whenever circumstances render
it just and reasonable;
5. to ask for dissolution and winding up by decree of court;
6. to receive a share of the profits or other compensation by way of income; and
7. to receive the return of his contribution provided the partnership assets are in
excess of all its liabilities
The surname of a limited partner shall not appear in the partnership name, otherwise
he will be liable as a general partner, unless:
1. 1. it is also the surname of a general partner, or
2. prior to the time when the limited partner became such, the business had been carried on
under a name in which his surname appeared.
Additional limited partners may be admitted upon filing an amendment to the original
certificate of limited partnership.
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Substituted limited partner
- a limited partner's interest is assignable. A substituted 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.
- an assignee shall have the right to become a substituted limited partner if all the
members consent thereto or if the assignor, being thereunto empowered by the
certificate, gives the assignee that right.
- an assignee becomes a substituted limited partner when the certificate is appropriately
amended.
3. an additional limited partner is admitted or a person is admitted as general partner;
4. a general partner retires, dies, becomes insolvent, insane, is sentenced to civil
interdiction;
5. there is a change in the character of the business of the partnership:
6. there is false or erroneous statement in the certificate;
7. there is change in the time stated in the certificate for dissolution or for return of
contribution; and
8. the members desire to make a change in any other statement in the certificate in order
that it shall accurately represent the agreement among them.
A limited partner shall not receive from a general partner or out of partnership
property any part of his contributions until:
1. all liabilities of the partnership, except liabilities to general partners and to limited partners
on account of their contributions, have been paid or there remains property of the
partnership sufficient to pay them;
3. the certificate is cancelled or so amended as to set forth the withdrawal or reduction.
Causes of dissolution of a limited partnership:
1. retirement, insolvency, death, insanity, or civil interdiction of a general partner;
2. when all the limited partners ceased to be such;
3. expiration of the term or period of existence of the partnership:
4. by agreement of all partners before the lapse of the period of existence;
5. misconduct of a general partner or fraud committed by a general partner against the
limited partner/s; or
6. when the limited partner demanded the return of his contribution but same was
unjustifiably denied.
A limited partner may rightfully demand the may rightfully dema return of his
contribution:
1. on the dissolution of a partnership; or
Effect of retirement, death, civil interdiction, insanity, or insolvency of a partner
1. General partner - partnership is dissolved.
2. Limited partner - partnership is not dissolved except if there is no more limited partner
2. when the date specified in the certificate for its return has arrived, or
Order of payment of liabilities
1. those to creditors, including limited partners
2. those to limited partners by way of their share of the profits and other compensation by
way of income on their contributions
3. those to limited partners in respect to the capital of their contributions
4. those to general partners other than for capital and profits
5. those to general partners in respect to profits
6. those to general partners in respect to capital
2. the consent of all members is had, unless the return of the contribution may be rightfully
demanded under the provisions of the second paragraph; and
3. after he has six months' notice in writing to all other members, if no time is specified in the
certificate, either for the return of the contribution or for the dissolution of the partnership.
In the following cases, a certificate of limited partnership shall be amended:
1. there is change in the name or the partnership or in the amount or character of the
contribution of any limited partner;
2. a person is substituted as limited partner;
80
4. Domestic – one incorporated under Philippine laws.
CORPORATIONS
5. Foreign – one formed, organized, or existing under any laws other than those of
the Philippines.
7.2.1 Definition of Corporation
A corporation is an artificial being created by operation of law having the right of
succession and the powers, attributes and properties expressly authorized by law or incident
to its existence.
6. Corporation aggregate – one composed of more than one member or corporator.
7.Corporation sole – consists of one member or corporator and his successors.
●
AN ARTIFICIAL BEING
a person created by law or by state; legal fiction.
● CREATED BY LAW
its existence is dependent upon the consent or grant of the state EXCEPT
corporation by estoppel and de facto corporation.
●
8. Religious corporations, sole or aggregate – organized, either as sole or
aggregate, to administer properties of the church.
9. Ecclesiastical – organized for religious purposes
WITH RIGHT OF SUCCESSION (“Strong Juridical Personality”)
10. Lay – organized for a purpose other than religious.
The corporation exists despite the death of its members as a corporation has a
personality separate and distinct from that of its individual stockholders. The separate
personality remains even if there has been a change in the members and stockholders of
the corporation.
●
11. Eleemosynary – organized for charitable purposes.
12. Civil – are those than ecclesiastical and eleemosynary, whether public or private.
HAS THE POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY
AUTHORISED BY LAW OR INCIDENT TO ITS EXISTENCE (“Creature of Limited
Powers”)
13. Close – one wherein all the outstanding stock is owned by the persons who are
active in management and conduct of the business..
14. Open – one in which all the members or corporations have a vote in the election
of the directors and other officers.
7.2.2 Classes of Corporation
1. Quasi-corporations – from the word “quasi”, meaning “as if”, are entities that are
not absolutely corporations but are considered as if they were.
15. Multinational – one having been created or organized in one state conducts
business or activities across national boundaries but subject to the legal sanctions of the
countries in which they operate.
2. Quasi-public – are entities engaged in rendering basic services of such public
importance as to entitle them to certain privileges like eminent domain or use of public
property.
16. Non-profit – organized without contemplation of gains, profits or dividends to
their members on invested capital.
3. Government-owned or controlled – are entities organized by the government or
corporations of which the government is a majority stockholder.
81
17. De Jure – one created in strict or substantial conformity with the statutory
requirements for incorporation and whose right to exist as a corporation cannot be
successfully attacked even in a direct proceeding for that purpose by the State.
Corporation is civilly liable in the same manner as natural persons for torts. As a
separate juridical personality, a corporation can be held liable for torts committed by its
officers for corporate purpose.
7.2.3 Nationality of Corporation
Corporate tort - consists in the violation of a right given or the omission of a duty
imposed by law; a breach of legal duty.
7.2.3.1 Control Test
Nationality is determined by the nationality of the majority stockholders, wherein
control is vested. Shares belonging to corporations or partnerships with at least 60 percent
of the capital which is owned by Filipino citizens shall be considered as of Philippine
nationality.
Liability for Crimes
General Rule: Corporations cannot commit felonies punishable under the RPC for it
is incapable of the requisite intent to commit these crimes. Also, crimes are personal
in nature requiring personal performance of overt acts. Finally, a corporation cannot
be arrested and imprisoned; hence, cannot be penalised for a crime punishable by
imprisonment
Exception:
If the crime is committed by a corporation, the directors, officers, employees
or other officers thereof responsible for the offense shall be charged and penalized
penalized for the crime, precisely because of the nature of the crime and the penalty
therefore. A corporation cannot be arrested and imprisoned; hence, cannot be
penalized for a crime punishable by imprisonment. However a corporation may be
charged and prosecuted for a crime if the imposable penalty is fine.
7.2.3.2 Grandfather Rule
Shares belonging to corporations or partnerships at least 60% of the capital of which
is owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as of Philippine
nationality.
Example:
Silahis International Hotel, the capital stock of which is 69% owned by another
corporation Hotel Properties Inc. and 31% owned by Filipinos. Hotel Properties in turn is
55% alien-owned and 45% Filipino-owned. The SEC through the GFR stated that Silahis
International Hotel can engage in partly nationalized business because the Filipino equity in
said corporation is 62.05% while the foreign equity in said corporation is 37.95%.
7.2.4.1.2 Recovery of Damages
7.2.4 Corporate Juridical Personality
Recovery of Moral Damages
Moral damages cannot be awarded in favor of corporations because they do not
have feelings and mental states.
They may not even claim moral damages for
besmirched reputation
Exception: A corporation can recover moral damages under Art. 2219 (7) if it
was the victim of defamation.
7.2.4.1 Doctrine of Separate Juridical Personality
A corporation has personality separate and distinct from that of its stockholders and
members and is not affected by the personal rights, obligations, and transactions of the
latter
7.2.4.1.1 Liability for Tort and Crimes
7.2.4.2 Doctrine of Piercing the Corporate Veil
Liability for Tort
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This doctrine means that the court may disregard the separate and distinct
personality of the corporation from its members or stockholders and treat the
corporation as a mere collection of individuals or an aggregation of persons
undertaking business as a group especially when the corporate legal entity is used as
a cloak for fraud or illegality.
(ii) In fraud cases, when it is used to justify a wrong, protect fraud, or defend a crime; and
(iii) In alter-ego cases, where the corporation's separate personality is not bona fide, such
that it is only a conduit of another person, or its business is controlled or maintained as a
mere agency or adjunct of another, that it has no mind or will of its own.
(LawPhil)
It is used whenever a court finds that the corporate fiction is being used to defeat
public convenience, justify wrong protect fraud, or defend crime or confused legitimate
issues, or that a corporation is so organized and controlled and its affairs are so conducted
as to make it nearly and instrumentality agency conduit or adjunct or another corporation.
(Soriano, Manuel and )
Group 2 - Group ni Daina
7.2.5 Capital structure
7.2.6 Incorporation and organization
7.2.6.10 Effects of non-use of corporate charter
7.2.4.2.1 Grounds for Application of Doctrine:
Abbreviations Guide:
1. OPC - One Person Corporation
2. AOI - Articles of Incorporation
3. RCC - Revised Corporation Code
4. COI - Certificate of Incorporation
5. SEC - Securities and Exchange Commission
i. If done to defraud the government of taxes due it.
ii. If done to evade payment of civil liability.
iii. If done by a corporation which is merely a conduit or alter ego of another
corporation.
iv. If done to evade compliance with contractual obligations.
v. If done to evade compliance with financial obligation to its employees
●
For fraud, grounds to hold sway in this case, there must be proof that he she had control or
complete dominion of the corporation's finances, policies, and business practices; he/she
used such control to commit fraud.
(Judiciary.gov.ph/Supreme Court E-Library)
In cases where the doctrine of piercing the veil of corporate fiction is applied, the concept of
the corporation having a separate juridical personality shall be set aside. (Soriano)
Capital Structure
○ Incorporators - those mentioned in the articles of incorporation originally
forming and composing the corporation and who are signatories thereof.
-Qualifications:
a. Natural or judicial person not suffering from legal incapacity
b. Not more than 15 persons (1-15 persons)
c. In stock corporation, each must own or subscribe to at least
one share; and in a nonstock corporation, he must be a
member
7.2.4.2.2 Test in Determining Applicability:
*Natural persons who are licensed to practice a profession, and partnerships
or associations organized for the purpose of practicing a profession, shall
not be allowed to organize a corporation.
The doctrine of piercing the corporate veil applies in three (3) instances:
(i) When the corporation's separate personality is being used to defeat public convenience,
such as in evading existing obligations;
*One Person Corporation (OPC) - A corporation with a single stockholder.
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*Industries/activities where the law requires a certain minimum, or full, Filipino
ownership requirement, such as:
1. Mass Media - 100% Filipinos
2. Advertising - at least 70% Filipinos
3. Public Utility, Educational Institution, Exploration, evaluation and
development of natural resources- at least 60% Filipinos
4. Ownership of land - 60% of the stockholders of the corporation must
be Filipinos
○
○
g. After 5 consecutive years of being inactive after commencement - the
corporation will be under delinquent status; failure to comply, revoked.
○
Subscription requirements
- no minimum capital required for stock corp.
- no minimum amount of capital stock to be subscribed and paid for the
purpose of incorporation; double 25% is applicable only as to the
increase of authorized stock.
Classification of shares
- Preferred shares
*holders are entitled to certain
preferences over common shares
rights,
or
preference
*no voting rights
*priority over dividends
dividends
-
Corporate term
a. Perpetual, unless otherwise stated in the AOI.
b. Existing corporations with COI issued prior to the effectivity of the
RCC, shall have perpetual existence, unless the corporation, upon a
vote of its stockholders representing a majority of its outstanding
capital stock, notifies the Commission that it elects to retain its specific
corporate term pursuant to its articles of incorporation.
c. A corporate term for a specific period may be extended or
shortened by amending the AOI.
d. No extension may be made earlier than three (3) years prior to the
original or subsequent expiry date(s) unless there are justifiable
reasons.
e. A corporation whose term has expired may apply for a revival of its
corporate existence, together with all the rights and privileges under
its certificate of incorporation. Upon approval by the SEC, the
corporation shall be deemed revived and a certificate of revival of
corporate existence shall be issued.
f. After 5 years of non-commencement after incorporation - COI shall
be deemed revoked.
vs.
Common shares
*ordinary ; without
extraordinary
privileges,
*with voting rights
*residual
on
Scope of voting rights subject to classification
● Voting shares - shares with a right to vote.
*There shall always be a class or series of shares which have
complete voting rights.
●
Non-voting shares - shares without right to vote.
*The law only authorizes the denial of voting rights in the case
of redeemable shares and preferred shares which must be
expressly denied in the articles of incorporation.
*Holders of non-voting shares shall nevertheless be entitled to
vote on the following matters:
a. Amendment of the articles of incorporation;
b. Adoption and amendment of bylaws;
c. Sale, lease, exchange, mortgage, pledge, or other
disposition of all or substantially all of the corporate property;
d. Incurring, creating, or increasing bonded indebtedness;
e. Increase or decrease of authorized capital stock; f. Merger
or consolidation of the corporation with another corporation or
other corporations;
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f. Investment of corporate funds in another corporation or
business in accordance with the Code; and
g. Dissolution of the corporation.
-
●
*Limitations
a. cannot be issued by banks, trust, insurance, preneed
companies, public utilities, buildings and loan associations, and other
corporations authorized to obtain or access funds from the public;
Founder’s shares -those shares issued to the founders of the
corporation which are given certain rights and privileges such as
the exclusive right to vote and be voted for in the election of directors ,
for a period not to exceed 5 years, subject to the approval of SEC.
-
Redeemable shares - shares which may be purchased by the
corporation from the holders of such shares upon the expiration of a
fixed period.
-
Treasury shares - shares which have been earlier issued and fully
paid and thereafter acquired by the corporation through purchase,
donation, redemption or through some other lawful means.
- there must be unrestricted retained earnings
in its books to cover the shares to be acquired.
b. not less than P5.00;
c. The entire consideration for its issuance constitutes capital so that no part of it should be
distributed as dividends;
d. cannot be issued as preferred stocks;
e. The articles of incorporation must state the fact that it issued no par value shares as well
as the number of said shares; and
f. Once issued, they are deemed fully paid and non-assessable.
○
Incorporation and Organization
○ Promoter - a person who, acting alone or with others, takes initiative in
founding and organizing the business or enterprise of the issuer and receives
consideration thereof.
○ Subscription contract - a formal agreement between a company and an
investor to buy shares of a company at an agreed-upon price.
○ Pre-incorporation subscription agreement
- An agreement between an individual and promoters of a corporation
where a promise is made by the individual to the promoters stating the
number and class of shares that the individual will take when the
promoters create the corporation.
○ Consideration for stocks:
a. Par value shares - shares with a value fixed in the articles of
incorporation and the certificates of stock.
b. No par value shares - shares having no par value. The issued value
will be fixed by the Board of Directors and stated in the certificate or
articles of incorporation.
85
Articles of Incorporation
■ Contents
1. Name of the corporation - not similar or confusingly similar to
any other name already registered
2. Purpose - if more than one, state which is the primary and
secondary purpose/s.
3. Place of principal office - must be within the Philippines; not
necessarily the place of operations.
4. Term - perpetual, unless otherwise stated.
5. Incorporators
6. Trustees/Directors
7. For stock corporations:
a. The authorized capital stock,
b. Number of shares into which it is divided,
c. The par value of each share,
d. Names, nationalities, and residence addresses of the
original
subscribers,
e. Amount subscribed and paid by each on the subscription,
and
f. A statement that some or all of the shares are without par
value, if applicable
○
○
○
Non-amendable items [accomplished facts (fait accompli)]:
accomplished facts (fait accompli), therefore, cannot be amended:
1. The names, nationalities and residences of the incorporators.
*To allow an amendment would mean going against the definition of
"incorporator".
2. Treasurer-in-trust
3. First set of directors or trustees
4.Original stock subscriptions and paid-in capital
5. Place and date of execution
6. Witnesses
-
Registration, Incorporation and Commencement of Corporate Existence
1. Submit the intended corporate name to the Commission for
verification. If distinguishable from an already reserved/registered
corporation, not contrary to law, rules and regulations, the name shall
be reserved in favor of the incorporators. The incorporators shall then
submit their AOI and by-laws to the Commission
2. If the Commission finds that the submitted documents and information
are fully compliant with the requirements of the RCC, other relevant
laws, rules and regulations, the Commission shall issue the COI.
3. Commencement of its corporate existence and juridical personality upon the issuance of COI.
○
Election of directors or trustees
- At all elections of directors or trustees, there must be present, either in
person or through a representative authorized to act by written proxy,
the owners of majority of the outstanding capital stock, or if there be
no capital stock, a majority of the members entitled to vote. When so
authorized in the bylaws or by a majority of the board of directors, the
stockholders or members may also vote through remote
communication or in absentia: Provided, That the right to vote through
such
modes may be exercised in corporations vested with public interest,
notwithstanding the absence of a provision in the bylaws of such
corporations.
86
A stockholder or member who participates through remote
communication or in absentia, shall be deemed present for purposes
of quorum.
The election must be by ballot if requested by any voting stockholder
or member.
Methods of Voting
1. Straight voting - every stockholder may vote such a number of
shares for as many persons as there are directors to be elected.
2. Cumulative Voting for One Candidate - a stockholder is allowed
to concentrate his votes and give to one candidate.
3. Cumulative Voting by Distribution- a stockholder is allowed to
concentrate his votes and distribute them among as many candidates
as he deems fit.
Adoption of by-laws
1. Before incorporation - the by-laws shall be approved and
signed by all the incorporators and submitted to the SEC,
together with the articles of incorporation.
2. After incorporation - the affirmative vote of the stockholders
representing at least a majority of the outstanding capital
stock, or of at least a majority of the members in case of
nonstock corporations, shall be necessary.
● Contents of by-laws
(a) The time, place and manner of calling and conducting regular or
special meetings of the directors or trustees;
(b) The time and manner of calling and conducting regular or
special meetings and mode of notifying the stockholders or members
thereof;
(c) The required quorum in meetings of stockholders or members
and the manner of voting therein;
(d) The modes by which a stockholder, member, director, or trustee
may attend meetings and cast their votes;
(e) The form for proxies of stockholders and members and the
manner of voting them;
(f) The directors’ or trustees’ qualifications, duties and
responsibilities, the guidelines for setting the compensation of
directors or trustees and officers, and the maximum number of other
board representations that an independent director or trustee may
have which shall, in no case, be
more than the number prescribed by the Commission;
(g) The time for holding the annual election of directors or trustees
and the mode or manner of giving notice thereof;
(h) The manner of election or appointment and the term of office
of all officers other than directors or trustees;
(i) The penalties for violation of the bylaws;
(j) In the case of stock corporations, the manner of issuing stock
certificates; and
(k) Such other matters as may be necessary for the proper or
convenient transaction of its corporate affairs for the promotion of
good governance and anti-graft and corruption measures.
●
○
○
After 5 years of non-commencement after incorporation COI shall be deemed revoked.
After 5 consecutive years of being inactive after
commencement - the corporation will be under delinquent
status; failure to comply, revoked.
CORPORATE POWERS
A corporation has no power except those expressly conferred on it by the Corporation Code
and those that are implied or incidental to its existence.
Corporation powers are exercise through its:
a. Board of directors; and/or
b. Duly authorized officers and agents
Note: Physical acts of corporation can be performed only by natural persons duly
authorized by corporate bylaws or by a specific act of the board of directors.
Binding effects
- The provisions of the Bylaws are binding not only upon the
corporation but also on its stockholders, members and those
having direction, management and control of its affairs.
- The by-laws of a corporation are valid if they are reasonable
and calculated to carry into effect the objects of the
corporation, and are not contradictory to the general policy of
the laws of the land.
7.2.7.1 General Powers; Theory of General Capacity
General Powers
Every corporation has the power and capacity:
●
●
Amendment - “double-majority”
- a majority of the board of directors or trustees, and the
owners of at least a majority of the outstanding capital stock,
or at least a majority of the members of a nonstock
corporation, at a regular or special meeting duly called for the
purpose, may amend or
repeal the bylaws or adopt new bylaws.
a. To sue and be sued in its corporate name;
b. To have perpetual existence; Unless the certificate of incorporation provides
otherwise
c. To adopt and use a corporate seal;
d. To amend its articles of incorporation in accordance with the provisions of this
Code;
Effects of non-use of corporate charter
87
e. To adopt bylaws, and to amend or repeal the same in accordance with this Code;
Must not be contrary to law, morals or public policy
f.
Kinds of Corporate Powers
In case of stock corporations: To issue or sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this Code; and
I.
Express Powers - such powers as are expressly granted by law and its articles of
incorporation;
II.
Incidental Powers - Those which may be incident to its existence as a juridical
entity.
III.
Implied Powers - those reasonably necessary to accomplish its purposes, as stated
in its articles of incorporation; and
In case of non-stock corporations: To admit members to the corporation;
g. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and
otherwise deal with such real and personal property, including securities and
bonds of other corporations;
●
●
Note: Such implied powers are deemed to exist because of the following provisions:
As the transaction of the lawful business of the corporation may reasonably
and necessarily require
Subject to the limitations prescribed by law and the Constitution
a. “Except such as are necessary or incidental to the exercise of the powers so
conferred” [Sec.44]
b. “Such powers as are essential or necessary to carry out its purpose or
purposes as stated in the Articles of Incorporation” [Sec. 35 (k)]
h. To enter, with natural and juridical persons, into a:
1. Partnership, (Note: New in the RCC)
2. Joint venture, (Note: New in the RCC)
3. Merger,
4. Consolidation, or
5. Any other commercial agreement
i.
The Theory of General Capacity states that a corporation is said to hold such powers as
are not prohibited or withheld from it by general law.
7.2.7.2 Specific Powers; Theory of Specific Capacity
To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes:
The Theory of Specific Capacity states that the corporation cannot exercise powers
except those expressly/impliedly given.
Provided, That no foreign corporation shall give donations in aid of any political party
or candidate or for purposes of partisan political activity;
Under the Theory of Specific Capacity, the specific powers of a corporation are as follows:
Note: Under the OLD Corporation Code, both domestic and foreign corporations
were prohibited from giving donations in aid of any political party or candidate or for
purposes of partisan political activity.
j.
a. Power to extend or shorten corporate term
b. Power to increase or decrease capital stock, or incur, create, increase bonded
indebtedness
c. Power to deny pre-emptive rights
d. Power to sell or dispose corporate assets
e. Power to acquire own shares
f. Power to invest corporate funds in another corporation or business, or for any
other purpose
To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers, and employees; and
k. To exercise such other powers as may be essential or necessary to carry out its
purpose or purposes as stated in the articles of incorporation.
88
g. Power to declare dividends
h. Power to enter into management contract
i. Power to amend AOI
a. Deposited to the addressee in the post office with postage prepaid, served
personally, or
b. Sent electronically in accordance with the rules and regulations of the
Commission on the use of electronic data messages,when allowed in the
by-laws or done with the consent of the stockholder.
7.2.7.3 Power to Extend or Shorten the Corporate Term
Exercise of Appraisal Right
A private corporation may extend or shorten its term as stated in the articles of
incorporation.
In case of extension of corporate term, a dissenting stockholder may exercise the right of
appraisal under the conditions provided in this Code.
Perpetual existence under the RCC applies to existing corporations. AOIs shall be deemed
amended to reflect its perpetual term, unless the corporation elects to retain its limited term
[Herbosa, 2019].
An extension of corporate term actually novates the corporate contract with each
shareholder by extending the corporate relationship beyond the original term.
When Exercised
Shortening the corporate term DOES NOT trigger the right of appraisal because there would
be no violation of the original contractual intent, since shortening would mean the early
realization of the value of the shares of a dissenting stockholder with the dissolution of the
corporation. [Villanueva]
Period to extend the corporate term has been reduced by the RCC to three years before
expiration.
When the term expires, it is not ipso facto dissolved but may apply for a revival of its
corporate existence. [Divina, 2020]
7.2.7.4 Power to Increase or Decrease Capital Stock or Incur, Create, Increase
Bonded Indebtedness
Note: Dissenting shareholders may exercise their appraisal right in case of extending
corporate term but cannot be exercised in case of shortening the corporate term.
A corporation may increase or decrease its capital stock or incur, create or increase any
bonded indebtedness.
Requirements
Note: Appraisal rights can be exercised only if the increase of capital stock results in or
has the effect of changing or restricting the rights of any stockholder or class or shares, or
of authorizing preferences in any respect superior to those of outstanding shares of any
class.
1. Approval by majority vote of the board of directors or trustees, and
2. Ratification at a meeting by the stockholders or members representing at least
two-thirds (2/3) of the outstanding capital stock or of its members.
3. Notice Requirement – Written notice of the proposed action and the time and place
of the meeting shall be:
Power to Increase or Decrease Capital Stock
i. Sent to stockholders or members at their respective place of residence as shown in
the books of the corporation, and
An increase or decrease of the capital stock amends the underlying contractual relationships
between and among members of the corporation.
ii. Either:
Power to Incur, Create, or Increase Bonded Indebtedness
89
Bonded indebtedness are long term debts of the corporation, secured by mortgage on real
or personal property of the corporation, which are:
a. Structured in denominated units of indebtedness
b. Intended to eventually circulate within the investing public as securities, representing
units of investment
iii. The amount of capital stock or number of no-par stock subscribed by each,
and
iv. The amount paid by each on the subscription in cash or property, or the
amount of capital stock or number of shares of no-par stock allotted to each
stockholder, if such increase is for the purpose of making effective stock
dividend therefor authorized;
Thus, the power to incur, create, or increase bonded indebtedness is a form of distributing
liability securities to the public, and constitutes an aspect of the inherent power of every
corporation to borrow or to incur loan obligations. [Villanueva]
d. Any bonded indebtedness to be incurred, created or increased;
e. The amount of stock represented at the meeting; and
f. The vote authorizing the increase or decrease of the capital stock, or the
incurring, creating or increasing of any bonded indebtedness.
Requirements
1. Approval by a majority vote of the board of directors or trustees
5. Sworn Statement of the Treasurer – A sworn statement of the corporation’s
treasurer must accompany the filing of the certificate, and it must show that:
2. Approval by two-thirds (2/3) of the outstanding capital stock or at least two-thirds
(2/3) of the members at a stockholders’ meeting duly called for the purpose
a. At least twenty-five percent (25%) of the increase in capital stock has been
subscribed; and
b. At least twenty-five percent (25%) of the amount subscribed has been
paid in actual cash to the corporation or that property, the valuation of which
is equal to twenty-five percent (25%) of the subscription, has been
transferred to the corporation
3. Notice Requirement – Written notice of the time and place of the stockholders’
meeting and the purpose for said meeting must be:
i. Sent to the stockholders at their places of residence as shown in the books of the
corporation and
ii. Served on the stockholders personally, or through electronic means recognized in
the corporation’s by-laws and/or the Commission’s rules as a valid mode for service
of notices.
Note: A treasurer’s affidavit is required in an increase of capital stock, not in a
decrease in capital stock.
6. Prior SEC Approval – The application with the Commission shall be made within
six (6) months from the date of approval of the board of directors and stockholders,
which period may be extended for justifiable reasons.
4. Certification Requirement – A certificate must be signed by a majority of the
directors of the corporation and countersigned by the chairperson and secretary of
the stockholders’ meeting, setting forth:
a. That the requirements of this section have been complied with;
b. The amount of the increase or decrease of the capital stock;
c. In case of an increase of the capital stock:
7. Prior PCC Approval – Where appropriate, prior approval of the Philippine
Competition Commission is required for any increase or decrease in the capital
stock or the incurring, creating or increasing of any bonded indebtedness.
i. The amount of capital stock or number of shares of no-par stock thereof
actually subscribed,
8. SEC Registration – Applicable only to bonds issued by a corporation.
ii. The names, nationalities and addresses of the persons subscribing,
After approval and the issuance by the Commission of its certificate of filing:
90
1. The capital stock shall be deemed increased or decreased; and
2. The incurring, creating or increasing of any bonded indebtedness authorized, as
the certificate of filing may declare. Provided, That:
a. The Commission shall not accept for filing any certificate of increase of
capital stock unless accompanied by a sworn statement of the treasurer (with
the abovementioned contents)
b. No decrease in capital stock shall be approved by the Commission if its effect
shall prejudice the rights of corporate creditors.
7.2.7.5 Power to deny pre-emptive rights
What is a pre-emptive right?
It is the preferential right of all stockholders of a stock corporation to subscribe to all
issues or disposition of shares of any class, in proportion to their respective
shareholdings.
Note: Pre-emptive right must be exercised within the period stated in the articles of the
incorporation or the by-laws.
Copies of the certificate of the increase/decrease in capital shall:
1. Be kept on file in the office of the corporation and
2. Filed with the Commission and
3. Attached to the original articles of incorporation.
Purpose: To enable the shareholder to retain his proportionate control in the corporation.
General Rule: All shareholders of a stock corporation have the pre-emptive right to
subscribe to all issues or disposition of shares of any class, in proportion to their respective
shareholdings.
Exercise of Appraisal Right
A. In Cases of Increase or Decrease of Capital Stock
Exception: If such right is denied by the AOI or an amendment thereto. [Sec. 38]
Increase of Capital Stock: The right of appraisal can be exercised because it has the
potential effect of diluting the proportionate interest of a stockholder in the corporation.
“All issues” of shares extends to BOTH issuances of:
-
Even with the existence of the pre-emptive right, there is no guaranty that the stockholder
can preserve his proportional interest, since he might not have the financial resources to
exercise his pre-emptive right on the increase.
New shares resulting in an increase in capital stock; and
Previously unsubscribed shares which formed part of the existing capital stock
For close corporations: The pre-emptive rights extend to all stock to be issued, including
reissuance of treasury shares, whether for money, property or personal services, or in
payment of corporate debts, unless the AOI provides otherwise. [Sec. 101]
Decrease of Capital Stock: The right of appraisal CANNOT be exercised since the
decrease would result in returning part of the investments of the stockholders, including
dissenting stockholders. [Villanueva]
B. In Cases of Incurring, Creating or Increasing Bonded Indebtedness
Note: Pre-emptive right can only be exercised to the same class of shares issued or
disposed of with that owned by the stockholder (share-a-like basis).
The appraisal right CANNOT be exercised by dissenting stockholders when the corporation
validly incurs, creates, or increases bonded indebtedness.
To allow them to do so would drain the financial resources of the corporation, which is
contrary to the purpose for which the power is exercised, which is to raise funds for
corporate affairs. [Villanueva]
Requirements:
91
1. Written notice of the proposed action and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence as shown on the
books of the corporation and deposited to the addressee in the post office with postage
prepaid, or served personally, or when allowed by the bylaws or done with the consent of
the stockholder, sent electronically;
7.2.7.6 Power to sell or dispose corporate assets
A corporation may sell, lease, exchange, mortgage, pledge, or otherwise dispose of its
property and assets:
●
2. Approval by the majority vote of its board of directors; and
3. Ratification at a meeting by the stockholders or members representing at least 2/3 of
the outstanding capital stock.
POWER TO DENY PRE-EMPTIVE RIGHT
●
Pre-emptive right is not available in the following:
1. Shares to be issued in compliance with laws requiring stock offerings or minimum stock
ownership by the public;
For such consideration as its board of directors or trustees may deem expedient,
which may be:
○ Money
○ Stocks
○ Bonds, or
○ Other instruments for the payment of money or
○ Other property or consideration
Subject to the provisions of Republic Act No. 10667, otherwise known as “Philippine
Competition Act”, and other related laws.
Requisite: A majority vote of its board of directors or trustees. [Sec. 39]
Substantially all of the corporate assets
2. Shares to be issued in good faith with the approval of the stockholders representing 2/3
of the outstanding capital stock, in exchange for property needed for corporate purposes
or in payment of a previously contracted debt;
A corporation may sell all or substantially all of the properties and assets, including its
goodwill. [Sec. 39]
3. In case the right is denied in the Articles of Incorporation;
The determination of whether or not a sale or other disposition shall be deemed to cover all
or substantially all of the corporation’s properties and assets must be:
4. If one shareholder does not want to exercise his pre-emptive right, the other
shareholders are not entitled to purchase the corresponding shares of the shareholder
who declined.
1. Computed based on its net asset value, as shown in its latest financial statements.
2. Assessed whether the corporation would be rendered incapable of continuing the
business or accomplishing the purpose for which it was incorporated. [Sec. 39]
Note: Pre-emptive rights apply if nobody purchased the same and later on the board
re-issued the shares.
Requirements:
Amendment of the AOI to Deny Pre-emptive Right
1. Written notice of the proposed action and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence as shown on the
books of the corporation and deposited to the addressee in the post office with postage
Such amendment to the AOI to deny pre-emptive right may trigger the exercise of a
dissenting stockholder of his appraisal right. This is because such amendment prevents the
dissenting stockholder from maintaining his equity interest in the corporation. The test is
whether the company controllers initiated the questioned amendment. [Herbosa, 2019]
92
prepaid, or served personally, or when allowed by the bylaws or done with the consent of
the stockholder, sent electronically;
The transfer should not prejudice the creditors of the assignor
3. Ratification by the vote of the stockholders representing at least 2/3 of the outstanding
capital stock, or in case of non-stock corporation, by the vote of at least to 2/3 of the
members;
The only way the transfer can proceed without prejudice to the creditors is to hold the
assignee liable for the obligations of the assignor. The acquisition by the assignee of all or
substantially all of the assets of the assignor necessarily includes the assumption of the
assignor’s liabilities, unless the creditors who did not consent to the transfer choose to
rescind the transfer on the ground of fraud. [Caltex (Phils.) Inc. v. PNOC Shipping and
Transport Corp, G.R. No. 150711 (2006)]
4. Any dissenting stockholder may exercise his appraisal right.
De facto Merger – Continuity-of-business Enterprise requirement
Abandonment of Sale/Lease/Mortgage
Existence De facto Merger: When a corporation (transferring corporation) exchanges all
or substantially all of its assets for the shares of another (transferee corporation).
2. Approval by the majority vote of its board of directors or trustees;
After obtaining the authorization or approval by the stockholders or members, the board of
directors or trustees may abandon such sale, lease, exchange, mortgage, pledge, or other
disposition of property and assets.
The transferring corporation may later on be dissolved, where the shares of the transferee
corporation will be distributed by way of liquidating dividends to the shareholders of the
transferring corporation.
However, this is subject to the rights of third parties under any contract relating thereto,
without further action or approval by the stockholders or members. [Sec. 39]
The continuity-of-business enterprise requirement is what differentiates a de facto merger
from a voluntary dissolution of a corporation. [Herbosa, 2019]
Where only the approval of a quorum of the BOD/T is required
7.2.7.7 Power to acquire own shares
Corporation is not restricted in its power to sell or dispose of its assets without the
authorization of shareholders or members:
A stock corporation shall have the power to purchase or acquire its own shares for a
legitimate corporate purpose or purposes.
a. If the same is necessary in the usual and regular course of business of the
corporation or
b. If the proceeds of the sale will be appropriated for the conduct of its remaining
business
c. If the transaction does not cover all or substantially all of the assets. [Sec.39]
This corporate power does not need shareholder’s approval. Discretion solely rests on the
board, subject to the existence of unrestricted retained earnings and for a legitimate
corporate purpose/s. [Sec. 40]
Exercise of Appraisal Right
Unrestricted Retained Earnings (URE)
Any stockholder who disagrees from the sale, lease, exchange, mortgage, pledge and any
other disposition may exercise his appraisal right. [Sec. 39].
This is defined as the amount which is:
93
1. The accumulated profits and gains realized out of the normal and continuous
operations of the company AFTER deducting therefrom:
a. Distributions to stockholders and
b. Transfers to capital stock or other accounts, and
2. NOT appropriated by its Board of Directors for corporate expansion projects or
programs;
3. NOT covered by a restriction for dividend declaration under a loan agreement; and
4. NOT required to be retained under special circumstances obtaining in the
corporation such as when there is a need for a special reserve for probable
contingencies. [SEC Memorandum Circular No. 11-08, (December 5, 2008)]
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid
subscription, in a delinquency sale, and to purchase delinquent shares sold during said
sale;
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under
the provisions of this Code;
4. To acquire treasury shares;
5. Redeemable shares regardless of existence of retained earnings;
6. To effect a decrease of capital stock; and
7. In close corporations, when there is a deadlock in the management of the business, the
SEC may order the purchase at their fair value of the shares of any stockholder by a
corporation regardless of the availability of unrestricted earnings in its books, or by the
other stockholders.
General Rule: The corporation may only acquire its own stocks in the presence of URE.
[Sec. 40]
Rationale: Existence of URE is required before a corporation acquires its own shares
because:
What are fractional shares?
Fractional shares are shares which are less than one share.
a. The repurchase of shares is a method of distribution or withdrawal of assets, and is
subject to abuse, as creditors have a right to assume that so long as there are debts
and liabilities, the Board will not use corporate assets to purchase its own stock; and
b. Treasury shares may be availed of to perpetrate control of the enterprise without the
expensive requisite of a majority voting stock. [Villanueva]
Basis of Unrestricted Retained Earnings
The requirement of unrestricted retained earnings to cover the shares is based on the trust
fund doctrine which means that the capital stock, property, and other assets of a
corporation are regarded as equity in trust for the payment of corporate creditors.
Exceptions:
Note: The SEC has exclusive supervision, control, and regulatory jurisdiction to investigate
whether the corporation has unrestricted retained earnings to cover the payment for the
shares and whether the purchase is for a legitimate corporate purpose.
a. Redeemable shares may be acquired even without surplus profit for as long as it will
not result to the insolvency of the corporation;
b. In cases that the corporation conveys its stocks in payment of a debt;
c. In a close corporation, a stockholder may demand the payment of the fair value of
shares regardless of existence of retained earnings for as long as it will not result to
the insolvency of the corporation
7.2.7.8 Power to invest corporate funds in another corporation or business
General Rule: The corporation is not allowed to engage in a business different from those
enumerated in its AOI.
Exception: The purpose will be amended to include the desired business activity among its
secondary purpose.
Instances when a Corporation may Acquire its Own Shares
1. To eliminate fractional shares arising out of stock dividends;
Rules in case a corporation wants to invest in an undertaking
94
a. Investment of a corporation in a business which is in line with its primary purpose
requires only the approval of the board.
Dividends are corporate profits set aside, declared, and ordered to be paid by the
directors for distribution among stockholders at a fixed time.
b. Investment of assets for any of its secondary purposes requires the prior approval
of its shareholders/members
Requirements for the Declaration of Dividends
c. If the investment is outside the purpose/s for which the corporation was
organized, Articles of Incorporation must be amended first, otherwise it will be an
Ultra Vires act.
1. Existence of unrestricted retained earnings
2. Payable in cash, in property, or in stock to all shareholders on the basis of
outstanding stock held by them
3. Resolution by the Board
Requisites:
I.
To accomplish its primary purpose
Additional Requirements for Stock Dividends
1. Approval of the majority of the board of directors or trustees; and
2. The approval of the stockholders or members shall not be necessary.
II.
a. Approved by at least 2/3 of shareholders representing the outstanding capital stock
at a regular/special meeting called for that purpose.
To accomplish a purpose other than the primary purpose
Note: This provision requirement for the declaration of stock dividends underscores
the fact that payment of dividends to a stockholder is not a matter of right but a
matter of consensus. [Republic Planters Bank vs. Hon. Enrique A. Agana, Sr., et.al.,
G.R. No. 51765 (1997)]; and
1. Approval of the majority of the board of directors or trustees;
2. Ratification by the stockholders representing at least 2/3 of the outstanding capital
stock, or by at least 2/3 of the members in the case of non-stock corporations, at a
stockholders or member’s meeting duly called for the purpose;
b. A corporation must also have a sufficient number of authorized unissued shares
for distribution to stockholders.
3. Written notice of the proposed investment and the time and place of the meeting
shall be addressed to each stockholder or member by mall or served personally, or
sent electronically in accordance with the rules and regulations of the Commission
on the use of electronic data message, when allowed by the bylaws or done with the
consent of the stockholders;
Who has the power to declare dividends?
○ Cash/Property Dividends: BOD
○ Stock Dividends: BOD + Approval of the shareholders owning at least 2/3 of the
Outstanding Capital Stock.
4. Any dissenting stockholder shall have appraisal rights.
Limitations on Dividends
1. The right to dividend is based on duly recorded stockholdings.
2. Dividends among stockholders of the same class must always be pro rata equal and
without discrimination and regardless of the time when the shares were acquired.
The right of the stockholder to be paid dividends accrues as soon as the declaration
is made.
7.2.7.9 Power to Declare Dividends
What are dividends?
95
3.
4.
5.
6.
The right to dividend accrues even if there is no SEC approval.
Declaration of dividends is discretionary upon the board of directors.
Dividends cannot be declared out of paid-in surplus and revaluation surplus.
Treasury shares cannot be declared as stock or cash dividends.
III.
Property Dividends are dividends distributed to the stockholders in the form of
property. Stockholders are entitled to dividends pro-rata based on the total number of
shares and not on the amount paid by them in account thereof.
Rule on Shares of Stock Issued to Pay for Services
Prohibition on a Stock Corporation's Unrestricted Retained Earnings
A corporation may legally issue shares of stock in consideration of services rendered to it by
a person not a stockholder, or in payment of its indebtedness. But a share of stock thus
issued should be part of:
General Rule: Stock corporations are prohibited from retaining surplus profits in excess of
100% of their paid-in capital stock.
a. The original capital stock of the corporation upon its organization; or
b. The stocks issued when the increase of the capitalization of a corporation is properly
authorized.
Exceptions:
1. When justified by definite corporate expansion projects or programs approved by the
BOD;
2. When the corporation is prohibited under any loan agreement with any financial
institution or creditor, whether local or foreign, from declaring dividends without its
consent, and such consent has not yet been secured; or
3. When it can be clearly shown that such retention is necessary under special
circumstances obtaining in the corporation (e.g. need for special reserve for probable
contingencies).
Rule on the Receipt of Dividends in case of Mortgaged or Pledged Shares
General Rule: The mortgagor or the pledgor has the right to receive the dividends.
Exception: When the mortgagor or pledgor defaults and the mortgagee or pledgee acquires
the pledged stocks and the transfer is recorded in the books of the corporation, the
mortgagee or pledgee is entitled to receive the dividends.
Forms of Dividends
I.
7.2.7.10 Power to Enter into Management Contract
Cash Dividends are dividends payable in cash. These can be declared by a board
resolution from unrestricted retained earnings.
What is a management contract?
Any cash dividends due on delinquent stock shall first be applied to the unpaid
balance on the subscription plus cost and expenses.
II.
A management contract is an agreement whereby a corporation delegates the
management of its affairs to another corporation for a certain period of time. It is any
contract whereby a corporation undertakes to manage or operate all or substantially all of
the business of another corporation, whether such contracts are called service contracts,
operating agreements or otherwise.
Stock Dividends are payable in unissued additional shares of the corporation.
These are issued by a board resolution and approval of at least 2/3 of shareholders
holding outstanding capital stock.
Note: This refers only to a management contract with another corporation. Hence, it does
not apply to management contracts entered into by a corporation with natural persons.
Stock dividends shall be withheld from the delinquent stockholders until their unpaid
subscription is fully paid.
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Period of Every Management Contract
managed by the BOD. [Villanueva]
General Rule: No management contract shall be entered into for a period longer than 5
years for any one term.
time and resources for the affairs of the
corporation. [Villanueva]
7.2.7.11 Ultra Vires Acts
Exception: Service contracts or operating agreements which relate to exploration,
development, exploitation or utilization of natural resources may be entered into for such
periods as may be provided in the pertinent laws and regulations.
What are Ultra Vires Acts?
Ultra Vires Acts are acts not within the express, implied, and incidental powers of the
corporation conferred by the Revised Corporation Code or its articles of incorporation.
Requirements:
1. Approval by the majority of the quorum of the BOD;
Types of Ultra Vires Acts
1. Acts done outside the express, implied or incidental powers of the corporation as
provided in the law or its articles of incorporation;
2. Ultra Vires acts of officers and not of the corporation (i.e., corporate representatives
who act without authority);
3. Acts or contracts which are contrary to law or public policy.
2. Ratification by the stockholders owning at least the majority of the outstanding
capital stock, or by at least a majority of the members in the case of a non-stock
corporation, of both the managing and the managed corporation, at a meeting duly
called for the purpose; and
3. Approval by the stockholders of the managed corporation owning at least 2/3 of
the total outstanding capital stock entitled to vote, or by at least 2/3 of the members
in the case of a non-stock corporation, in cases of:
Kinds of Ultra Vires Acts by Reason
1. By reason of Lack of Authority
2. By reason of Illegality
a. Interlocking Stockholders:
Stockholders representing the same interest of both the managing and
managed corporations own or control more than 1/3 of the total outstanding
capital stock entitled to vote of the managing corporation; or
Ultra Vires Acts
Lawfulness
b. Interlocking Directors:
A majority of the members of the BOD of the managing corporation also
constitute a majority of the BOD of the managed corporation.
Managed Corporation
Illegal Acts
Not necessarily unlawful, however, not
within the corporate powers conferred by
the Revised Corporation Code or AOI
Unlawful (i.e., contrary to law, morals, good
customs, public order or public policy)
Ratification
Managing Corporation
Can be ratified
Reason as to the need for such ratification:
Cannot be ratified
Binding Power
Such a contract is a deviation from the Such a contract is a deviation from the
principle that corporate affairs shall be principle that the BOD would devote their
Can bind the parties if wholly or partly
executed
97
Cannot bind the parties
b. Executory contracts: No enforcement even at the suit of either party (void and
unenforceable);
c. Partly executed and partly executory: Principle of “no unjust enrichment at
expense of another” shall apply;
d. Executory contracts apparently authorized but Ultra Vires: The principle of
estoppel shall apply.
Enforceability
Voidable and may be enforced by
performance, ratification, or estoppels
Wholly void and cannot be validated or
inexistent
Applicability of Ultra Vires Acts
Remedies in case of Ultra Vires Acts
The applicability of the Ultra Vires Act is a question, in each case, of the logical relation of
the act to the corporate purpose expressed in the charter.
a. State
i. Dissolution of the corporation thru a quo warranto proceeding
ii. Injunction
iii. Suspension or revocation of the certificate of registration by the SEC
It may fairly be considered within the charter powers if:
1. The act is one which is lawful in itself, and not otherwise prohibited;
2. The act is done for the purpose of serving corporate ends; and
3. The act reasonably tributary to the promotion of those ends, in a substantial, and not
in a remote and fanciful sense.
b. Stockholders
❖ Injunction
❖ Derivative suit
❖ Ratification (except when a 3rd party is prejudiced or the act is illegal)
What test should be used to determine whether an implied corporate power exists?
The test to be applied is whether the act in question is in direct and immediate furtherance
of the corporation’s business, fairly incident to the express powers and reasonably
necessary to their exercise. If so, the corporation has the power to do it; otherwise, not.
[Alfredo Montelibano, et. al. v. Bacolod Murcia Milling Co., Inc. (G.R. No. L-15092, May
18, 1962)]
c. Creditors: Nullification of contract in fraud of creditors
7.2.7.12 Doctrine of Individuality of Subscription
What is the Doctrine of Individuality of Shares?
Consequences of Ultra Vires Acts
This doctrine states that a subscription is one entire and indivisible whole contract. It
cannot be divided into portions.
Per se illegal: Generally void
Not illegal, within the scope of the AOI: Merely voidable and may become binding and
enforceable when ratified by stockholders. [Alfredo Montelibano, et. al. v. Bacolod Murcia
Milling Co., Inc. (G.R. No. L-15092, May 18, 1962)]
Where stocks were subscribed and part of the subscription contract price was not paid, the
whole subscription shall be considered delinquent, and not only the shares which
correspond to the amount not paid.
Holders of subscribed shares not fully paid, which are not delinquent, shall have all the
rights of a stockholder. [Sec. 71]
Consequences of Ultra Vires Acts with respect to Contracts
a. Executed contract: Courts will not set aside or interfere with such contracts;
98
●
●
SEC has opined that the entire subscription, although not yet fully paid, may be
transferred to a single transferee, who as a result of the transfer must assume the
unpaid balance. [SEC Opinion, 9 Oct. 1995]
It is necessary, however, to secure the consent of the corporation because such
transfer contemplates a novation which under Art. 1293 (NCC) cannot be made
without consent of the creditor.
●
No fund shall be used to buy back the issued shares of stock except only in
instances specifically allowed by the Corporation Code. [Boman Environmental
Development Corporation v. CA, G.R. No. 77860 (1988)]
Effects of the Trust Fund Doctrine
1. Dividends must never impair the subscribed capital stock and must only be declared
out of unrestricted retained earnings (URE). [Philippine Trust Co. v. Rivera, G.R. No.
L-19761 (1923)]
2. Subscription commitments cannot be condoned or remitted.
7.2.7.13 Doctrine of Equality of Shares
What is the Doctrine of Equality of Shares?
General Rule: The corporation cannot buy its own shares using the subscribed capital as
the consideration therefore. [NTC v. CA. G.R. No. 127937 (1999)]
This doctrine states that all stocks issued by the corporation are presumed equal with the
same privileges and liabilities, provided that the Articles of Incorporation is silent on such
differences. [Sec. 6]
Exceptions:
There is a presumption of equality of the rights and features of shares when nothing is
expressly provided to the contrary.
●
●
1. Redeemable shares may be acquired even without surplus profit for as long as it will
not result to the insolvency of the Corporation;
Although a corporation has the power to classify its shares of stock, provide for
preferences and other conditions, no presumption should exist to distinguish one share
from another.
Sec. 6 of the RCC now requires that the distinguishing features be stated also in the
Certificate of Stock.
2. In cases that the corporation conveys its stocks in payment of a Debt; or
3. In a Close Corporation, a stockholder may demand the payment of the fair value of
shares regardless of existence of retained earnings for as long as it will not result to
the insolvency of the corporation
4. Rescission of a subscription agreement is not allowed since it will effectively result in
the unauthorized distribution of the capital assets and property of the corporation.
[Ong Yong v. Tiu, G.R. No. 144476 (2003)]
7.2.7.14 Trust Fund Doctrine
What is the Trust Fund Doctrine?
Note: Rescission of a subscription agreement is not one of the instances when distribution
of capital assets and property of the corporation is allowed (Ibid).
This doctrine states that the capital stock, properties and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors.
●
Exceptions to the Trust Fund Doctrine
All funds received in payment of the shares of stock shall be held in trust for the
corporate creditors and other stockholders of the corporation.
Distribution of Corporate Capital is allowed only in three instances:
1. Amendment of the AOI to reduce the authorized capital stock,
99
2. Purchase of redeemable shares by the corporation, regardless of the existence of
unrestricted retained earnings, and
(2.) Purchase of treasury shares from the corporation
(3.) Purchase or acquisition of shares from existing stockholders
(Ladia 2007, p. 338 citing Ballantine)
3. Dissolution and eventual liquidation of the corporation.
The creditors of a corporation have the right to assume that so long as there are debts and
liabilities, the BOD will not use corporate assets to purchase its own shares of stock or to
declare dividends to its stockholders when the corporation is insolvent. [Steinberg v.
Velasco, G.R. No. L-30460 (1929)]
7.2.8.1 Fundamental rights of a stockholder
1. Direct or indirect participation in management [Sec. 6]
2. Voting rights [Sec. 6]
3. Right to remove directors [Sec. 27]
4. Proprietary rights
a. Right to dividends [Sec. 42 and 70]
b. Appraisal rights [Sec. 80]
c. Right to issuance of stock certificate for fully paid shares [Sec. 63]
d. Proportionate participation in the distribution of assets in liquidation
[Sec. 139]
e. Right to transfer of stocks in corporate books [Sec. 62]
f. Pre-emptive right [Sec. 38]
5. Right to inspect books and records [Sec. 73]
6. Right to be furnished with the most recent financial statements/reports [Sec.
73]
7. Right to recover stocks unlawfully sold for delinquent payment of subscription
[Sec. 68]
8. Right to file individual suit, representative suit and derivative suits
9. Right to enter into a voting trust agreement [Sec 58] and the right to execute
a proxy
Scope of the Trust Fund Doctrine
The trust fund doctrine is NOT limited to reaching the stockholder’s unpaid subscriptions.
●
●
A corporation has no legal capacity to release an original subscriber to its capital
stock from the obligation of paying for his shares, in whole or in part, without a
valuable consideration, or fraudulently, to the prejudice of creditors.
The creditor is allowed to maintain an action upon any unpaid subscriptions and
thereby steps into the shoes of the corporation for the satisfaction of its debt.
The scope of the doctrine when the corporation is insolvent also encompasses other
property and assets generally regarded in equity as a trust fund for the payment of
corporate debts.
All assets and property of the corporation held in trust for the benefit of creditors that were
distributed or in the possession of the stockholders may be reached by the creditor in
satisfaction of its claim.
To make out a prima facie case in a suit against stockholders of an insolvent corporation to
compel them to contribute to the payment of its debts by making good unpaid balances
upon their subscriptions, it is only necessary to establish that the stockholders have not in
good faith paid the par value of the stocks of the corporation. [Donnina Halley v. Printwell,
Inc., G.R. No. 157549 (2011)]
7.2.8.2 Participation in management
A stockholder is given the right to vote in a stockholders’ meeting, to vote not only in
the election of directors but in all matters affecting the affairs of the corporation.
7.2.8.2.1 Proxy(Sec. 58, CC)
Stockholders and members may vote in person or by proxy in all meetings of
stockholders or members. Proxies shall in writing, signed by the stockholder or
member and filed before the scheduled meeting with the corporate secretary. It shall
be valid only for the meeting for which it is intended, unless otherwise provided in the
Group 17 - Group ni Jam
7.2.8 Stockholders and members
A person may become a stockholder in a corporation by:
(1.) A contract of subscription with the corporation
100
proxy No proxy shall be valid and effective for a period longer than five (5) years at
any one time.
●
The trustee is the legal title holder or owner of the shares so
transferred under the agreement. He is therefore qualified to be a
director.
7.2.8.2.2 Voting trust
An agreement whereby one or more stockholders of a stock corporation may
create a voting trust for the purpose of conferring upon a trustee or trustees the right
to vote and other rights pertaining to the shares for a period not exceeding 5 years at
any one time.
A. Limitations on the Voting Trust
● Cannot be entered into for a period exceeding 5 years at any 1
time except when it is a condition in a loan agreement but said
contract shall automatically expire upon full payment of the
loan.
● The agreement must not be used for the purpose of fraud.
● It must be in writing and notarized and specify the terms and
conditions thereof.
● A certified copy of the agreement must be filed with the
corporation and with the SEC.
●
The agreement shall be subject to examination by any
stockholder of the corporation.
● Unless expressly renewed, all rights granted in the agreement
shall automatically expire at the end of the agreed period.
A corporation cannot enforce the voting trust agreement executed by the
stockholder and trustees. Voting is personal in nature for those who are
qualified and willing to vote. The voting trust is personal to the stockholder
and trustees. (NIDC vs. Aquino’ 163 SCRA 153 [1988])
7.2.8.2.3 Cases when stockholders' action is required
i. By a majority vote
1. Election of directors/trustees (Sec. 24, CC)
2. Management contract (Sec. 44, CC)
3. Adoption of by-laws (Sec. 46, CC)
4. Amendment or repeal of by-laws (Sec. 48, CC)
5. Fixing the issued price of no-par value shares, if BOD is not
authorized by the articles of incorporation (Sec. 62, CC)
B. Powers or Rights of Voting Trustees
● Shall posses the right to vote and other rights pertaining to the shares
so transferred and registered in his or their names subject to the
terms and conditions of and for the period specified in the agreement.
● May vote in person or by proxy unless the agreement provides
otherwise. The trustee may exercise the rights of inspection of all
corporate books and records.
ii. By a two-thirds vote
a. Amendment of articles of incorporation
b. Removal of directors/trustees (Sec. 28, CC)
101
c. Ratification of a contract of self-dealing directors (Sec. 32, CC)
d. Ratification of an act of a disloyal director (Sec. 34, CC)
e. Extension or shortening of corporate term (Sec. 37, CC)
f. Increase or decrease of capital stock (Sec. 38, CC)
g. Incur, create or increase bonded indebtedness (Sec. 38, CC)
h. Denial of pre-emptive right (Sec. 39, CC)
i. Sale, lease, exchange, mortgage, pledge or disposal of all or
substantially all of corporate assets (Sec. 40, CC)
j. Investment of corporate funds in another corporation or business or
for any other purpose other than the primary purpose (Sec. 42, CC)
k. Issuance of stock dividends (Sec. 43, CC)
l. Managed corporation in a management contract:
i. where a stockholder or stockholders representing the same
interest of both the managing and the managed corporations
own or control more than onethird (1/3) of the total outstanding
capital stock entitled to vote of the managing corporation; or
ii. where a majority of the members of the board of directors of
the managing corporation also constitute a majority of the
members of the board of directors of the managed corporation
(Sec. 44, CC)
m. Delegation of the power to amend, repeal or adopt new by-laws to
BOD (Sec. 48, CC)
n. Merger or consolidation (Sec. 77, CC)
o. Adoption of plan or distribution of assets of non-stock corporation
(Sec. 95, CC)
p. Dissolution (Sec. 118 & 199, CC)
a. The contract is ratified by the vote of the stockholders representing
at least twothirds (2/3) of the outstanding capital stock or of at least
two-thirds (2/3) of the members
b. Such ratification is made at a meeting called for that purpose;
c. Full disclosure of the adverse interest of the directors or trustees
involved is made; and
d. The contract is fair and reasonable under the circumstances
7.2.8.2.4 Manner of voting
1. Directly
2. Indirectly, through representation
a. by means of proxy (Sec. 55, 56, 58, 89, par.2), or
b. by a trustee under a voting trust agreement (Sec. 59), or
c.by executors, administrators, receivers, or other legal
representatives duly appointed by the court (Sec 55, par 2)
* Voting may be either straight or cumulative (Sec. 24)
VOTING REQUIREMENT
iii. By cumulative voting (Sec. 32, CC)
Where the presence of a director or trustee in the board meeting in
which the contract was approved was not necessary to constitute a
quorum for such meeting, and the vote of such director or trustee was
not necessary for the approval of the contract, such contract with a
director or trustee may be ratified, provided:
*Now requires a majority vote ONLY of the stockholders for instances with NO CREDITORS
AFFECTED. If affected then remains to be 2/3rds.
** Where a stockholder owns ⅓ of the capital stock of the managing corporation or where a
majority of the members of the boards of the managing corporation also constitute a majority
of the boards of the managed corporation. (BOD managing = BOD Managed) For a limited
term of 5 years for any 1 term.
VOTING REQUIREMENT FOR STOCKHOLDERS
102
a. The dissenting stockholder must make a written demand on the
corporation within 30 days after the vote was taken for payment of
the fair value of his shares.
i.
Failure to make demand within such period shall be deemed
waiver of the appraisal right.
b. The withdrawing stockholder must submit his certificate of stock to
the corporation for notation within 10 days after demand for payment.
i.
Otherwise, right to appraisal may be terminated at the option
of corporation.
c. All rights accruing to such shares shall be suspended from time of
demand for payment of the fair value of the shares until the
abandonment of corporate action.
d. The dissenting stockholder shall be entitled to receive payment of the
fair value of shares thereof as of the day prior to the date on which the
vote was taken, excluding any appreciation or depreciation in
anticipation of such corporate action.
e. Tha payment must be made by the corporation within 30 days from
the determination by the Board of Appraiser of the fair value of the
shares otherwise the rights of the dissenting stockholders will be
restored.
i.
Board of Appraisers consists of:
1. A person appointed by the corporation
2. A person appointed by the dissenting stockholder; and
3. A person appointed by the two appointees.
f. Stockholder must transfer his shares to the corporation upon payment
by the corporation
g. Upon payment of the fair value of shares, all the rights of dissenting
stockholders are terminated and not merely suspended.
h. There must be unrestricted retained earnings for the exercise of
appraisal right to prosper.
If need na text - please message us, masira kasi sya soo yaa - shi
7.2.8.3 Proprietary rights
7.2.8.3.1 Appraisal right
Appraisal Right — The right to withdraw from the corporation and demand
payment of the fair value of the shares after dissenting from certain corporate
acts involving fundamental changes in corporate structure. [Sec. 80]
Every stockholder has the right to dissent and if he loses in the vote, he may
exercise his appraisal right and demand payment of the fair value of his
shares.
When it may be exercised:
a. In case any amendment to the Articles of Incorporation results in:
i.
Changing or restricting the rights of any stockholder or class of
shares; or
ii.
Authorizing preferences in any respect superior to those of
outstanding share of any class; [Sec. 80]
b. Sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets; [Sec. 80]
c. Merger or consolidation; [Sec. 80]
d. Investment of corporate funds for any purpose other than the primary
purpose of the corporation; [Sec. 80]
7.2.8.3.2 Right to inspect
As the beneficial owners of the business, the stockholders have the right to
know the financial condition and management of corporate affairs.
In a close corporation, a stockholder can compel the corporation “for any
reason” to purchase his shares at their fair value which shall not be less than
the par or issued value, when the corporation has sufficient assets to cover
its debts and liabilities, exclusive of capital stock.
Requirements for the exercise of the right of inspection [Sec. 73]
a. The records are open to inspection only by any director, trustee,
stockholder or member of the corporation in person or by a
representative.
Manner of Exercise:
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b. Must be done at reasonable hours on business days.
c. A demand in writing may be made by the director, trustee or
stockholder at their expense, for such records or excerpts from the
records.
d. The person demanding the right has not improperly used any
information obtained through any previous examination of the books
and records of the corporation
e. The demand is made in good faith or for legitimate purpose
f. The inspecting or reproducing party shall remain bound by
confidentiality rules under prevailing laws such as:
i.
Intellectual Property Code
ii.
Data Privacy Act
iii.
Securities Regulation Code
iv.
Rules of Court
●
In case the right is denied in the Articles of Incorporation;
If one shareholder does not want to exercise his pre-emptive right, the other
shareholders are not entitled to purchase the corresponding shares of the
shareholder who declined. But if nobody purchased the same and later on the board
re-issued the shares, the pre-emptive right applies.
7.2.8.3.4 Right to vote
The right to vote is an incident of ownership of stock, of which the stockholder
cannot be deprived without his consent, and he may vote it as he chooses, whether it
be with the minority or majority.
Voting rights can vary depending upon the class of stock.
7.2.8.3.5 Right to dividends
Dividends are payments made the corporation to its shareholders
A requesting party who is not a stockholder or member of record, or is a
competitor shall have no right to inspect or demand reproduction of
corporate records.
The right arises from the fact that stock corporations are prohibited
from retaining surplus profits in excess of 100% of their paid in capital
stock.
If the corporation denies or does not act on a demand for inspection and/or
reproduction, the aggrieved party may report such to the SEC.
- Within five (5) days from the receipt of the report, the SEC shall
conduct a summary investigation and issue an order directing the
inspection or reproduction of the requested records.
Dividends may be omitted with the approval of the board of directors,
if it is deemed necessary for the expansion and/or financial health of
the company.
Forms of Dividends:
a. Cash – can be declared by the Board of Directors from unrestricted
retain earnings
Revocable before announcement to the shareholders.
b. Property Dividends
c. Stock Dividends – can be declared by the board but requires the
approval of 2/3 of the votes from the Outstanding Capital Stock at a
regular or special meeting.
Declaration may be revoked prior to actual issuance.
The SEC may require stock corporations which transfer and/or trade
stocks in secondary markets to have an independent transfer agent.
7.2.8.3.3 Preemptive right
A pre-emptive right is the shareholder’s right to subscribe to all issues or disposition
of shares of any class in proportion to his present holdings, the purpose being to
enable the shareholder to retain his proportionate control in the corporation and to
retain his equity in the surplus.
Pre-emptive right is NOT available in the following:
● Shares to be issued to comply with the laws requiring stock offering or
minimum stock ownership by the public;
● Shares issued in good faith in exchange for property needed for corporate
purposes;
● Shares issued in payment for previously contracted debt;
REMEDIAL RIGHTS
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Requisites for a derivative suit
1.) The party bringing suit should be shareholder as of the time of the act or transaction
complained of. (the number of his shares not being material)
2.) He has tried to exhaust intra-corporate remedies, i.e., has made a demand on the
board of directors for the appropriate relief but the latter has failed or refused to heed
his plea.
3.) The cause of action actually devolves on the corporation, the wrongdoing or harm
having been caused to the corporation and not to the particular stockholder.
7.2.8.6.5 Minutes and agenda of meetings (Sec. 74, CC)
– The minutes of all meetings must set forth in detail the following:
1. time and place of holding the meeting
2. how authorized
3. the notice given
4. whether the meeting was regular or special; if special, its object
5. those present and absent
6. every act done or ordered done at the meeting
Upon demand of any director, trustee, stockholder or member,
the following must be noted in the minutes:
7. time when any director, trustee, stockholder or member entered or
left the meeting
8. yeas and nays
9. protest on any action or proposed action
Obligations of a Stockholder:
a. Liability for any unpaid subscription;
b. Liability to the corporation for interest on unpaid subscription if so required by the
by-laws;
c. Liability to the creditors of the corporation for unpaid subscription
d. Liability for watered stock;
e. Liability for dividends unlawfully paid;
f. Liability for failure to create a corporation.
Minutes of meetings are subject to inspection by any director, trustee,
stockholder or member of the corporation at reasonable hours on
business days and a copy of excerpts of said records may be
demanded
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Agenda of the meeting: A director, trustee, stockholder, or member
may propose any other matter for inclusion in the agenda at any
regular or special meeting.
1. Must own at least 1 share in their own names or a member.
2. Majority must be resident of the Philippines
3. Those indicated in the by-laws.
Disqualifications of a Director/ Trustee:
1. If, within 5 years prior to election, or appointment as such, the person was
Convicted by Final Judgment:
a. Of an offense punishable by imprisonment for a period exceeding 6 years;
b. Violation of the Corporation Code
c. Violation of the Securities Regulations Code
2. Found administratively liable for any offense involving fraud acts; and
3. By a foreign court or equivalent foreign regulatory authority for acts, violations
or misconduct similar to the disqualifications under the Code.
4. Those indicated in the by-laws
7.2.8.6.6 Remote communication
In the stockholders’ meeting for election of directors/trustees, the
stockholders or members are allowed to vote through remote
communication or in absentia if:
- Allowed by the by-laws or by majority of the BOD/BOT; or
- Vested with public interest
Directors/trustees are also now allowed to attend the meeting through
remote communication such as video conferencing, teleconferencing or other
alternative modes of communication that allow them reasonable opportunities
to participate.
7.2.9.3 Corporations vested with public interest
A stockholder or member who participates through remote communication or
in absentia, shall be deemed present for purposes of quorum.
Section 22 of the Revised Corporation Code of the Philippines requires corporations
vested with public interest to have independent directors constituting at least 20% of
their respective board:
a. Corporations covered by Securities Regulation Code
b. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in
money service business, pre-need, trust and insurance companies, and other
financial intermediaries; and
c. Other corporations engaged in business vested with public interest similar to
the above, as may be determined by the Commission.
Group 3 - Group ni Alacksand
7.2.9 Board of directors and trustees
7.2.9.1 Repository of corporate powers
The law provides that all corporate powers of all corporations formed under it shall
be exercised, all businesses conducted and all property held by a Board of Directors or
Trustees. It is the board which determines corporate policy and prescribes the manner of
general management of its business activities. This is so for the purpose of efficiency in
exchange for profits.
7.2.9.4 Independent directors
Independent director - a person independent of management and free from any business
or other relationship which could, or could reasonably be perceived to materially interfere
with the exercise of independent judgment in carrying out the responsibilities as a director.
Must be elected by the shareholders present or entitled to vote in absentia during the
election of directors.
7.2.9.2 Tenure, qualifications and disqualifications of directors
Qualification of a Director/ Trustee:
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2. Cumulative Voting - a stockholder’s vote is determined by the number of shares he
owns multiplied by the number of directors to be elected.
*Cumulative voting is generally not allowed in non-stock corporations unless
authorized in the by-laws.
7.2.9.5 Elections
1. A quorum of at least a majority of the outstanding capital stock or majority of
members in the meeting where the election will be held.
2. Voting via viva-voce is allowable.
3. No minimum required number of votes. The candidates having the highest
number of votes shall be elected as directors.
7.2.9.6 Removal
The grounds for removal of a director may be provided for in the by-laws.
1. Director representing the minority interest - may not be removed except for those
caused
2. A director not representing the minority may be removed even without a cause.
The following changes were introduced:
a. Manner of voting: Stockholders or members are now allowed to vote through
remote communication or in absentia, in case the by-laws or majority of the BOD
authorizes the same, or even without such authorization in case of corporations
vested with public interest.
b. Manner of voting in non-stock corporations: Unless otherwise provided in the articles
of incorporation or in the bylaws, members of nonstock corporations may cast as
many votes as there are trustees to be elected but may not cast more than one (1)
vote for one (1) candidate. Nominees for directors or trustees receiving the highest
number of votes shall be declared elected.
c. No election: If no election is held, or the owners of majority of the outstanding capital
stock or majority of the members entitled to vote are not present in person, by proxy,
or through remote communication or not voting in absentia at the meeting, such
meeting may be adjourned and the corporation shall proceed in accordance with
Section 25.
Requirement for a valid removal:
1. It should take place at a general or special meeting duly called for that purpose.
2. The removal must be the vote of the stockholders representing ⅔ of the
outstanding capital stock or members entitled to vote.
3. There must be previous notice to the stockholders or members of the intention to
propose such removal at the meeting either by publication or written notice.
7.2.9.7 Filling of vacancies
CAUSE OF
VACANCY
Report on Election - submitted within 30 days to the SEC in case of non- holding of
elections, which shall include a new date for the election, which shall not be later than 60
days from the scheduled date. If no new date has been designated, or if the rescheduled
election is likewise not held, the SEC may, upon the application of a stockholder, member,
director or trustee, summarily order that an election be held.
Should a director, trustee or officer die, resign or in any manner cease to hold office,
the secretary, or the director, trustee or officer of the corporation, or in case of death, the
officer’s heirs shall, within seven (7) days from knowledge thereof report in writing such fact
to the SEC.
WHO WILL FILL THE
VACANCY
WHEN ELECTION WILL BE
HELD
Removal
Stockholders
Same day of the
authorizing the removal
meeting
Expiration of the term
Stockholders
No later than the day of such
expiration at a meeting called for
that purpose
Other causes (death, Board of Directors - if they No later than 45 days from the
resignation,
still constitute a quorum, if time the vacancy arose
abandonment)
not
Methods of Voting
1. Straight Voting - a stockholder’s vote is determined by the number of shares he owns
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interest to submit to their shareholders and the Commission, an annual report of the total
compensation of each of their directors or trustees.
Stockholders
Increase
in
the
number of Directors
Stockholders
In a general or special meeting
called for the purpose or in the
same meeting authorizing the
increase in the number of directors
Limit: The total yearly compensation of the directors (except number 4 above), exceed 10%
of the net income before tax of the corporation during the preceding year.
7.2.9.9 Disloyalty
Replacement of Hold-Over Directors: if a director is not replaced after the expiration of his
term because of non-election, such director can continue to function in a hold-over capacity.
If he resigns, the stockholders will be the one to replace him even if the remaining
directors still constitute a quorum.
CORPORATE OPPORTUNITY DOCTRINE: A director of a corporation is in a fiduciary
position and is thus prohibited from seizing a business opportunity and/or developing it at
the expense and with the facilities of the corporation. He cannot appropriate to himself an
opportunity which in fairness should belong to the corporation.
Emergency Board: When the vacancy prevents the remaining directors from constituting a
quorum and emergency action is required to prevent grave, substantial, and irreparable loss
or damage to the corporation, the vacancy may be temporarily filled from among the
officers of the corporation by unanimous vote of the remaining directors or trustees.
Ratification: In Sec. 34, if a director acquires a business opportunity which should belong to
the corporation, he is bound to account for such profits unless his act is ratified by the
stockholders owing or representing at least ⅔ of the outstanding capital stock.
ACQUIRING ADVERSE INTEREST ON A MATTER REPOSED IN HIM IN CONFIDENCE:
Note, however, that under Sec. 31 when a director attempts to acquire or acquires any
interest adverse to the corporation in respect to any matter reposed in him in
confidence as to which equity imposes a disability upon him to deal in his own behalf – this
is not subject to ratification.
The action by the designated director or trustee shall be limited to the emergency
action necessary, and the term shall cease within a reasonable time from the termination of
the emergency or upon election of the replacement director or trustee, whichever comes
earlier. The corporation must notify the Commission within 3 days from the creation of
the emergency board, stating therein the reason for its creation.
7.2.9.10 Personal liabilities
7.2.9.8 Compensation
A corporate director, trustee or officer may be personally liable only when:
1. He assents to
a. Patently unlawful act of the corporation
b. For bad faith or gross negligence of directing its affairs, or
c. Conflict of interest, resulting in damages to the corporation, its stockholders or other
persons
2. He consents to issuance of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation;
4. He is made, by specific provision of law, to personally answer for his corporate action.
General Rule: Directors are not entitled to receive any compensation.
Except:
1. Reasonable per diems;
2. As provided in the by-laws
3. Upon majority vote of the stockholders; and
4. If they are performing functions other than that of a director.
Section 29 of the RCC now specifically prohibits the Director/Trustee from participating in
the fixing of their own compensation. It also requires corporations vested with public
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3. If said director owns all or substantially all shares of stock, reasonableness of
transaction shall be determined
7.2.9.11 Responsibility for crimes
Where a law requires a corporation to do a particular act, failure of which on the part
of the responsible officer to do so constitutes an offense, the responsible officer is criminally
liable therefore. However, a director or officer can be held liable for a criminal offense only
when there is a specific provision of law making a particular officer liable because being a
corporate officer by itself is not enough to hold him criminally liable.
AMENDMENT: Approval for transactions of self-dealing directors of corporation vested with
public interest shall require: ⅔ of entire membership of the board with the majority of
independent directors
7.2.9.15 Between corporations with interlocking directors
7.2.9.12 Special fact doctrine
Interlocking Director - a director of two corporations who have transactions with each
other which may result in the director favoring one corporation over another.
A corporate officer with superior knowledge gained by virtue of being an insider owes
a fiduciary duty to stockholders in transactions involving transfer of stocks
General Rule: Valid provided it is reasonable under the circumstances
Exceptions:
1. If there is fraud; or
2. If the interest of the interlocking director in one corporation exceeds 20%
(substantial) and merely nominal interest in the other, it becomes voidable at the
latter corporation’s option
7.2.9.13 Inside information
Information not known to the public that one has obtained by virtue of being an
insider like a director.
7.2.9.14 Contracts
Self-Dealing Directors - deal or transact business with their own corporation
General Rule: contract entered into with his own corporation is voidable at the latter’s
option
Exceptions:
1. ALL are present:
a. Their presence were not necessary to constitute a quorum for such meeting
where the contract was approved;
b. Their vote was not necessary for the approval;
c. The contract was fair and reasonable
2. If any of the first two conditions is absent, contract becomes voidable subject to
ratification of stockholders representing ⅔ of outstanding capital stock:
a. There must be a meeting called for that purpose;
b. Full disclosure of the adverse interest of the director; and
c. Contract is fair and reasonable
Both substantial
Valid
Both nominal
Valid
Substantial and nominal
Voidable
7.2.9.16 Executive and other special committees
If the bylaws so provide, the board may create an executive committee composed of
at least three (3) directors. Said committee may act, by majority vote of all its members, on
such specific matters within the competence of the board, as may be delegated to it in the
bylaws or by majority vote of the board, except with respect to the:
(a) approval of any action for which shareholder's approval is also required;
(b) filing of vacancies in the board;
(c) amendment or repeal of bylaws or the adoption of new bylaws;
109
(d) amendment or repeal of any resolution of the board which by its express terms is
not amendable or repealable; and
Directors or trustees who cannot physically attend or vote at board meetings can
participate and vote through remote communication such as videoconferencing,
teleconferencing, or other alternative modes of communication that allow them reasonable
opportunities to participate (Section 52). A stockholder or member who participates through
remote communication or in absentia, shall be deemed present for purposes of quorum.
(e) distribution of cash dividends to the shareholders.
The board of directors may create special committees of temporary or permanent nature
and determine the member's term, composition, powers, and responsibilities.
Rule on Abstention
7.2.9.17 Meetings
Regular Meetings
Quorum
Who presides
An abstention is a non-vote, a decision not to make a decision. When the chair
calls for a vote, abstentions are not called for, only the yeas and nays.
Special Meetings
at least a majority of the at least a majority of the
directors or trustees.
directors or trustees.
The chairman or, in his
absence, the president shall
preside at all meetings
unless the bylaws provide
otherwise.
The chairman or, in his
absence, the president shall
preside at all meetings
unless the bylaws provide
otherwise.
When
monthly
any time upon the call of the
president or as provided in
the bylaws.
Where
anywhere in or outside of anywhere in or outside of
the
Philippines,
unless the
Philippines,
unless
bylaws provide otherwise.
bylaws provide otherwise.
Notice
Whenever a director believes he/she has a conflict of interest, the director should
abstain from voting on the issue and make sure his/her abstention is noted in the minutes.
The other reason a director might abstain is that he/she believes there was insufficient
information for making a decision. Otherwise, directors should cast votes on all issues put
before them. Failure to do so could be deemed a breach of their fiduciary duties.
Group 12 - Group ni Justin
Capital Affairs
7.2.10.1 Certificate of Stock
Certificate of Stock - Document or instrument evidencing the interest of a stockholder
in the corporation.
7.2.10.2 Watered Stocks
Watered Stocks - Shares are issued at LESS than its par value or issue price
at least two (2) days prior to at least two (2) days prior to
the scheduled
the scheduled
7.2.10.3 Payment of Balance of Subscription
Remote Communication
The board of directors may, at any time, declare due and payable to the corporation
unpaid subscriptions.
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Payment of unpaid subscription together with any interest accrued shall be made on
the date specified in the subscription contract or on the date stated in the call made by
the board.
2. Bids: shall all be for the amount due above and shall differ only on the number of
shares that the bidders are willing to accept in exchange of the said amount.
3. Highest Bidder: shall be the bid made for the least number of shares in exchange
for the total amount due.
4. Effect of Delinquency Sale: The stock so purchased shall be transferred to such
purchaser in the books of the corporation and a certificate for such stock shall be
issued in his favor. The remaining shares, if any, shall be credited in favor of the
delinquent stockholder who shall likewise be entitled to the issuance of a
certificate of stock covering such shares (remaining shares).
5. No bidder: Corporation may bid for the same, and the total amount due shall be
credited as paid in full in the books of the corporation. Title to all the shares of stock
covered by the subscription shall be vested in the corporation as treasury shares.
Failure to pay on such date shall render the entire balance due and payable and
shall make the stockholder liable for interest at the legal rate on such balance
The interest shall be computed from the date specified, until full payment of the
subscription. If no payment is made within thirty (30) days from the said date, all stocks
covered by the subscription shall thereupon become delinquent and shall be subject to sale
as hereinafter provided, unless the board of directors orders otherwise
7.2.10.4 Sale of Delinquent Shares
7.2.10.5 Alienation of shares
Delinquent Shares of Stock - Within thirty (30) days on the date indicated in the
subscription contract or on the date specified by the Board of Directors pursuant to a
call, no payment is made, ALL the shares covered by the subscription shall be considered
delinquent.
The owner of a share of stock in a corporation has the right to transfer his
shares. The capital stock of corporations shall be divided into shares for which certificates
signed by the president or vice president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be issued in accordance
with the bylaws.
Shares of stock so issued are personal property and shall comply to the following:
Effect of Delinquency General Rule: Stockholder thereof immediately loses the right to vote and be voted upon
or represented in any stockholders meeting as well as the rights pertaining to a stockholder.
1. There must be delivery of the certificate;
2. The share must be endorsed by the owner or his agent.
Exception: Right to receive dividends:
3. NO TRANSFER IS VALID, until the transfer is recorded in the books of the
corporation showing:
1. Cash Dividend - shall first be applied to the unpaid balance on his subscription plus
cost and expenses;
2. Stock Dividends - shall be withheld until his unpaid subscription is paid in full.
a.
b.
c.
d.
Delinquency Sale:
1. Amount to be paid includes:
a. The balance due on each subscription
b. ALL accrued interest
c. Costs of advertisement; and
d. Expenses of sale
Names of the parties to the transaction,
The date of the transfer,
The number of the certificate or certificates and;
The number of shares transferred.
7.2.10.6 Corporate books and records
7.2.10.6.1 Records to be kept at principal office
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7.2.10.6.3 Effect of refusal to inspect corporate records
SEC. 73. Books to be Kept – all information relating to the corporation including, but not
limited to:
● The articles of incorporation and bylaws of the corporation and all their
amendments;
● The current ownership structure and voting rights of the corporation, including
lists of stockholders or members, group structures, intra-group relations,
ownership data, and beneficial ownership;
● The names and addresses of all the members of the board of directors or
trustees and the executive officers;
● A record of all business transactions;
● A record of the resolutions of the board of directors or trustees and of the
stockholders or members;
● Copies of the latest reportorial requirements submitted to the Commission; and
● The minutes of all meetings of stockholders or members, or of the board of
directors or trustees.
If the corporation denies or does not act on a demand for inspection and/or
reproduction, the aggrieved party may report such to the SEC. Within five (5) days from
receipt of such report, the SEC shall conduct a summary investigation and issue an order
directing the inspection or reproduction of the requested records.
7.2.11 Dissolution and Liquidation
Dissolution - extinguishment of the corporate franchise and the termination of corporate
existence.
Effects of Dissolution - Dissolution terminates its power to enter into contracts or to
continue the business as a going concern.
Liquidation and Winding Up 1. The assets are collected and sold;
2. The rights and claims of creditors are settled;
3. The remaining assets, if any, are distributed to the stockholders.
7.2.10.6.2 Right to inspect corporate records
3 REQUISITES for valid exercise to inspect:
1. The right must be exercised during reasonable hours on business days.
2. Person demanding the right has not improperly used any information obtained
through any previous examination of the books and records of the corporation.
3. The demand is made in good faith or for a legitimate purpose.
7.2.11.1 Modes of dissolution
THREE WAYS OF DISSOLUTION:
1. Expiration of its Corporate Term In the cases of Extension: should be made before the expiration of the original
term, but not earlier than 3 years prior to such expiration, otherwise the
Corporation is dissolved, ipso facto.
Inspection bound by the Intellectual Property Law, Data Privacy Act, SRC, and
the Rules of Court.
A requesting party who is not a stockholder or member of record, or is a
competitor, director, officer, controlling stockholder or otherwise represents the interests of
a competitor shall have no right to inspect or demand reproduction of corporate
records.
(Ipso Facto - “by the fact itself”)
In the cases of Dissolution by shortening the term of corporate existence:
The stockholders may cause the amendment of the Articles to shorten the term
and have the corporation dissolved. This, however, requires the vote of the
Abuse of the right to inspect is punishable under Section 158.
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stockholders to be cast in a meeting, not only “written assent” as for general
amendments. Moreover, this requires the approval of the SEC and its inaction is not
deemed.
c. Upon receipt of a withdrawal of request for dissolution, SEC shall withhold
action on the request for dissolution and shall, after investigation:
i.
Make a pronouncement that the request for dissolution is deemed
withdrawn
ii.
Direct a joint meeting of the board of directors or trustees and the
stockholders or members to ascertain whether or not to proceed with
dissolution; or
iii.
Issue such orders as it may deem appropriate.
6. Issuance of a Certificate of Dissolution by
the SEC
2. Voluntary Surrender of its Primary Franchise (Voluntary Dissolution)
Formal and Procedural Requirements (in cases where no creditors are affected):
1. Majority Vote (Board of Directors/Trustees)
2. Sending of Notice of each Stockholder or Member
a. Registered mail/personal delivery
b. At least twenty (20) days prior to the meeting
3. Publication of the notice
a. Time, Place, Subject of the Meeting
b. Once
c. Newspaper
d. Published in the place where the principal office of said corporation
or general circulation in the Philippines
4. Resolution adopted by the affirmative vote of the stockholders (majority vote)
at the meeting duly called for the purpose.
5. Verified request for Dissolution shall be filed with the SEC stating:
a. Reason for Dissolution
b. Form, Manner, and Time when notices were given
c. Names of the stockholders and directors or members or trustees
d. Who approved the dissolution
e. Date, Place, and Time of the meeting (vote was made)
f. Details of publication
In the cases of withdrawal for request of
In cases where creditors are affected - Voting requirement remains to be ⅔ of the
stockholders and what is filed with the SEC is a petition, not a request.
3. The Revocation of its Corporate Franchise (Involuntary Dissolution)
Grounds:
a. Serious misrepresentation as to what the corporation can do or is doing to the
great prejudice of or damage to the general public
b. Refusal to comply or defiance of any lawful order of the Commission
restraining commission of acts which would amount to a grave violation of its
franchise;
c. *Continuous inoperation for a period of at least five (5) years.*
*No longer considered an IMMEDIATE ground for revocation. SEC may, after due
hearing and notice, place the corporation under delinquent status. The said corporation is
allowed to resume operations within two (2) years upon compliance of the requirements
of the SEC. (AMENDMENT)
Dissolution:
*Upon compliance, SEC shall lift the delinquent status of the Corporation;
(AMENDMENT)
a. Shall be made in writing, duly verified by any incorporator, director, trustee,
shareholder, or member and signed by the same number of the incorporators,
directors, trustees, shareholders, or members necessary to request for
dissolution.
b. Withdrawal shall be submitted no later than fifteen (15) days from receipt by
the SEC of the request for dissolution.
*In case of non-compliance with the requirements and to resume operations, only
then will the SEC cause the revocation of the corporation’s certificate of incorporation.
(AMENDMENT)
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*EXCEPTION: The provision shall not apply if the failure of compliance is due to
causes beyond the control of the corporation (determined by SEC)
similar purposes, like trade, industry, agricultural and like chambers, or any combination
thereof under Section 87 of Revised Corporation Code.
7.2.11.2 Methods of liquidation
Members
Right to Vote - entitled to one (1) vote. Rights of members to vote may be limited,
broadened, or denied to the extent specified in AOI or By-laws. Voting by proxy may be
denied by AOI or the by–laws.
Nontransferability of Membership - membership are personal and nontransferable, unless
otherwise provided in AOI or By-laws.
Termination of Membership - it shall extinguish all rights of a member in the corporation or
in its property. Memberships are terminated in a manner and for the causes provided in AOI
or By-laws.
3 Modes of liquidation:
● By the Board of Directors;
● Through a trustee;
● By management committee or rehabilitation receiver
*Exclusion of Banks - governed by the New Central Bank Act and the PDIC Law.
*Any asset distributable to any creditor or stockholder or member who is
unknown or cannot be found shall now be escheated in favor of the national
government, city or municipality where the property is located
Trustees and Officers
The Board of Trustees is the governing body of a non-stock corporation. They exercise
corporate powers.
Election and Term of Trustees
●
The number of trustees shall be fixed in AOI or By-laws which may or may
not be more than fifteen (15). They shall hold office for not more than three (3) years
until their successors are elected and qualified.
Note: ⅓ of the number of Directors of trustees shall expire every year.
● Only a member of the corporation shall be elected as trustee
● Officers may be directly elected by the member unless the AOI or by-laws so
provide.
Group 13 - Group ni Ryzza
7.2.12 Other corporations
Other Corporations
7.2.12.1 Non-stock corporations
A NON-STOCK CORPORATION is one where no part of its income is distributable as
dividends to its members, trustees, or officers. Provided, That any profit which a non-stock
corporation may obtain incidental to its operation shall, whenever necessary or proper, be
used for the furtherance of the purpose or purposes for which the corporation was
organized. [Sec. 86, RCC]
List of Members and Proxies, Place of Meetings
The corporation shall, at all times, keep a list of its members and their proxies as the
Commission requires. List shall be updated twenty (20) days prior to any scheduled election.
The bylaws may provide that the members of a nonstock corporation may hold their regular
or special meetings at any place even outside the place where the principal office of
corporation is located, provided that:
1) Proper notice is sent to all members indicating the date, time, and place of the
meeting; and
2) Place of meeting shall be within Philippine territory only.
It is legally possible for a corporation having capital stock to still be considered as non-stock
corporation for the following reasons:
a.
Primary purpose is eleemosynary in nature; and
b.
A prohibition stated in its AOI and by-laws that no part if the income or any
form of dividend is distributable to the members, trustees, or officers of the
corporation.
Purpose
Non-stock corporations may be formed or organized for charitable, religious,
educational, professional, cultural, fraternal, literary, scientific, social, civic service, or
7.2.12.2 Educational corporations
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Education Corporation shall be governed by special laws and by the general
provisions under Title XIII of RCC.
the affairs, estate and properties of the religious denomination, sect, or church
within the territorial jurisdiction, so described succinctly in the AOI;
4. The manner by which any vacancy occurring in the office of chief archbishop,
bishop, priest, minister, rabbi, or presiding elder is required to be filled,
according to the rules, regulations or discipline of the religious denomination,
sect, or church; and
5. The place where the principal office of the corporation sole is to be established
and located, which place must be within the territory of the Philippines.
○ Submission of AOI - the AOI must be verified by affidavit or affirmation of the
incorporator accompanied by a copy of commission, certificate of election or letter of
appointment of such incorporator, duly certified to be correct by any notary public
○ After filing of AOI - Verified by affidavit or affirmation, and accompanied by the
documents mentioned above, such incorporator shall become corporation sole and
all temporalities, estate and properties of the religious denomination, sect or church
theretofore administered or managed as such by the incorporator and shall become
personally held in trust as a corporation sole, for the, use purpose exclusive benefit
and on behalf of the religious denomination, sect, or church, including hospitals,
schools, colleges, orphan asylums, parsonages, and cemeteries thereof.
● Acquisition and Alienation of Property [Sec. 111, RCC]
○ Acquisition of Property - a corporation sole may
1. Purchase and hold real estate and personal property for its church,
charitable, benevolent, or educational purposes; and
2. Receive bequests or gifts for such purposes
○ Alienation of Property - corporation sole may sell or mortgage real property held by
it by:
1) Obtaining an order for that purpose from the Regional Trial Court of the
province where the property is situated
2) Upon proof that:
● The notice of the application for leave to sell or mortgage has been made through
publication or as directed by the Court; and
● It is in the interest of the corporation that leave to sell or mortgaged be granted.
The application for leave to sell or mortgage:
1. Must be made by petition, duly verified, by the chief archbishop, bishop,
priest, minister, rabbi, or presiding elder acting as corporation sole, and;
2. May be opposed by any member of the religious denomination, sect, or
church represented by the corporation sole.
Board of Trustees:
● Educational Institutions (Non-stock) - the number of trustees shall be in multiples of five
(5) and shall not be less than five (5) nor more than fifteen (15), unless otherwise
provided in AOI or By-laws.
● Term of Office - one-fifth (⅕) of the number of BOT shall expire every year. Trustees
elected to fill vacancies occurring before the expiration of term shall hold office for the
unexpired period. Those elected to fill vacancies due to expiration of term shall hold
office for five (5) years.
● Quorum - constitutes majority (50% plus 1) of the trustees.
● Powers and Authority - defined and provided in the Bylaws.
Institutions organized as stock corporations, the number of and term of directors shall be
governed by the provisions on stock corporation
7.2.12.3 Religious corporations
Religious corporations may be incorporated by one or more persons. Can be
classified into (1) Corporation Sole and (2) Religious Societies
CORPORATION SOLE
● Purpose - administering and managing, as trustee, the affairs, property and
temporalities of any religious denomination.
● Incorporator - may be formed by chief archbishop, bishop, pries, minister, rabbi or other
presiding elder of such religious denomination, sect, or church
● Incorporation
○ Articles of Incorporation [Sec. 109, RCC] - the incorporator must file with the
Commission the AOI setting forth the following:
1. That the applicant chief archbishop, bishop, priest, minister, rabbi, or presiding
elder represents the religious denomination, sect, or church who desires to
become a corporation sole;
2. That the rules, regulations and discipline of the religious denomination, sect or
church are consistent with becoming a corporation sole and do not forbid it;
3. That such chief archbishop, bishop, priest, minister, rabbi, or presiding elder is
charged with the administration of the temporalities and the management of
115
●
●
3. Provided, that in cases where the rules, regulations, and discipline of the
religious denomination, sect, or church, religious society, or order concerned
represented by such corporation sole regulate the method of acquiring,
holding, selling, and mortgaging real estate and personal property:
a. Such rules, regulations and discipline shall control; and
b. The intervention of the courts shall not be necessary.
Filling of Vacancies - The successors in office of any chief archbishop, bishop, priest,
minister, rabbi, or presiding elder in a corporation sole:
(1) Shall become the corporation sole on their accession to office; and
(2) Shall be permitted to transact business as such upon filing a copy of their
commission, certificate of election, or letters of appointment, duly certified by any
notary public with the Commission
During vacancy, the person/s authorized by the rules, regulations or discipline of the
religious denomination sect, or church represented by the corporation sole to (1)
administer the temporalities and (2) manage its affairs, estate and properties of the
corporation sole.
● Voluntary Dissolution - a corporation sole may dissolved and settled its affairs
through voluntary submitting to the Commission a verified declaration with the
following contents:
a. The name of the corporation;
b. The reason for dissolution and winding up;
c. The authorization for the dissolution of the corporation by the particular religious
denomination, sect or church;
d. The names and addresses of the persons who are to supervise the winding up
of the affairs of the corporation
e. Upon approval of the commission, the corporation shall cease to carry on its
operations except for the purpose of winding up its affairs.
Exception: Unless forbidden by competent authority, the Constitution,
pertinent rules, regulations, or discipline of the religious denomination, sect,
or church of which it is a part
● Filing and Contents of AOI
■ Incorporators must file an AOI to the commission; and
■ AOI must be verified by the affidavit of presiding elder, or other member of such religious
society or religious order, diocese, synod, and other religious district organization, setting
forth the following in the AOI:
a. That the religious society or religious order, or diocese, synod, or district organization is
a religious organization of a religious denomination, sect or church;
b. That at least two-thirds (2/3) of its membership has given written consent or has voted to
incorporate, at a duly convened meeting of the body;
c. That the incorporation of the religious society or religious order, diocese, synod, or
district organization is not forbidden by competent authority or by the Constitution,
religious denomination, sect, or church of which it forms part;
d. That the religious society or religious order, diocese, synod, or district organization
desires to incorporate for the administration of its affairs, properties and estate;
e. The place within the Philippines where the principal office of the corporation is to be
established and located; and
f. The names, nationalities, and residence addresses of the trustees, not less than five (5)
nor more than fifteen (15):
Elected by the religious society or religious order, or the diocese, synod, or district organization
To serve for the first year, or such other period as may be prescribed by the laws of the religious
society or religious order, or of the diocese, synod, or district organization.
ONE PERSON CORPORATION
RELIGIOUS SOCIETIES [Sec. 114, RCC]
● Incorporation
General Rule: Any religious society, religious order, diocese, synod, or district organization
of any religious denomination, sect, or church, may incorporate for the administration of
its temporalities or for the management of its affairs, properties, and estate –
(1) Upon written consent of at least two-thirds (2/3) of its membership; and/or
(2) By an affirmative vote at a meeting called for the purpose of at least two-thirds (2/3)
of its membership.
A One Person Corporation is a corporation with a single stockholder.
Who may become One person Corporation
a. Natural person
b. Trust established by a Trustor to a Trustee for the benefit of a beneficiary
c. Estate of a deceased person
7.2.12.4.1 Excepted corporations
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1. Banks
2. Non-bank financial institutions
3. Quasi-banks
4. Pre-need
5. Trust entity/company
6. Insurance
7. Public entities
8. Publicly listed entities
9. Non-chartered GOCCs
10. A natural person who is licensed to exercise a profession (CPA or Lawyers)
for the purpose of exercising such profession except as otherwise provided
under special laws
●
●
●
●
The single stockholder shall be the sole director and president
Within 15 days from the issuance of its certificate of incorporation, the OPC shall
appoint a treasurer, corporate secretary, and other officers as it may deem
necessary, and notify the SEC thereof within 5 days from appointment.
The single stockholder may not be appointed as the corporate secretary, but must
give a bond to the Commission in such a sum as may be required.
The bond must be renewed every two (2) years or as often as required.
7.2.12.4.6 Nominee
●
●
7.2.12.4.2 Capital stock requirement
Minimum Capital Stock is NOT REQUIRED in OPC, except as otherwise
provided by special law.
●
7.2.12.4.3 Articles of incorporation and by-laws
●
a. Articles of Incorporations
●
OPC shall file AOI in accordance with the requirements under Sec. 14 of RCC
which contains the following:
●
a. If the single stockholder is a trust or an estate, the name, nationality, and
residence of the trustee, administrator, executor, guardian, conservator,
custodian, or other person exercising fiduciary duties together with the proof
of such authority to act on behalf of the trust or estate; and
The single stockholder must designate a nominee and an alternate nominee to take
the place of the single stockholder as director and manage the corporation's affairs
in the event of death or incapacity.
The articles of incorporation must state the names, residence addresses and contact
details of the nominee and alternate nominee, as well as the extent and limitations of
their authority in managing the affairs of the OPC.
Written consent of the nominees and alternate nominee must be attached to the
application for incorporation
Term of the nominee shall be temporary until the stockholder regains the capacity to
assume such duties.
In case of death or permanent incapacity, the nominee shall sit as director until
the legal heirs have been lawfully determined, and the heirs have designated one of
them or have agreed that the estate shall be the estate.
Change of Nominee: The single stockholder may,at any time, submit to the SEC the
names of the new nominees and their corresponding written consent.
Corporate Secretary
●
●
b. Name, nationality, residence of the nominee and alternate nominee, and the
extent, coverage and limitation of the authority.
●
●
b. By-laws
NOT REQUIRED to submit and file corporate bylaws.
responsible for maintaining the minutes book and records of the corporation
notifying the nominee or alternate nominee of the death or incapacity of the single
stockholder (within 5 days)
notifying the SEC of the death of the single stockholder, and
advising the legal heirs with regard to election of a new director, amendment of the
articles of incorporation, and other related matters.
Minutes book and Records in lieu of meeting
7.2.12.4.4 Corporate name
●
The corporate name shall indicate the letters “OPC” either below or at the end of its
corporate name.
●
7.2.12.4.5 Corporate structure and officers
117
An OPC must maintain a minutes book containing all actions, decisions, and
resolutions taken by it.
When action is needed on any matter, it shall be sufficient to prepare a written
resolution, signed and dated by the single stockholder, and recorded in the minutes
book, with the date of recording being the date of the meeting for all purposes under
the RCC.
Foreign Corporations
-
A foreign corporation is one formed, organized or existing under any laws other than
those of the Philippines and whose laws allow Filipino Citizens and corporations to
do business in its own country of state.
Requisites
1. Must be formed, organized, or under existing under any laws other than those of the
Philippines
2. The laws of the country where the corporation was organized allow Filipino citizens
and corporations to do business in its own country or state.
7.2.12.4.7 Liability
●
●
●
A sole shareholder claiming limited liability must affirmatively show that the
corporation was adequately financed
If they fail to do so, they are jointly and severally liable for the debts and other
liabilities of the OPC.
The principles of piercing the corporate veil apply equally to One Person
Corporations as with other corporations.
7.2.12.5.1 Bases of authority over foreign corporations
7.2.12.4.8 Conversion of corporation to one person corporations and
vice-versa
Continuity test – doing business implies a continuity of commercial dealings and
arrangements and contemplates to some extent the performance of acts or works or the
exercise of some functions normally incident to and in progressive prosecution of the
purpose and object of its organization;
Substance test – a foreign corporation is doing business in the country if it is
continuing the body or substance of the enterprise of business for which it was organized
Contract test – actual performance of specific commercial acts within the territory of
the Philippines:
● Commercial act must be performed within Philippine territory;
● Must earn profits;
● Established operations here in the Philippines and is not a mere importer or has
appointed a distributor of goods to the Philippines. Except:
a. The distributor is under full control of the foreign corporation; and
b. Distributes only the product of the foreign corporation, then it is doing business in the
Philippines.
Doing Business under the Foreign Investment Act of 1991:
● Soliciting orders, service contracts, opening offices;
● Appointing representatives, distributors domiciled in the Philippines;
● Participating in the management, supervision or control of any domestic business
firm, entity or corporation in the Philippines;
● Any act or acts that imply a continuity of commercial dealings;
● Not doing business:
● Mere investment as a shareholder and exercising the rights of an investor;
● Having a nominee director or officer to represent its interest in the corporation and
a. Conversion from an Ordinary Corporation to a One Person Corporation
● Conversion from Ordinary Corporation to OPC is when a single stockholder
acquires all the stocks of an ordinary stock corporation and applies for
conversion.
● If approved, the Commission will issue a certificate of filing of amended
articles of incorporation and the OPC will be legally responsible for all
outstanding liabilities as of the date of conversion.
b. Conversion from One Person Corporation to an Ordinary Stock Corporation
○ An OPC may be converted into an ordinary stock corporation after due notice
to the SEC and compliance with all other requirements.
○ If all requirements have been complied with, the Commission shall issue an
amended certificate of incorporation reflecting the conversion.
○ In case of death of the single stockholder, the nominee or alternate nominee
must transfer the shares to the duly designated legal heir or estate within 7
days from receipt of an affidavit of heirship or self-adjudication.
○ Within 60 days from the transfer of the shares, the legal heirs must notify the
SEC of their decision to either wind up or dissolve the OPC or convert it into
an ordinary stock corporation.
○ The ordinary stock corporation converted from an OPC shall succeed the
latter and be legally responsible for all the latter's outstanding liabilities as of
the date of conversion.
118
●
-
-
-
Appointing a representative or distributor which transact business in its own name
and for its own account.
3. If a foreign corporation does business in the Philippines without a license, a
Philippine citizen or entity which has contracted with said corporation may be
estopped from challenging the foreign corporation’s corporate personality in a suit
brought before Philippine courts
4. If a foreign corporation does business in the Philippines with the required license, it
can sue before Philippine courts on any transaction.
7.2.12.5.2 Necessity of a license to do business
No Foreign Corporation shall be permitted to transact business in the Philippines
unless it shall have a license required by law, and until it complies with the law of
transacting business in the Philippines.
A foreign corporation must first obtain a license and a certificate from the appropriate
governing agency before it can transact business in the Philippines
Effect of the absence of license:
- It cannot maintain any action or proceeding before Philippine Courts (Section
150 of RCC)
- Note: It is not the absence of a license but “doing business” in the Philippines
without a license which debars the foreign corporation from access to our
courts. The license is not necessary to bring an action in the Philippine courts
if the foreign corporation IS NOT engaged in business in the Philippines .
Application to Existing Foreign Corporation: Every foreign corporation which, on
the date of effectivity of this code, is authorized to do business in the Philippines
under a license issued to it shall continue to have such authority under the terms and
conditions of its license, subject to the provisions of this Code and other Special
Laws.
7.2.12.5.4 Suability of foreign corporations
-
Upon issuance of the license, such foreign corporation may commence or transact
business in the Philippines and continue to do so for as long as it retains its authority
to act as a corporation under the laws of the country or state of its incorporation,
unless license is annulled, revoked, or surrendered.
Within 60 days after the issuance of license to transact, the foreign corporation shall
deposit to the Commission securities satisfactory to the commission for an actual
market value of at least 500,000 pesos
Reason: benefit of present and future creditors of the licensee in the Philippines
Exception to the deposit requirement: Foreign banking or insurance corporation
Financial Instruments to Deposit
a. Treasury bills and bonds
b. Shares of stock registered under the Securities Regulation Code
c. Debt securities registered under the Securities Regulation Code
d. Shares of stock listed and traded in the stock exchange
e. Shares of stock in domestic insurance companies and banks
f. Any financial instrument deemed suitable by the commission
When additional deposits are required:
1. Within 6 months after each fiscal year of the licensee, they are required to deposit
additional securities or financial instruments equivalent in actual market value to 2%
of the excess of the 10,000,000 gross income for that fiscal year.
2. If the actual market value of the deposited securities or financial instrument has
decreased by at least 10% of their actual market value at the time of deposit.
Note: Licensee is entitled to collect the interest or dividends from such deposit
7.2.12.5.3 Personality to sue
1. If a foreign corporation does business in the Philippines, WITHOUT A LICENSE, it
cannot sue before the Philippine courts
a. Exception: Doctrine of Estoppel (No. 3 below)
- An unlicensed foreign corporation can bring suit in the PH courts against a
PH citizen or entity who had contracted with and benefited from said
corporation.
- This is to prevent a person from taking advantage of the foreign
corporation’s noncompliance with the statutes chiefly in cases where such
person received the benefits of the contract
2. If a foreign corporation is NOT doing business in the Philippines, it needs no license
to sue before Philippine courts on an isolated transaction or on a cause of action
entirely independent of any business transaction
7.2.12.5.5 Doctrine of Isolated Transactions
-
119
Foreign corporations, even unlicensed ones can sue or be sued on a transaction or a
series of transactions set apart from their common business in the sense that there is
no intention to engage in a progressive pursuit of the purpose and object of business
transaction
Group 5- Group ni Vanessa
7.2.13 Merger and consolidation
7.2.14 Investigations, offenses, and penalties
7.2.12.5.6 Grounds for revocation of license
1. Failure to file its annual report or pay any fees as required by this Code
2. Failure to appoint and maintain a resident agent in the Philippines
3. Failure, after change of its resident agent or address, to submit to the Commission a
statement of such change as required
4. Failure to submit to the Commission an authenticated copy of any amendment to its
articles of incorporation or bylaws or any articles of merger or consolidation within
the time prescribed by the Title
5. A misrepresentation of any material in any application, report, affidavit or other
document submitted by such corporation pursuant to this Title
6. Failure to pay any and all taxes, impost, assessments, or penalties, if any, lawfully
due to the Philippine Government or any of its agencies or political subdivisions
7. Transacting business in the Philippines outside of the purpose or purposes for which
such corporation is authorized under its license
8. Transacting business in the Philippines as agent of or acting on behalf of any any
foreign corporation or entity not duly licensed to do business in the Philippines
9. Any other ground as would render it unfit to transact business in the Philippines
Procedure for Revocation
1. SEC shall issue a certificate of revocation, furnishing a copy to the appropriate
agency in the proper cases
2. SEC shall also mail to the corporation at its registered office in the Philippines a
notice of such revocation accompanied by a copy of the certificate of revocation
Withdrawal of Foreign Corporation
- A foreign corporation licensed to transact in the Philippines may be allowed to
withdraw by filing a petition for withdrawal of license
- Requisites:
a. All claims which have been accrued in the PH have been paid, compromised
or settled
b. All taxed, impost, assessments, and penalties lawfully due have been paid
c. The petition for withdrawal of license has been published once a week for 3
consecutive weeks in the newspaper of general circulation in the Philippines
7.2.13 Merger and consolidation
7.2.13.1 Definition and concepts
MERGER AND CONSOLIDATION
In combining two or more companies, two terms are commonly used:
Merger (A+B=A) – A combination of two or more corporations where a corporation absorbs
the other and remains in existence while the others are dissolved.
Parties to a merger:
a. Surviving Corporation (A) – the corporation that remains existing.
b. Absorbed Corporation (B) – the corporation that dissolved or absorbed.
Mergers may be:
a. Horizontal (–): between competing firms.
b. Vertical (|): if a corporation acquires another which uses or distributes its products.
c. Conglomerate: neither competing nor related in the chain of production or
distribution.
Example
It was agreed that A Corporation will take over and acquire all the business, assets,
properties, rights and liabilities of B Corporation and by virtue of which, A will absorb
B which is to be dissolved. (A+B=A)
If A and B are both firms competing in the same industry, say sardines then the
merger is horizontal.
If A is a sardines company and B is a corporation that sells raw fishes, then the
merger is vertical.
120
If A is a sardines company and B is a ride-hailing corporation, then the merger is
conglomerate.
corporation/s
●
Consolidation (A+B=C) – A combination of two or more corporations where a new
corporation is created, and consolidating corporations are extinguished.
Parties to a consolidation:
a. Constituent Corporation (A and B) – the parties to a merger or consolidation.
b. Consolidated Corporation (C) – the new single corporation created through
consolidation.
7.2.13.2 Plan of merger or consolidation
Plans of Merger or Consolidation
Example
It was agreed that A Corporation and B Corporation would form a new corporation,
C. Where C Corporation would absorb both business and all of A’s and B’s assets,
properties, rights and liabilities. C Corporation would thus continue their combined
business while A and B Corporation dissolved. (A+B=C)
One or more corporations are
absorbed by another which
survives and continues the
combined business.
●
Union of 2 or more corporations to
for a new corporation.
●
One of the constituent
corporations remains as an
existing juridical person,
whereas the other corporation
shall cease to exist.
●
All constituent corporations
disappear with the emergence of
a new corporate entity.
The surviving corporation shall
acquire all the assets, rights of
action and assuming all the
liabilities of the disappearing
●
●
Before a merger or consolidation can take place, each of the constituent corporations must
draw up a Plan of Merger or Consolidation which shall set forth:
a. Names of the corporation involved;
b. Terms and mode of carrying it to effect;
c. Statement of changes, if any, in the present articles of the surviving corporation to
be formed in the case of merger; and with respect to the consolidated corporation in
case of consolidation.
CONSOLIDATION
●
There is no liquidation of the assets of the dissolved corporation, all rights,
properties and franchises are acquired by the surviving/new corporation.
Merger and consolidation involve fundamental changes in the corporation, the rights of
stockholders and creditors. There must be an express provision of law that authorizes
them. Otherwise, such combinations are ultra vires. With the approval of the Corporation
Code, such express authority has been granted.
7.2.13.2 Distinguish: constituent and consolidated corporation
MERGER
liabilities.
Prior Notice
● There must be a notice before the meeting to be conducted.
● The notice shall have a copy or summary of the plan of merger or consolidation and
shall be given to all stockholders or members in the same manner as in
regular/special meetings of stockholders.
Usually 2 weeks, either personally or by registered mail stating the purpose thereof.
Required Approval
● Board of Directors or Trustees of each constituent corporation: Majority Vote
● Stockholders at separate corporate meetings called for the purpose:
○ STOCK: representing ⅔ outstanding capital stock
○ NON-STOCK: ⅔ of the members
The new corporate entity shall
obtain al lthe assets of the
disappearing corporations, and
likewise shall assume all their
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The plan must be filed with the appropriate government agency, usually the Security and
Exchange Commission (SEC).
Procedures
7.2.13.3 Articles of merger or consolidation
I.
Articles of Merger or Consolidation
After the plan of merger or consolidation has been approved, the companies must file
articles of merger or consolidation with the SEC. The articles would generally:
1. take the place of the AOI of the consolidated corporation; or
2. amend the Articles of Incorporation of the surviving corporation.
Any amendment to the plan of merger or consolidation may be made, provided such
amendment is approved by majority vote of the respective boards of directors or
trustees of all the constituent corporations and ratified by the affirmative vote of
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or
of two-thirds (2/3) of the members of each of the constituent corporations. Such plan,
together with any amendment, shall be considered as the agreement of merger or
consolidation.
Requisites
● Executed by each of the constituent corporations
● Signed by the president/vice-president
● Certified by the secretary/assistant secretary of each corporation
Contents
STOCK CORPORATION
●
●
●
●
●
II.
NON-STOCK CORPORATION
a. Number of shares
outstanding
a. Number of members
b. Number of shares voting for or
against such plan
b. Number of members voting for or
against such plan
Approval of Plan of Merger or Consolidation
The affirmative vote of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock of each corporation in the case of stock corporations or at
least two-thirds (2/3) of the members in the case of non-stock corporations shall be
necessary for the approval of such plan.
Execution of Articles of Merger or Consolidation
After the approval, articles of merger or articles of consolidation shall be executed by
each of the constituent corporations, to be signed by the president or vice-president
and certified by the secretary or assistant secretary of each corporation setting forth:
1. The plan of the merger or the plan of the consolidation.
2. As to stock corporations, the number of shares outstanding, or in case of
non-stock corporations, the number of members.
3. As to each corporation, the number of shares or members voting for and against
such plan, respectively.
Plan of the merger/consolidation;
The carrying amounts and fair values of the assets and liabilities of the respective
companies as of the agreed cut-off date;
The method to be used in the merger or consolidation of accounts of the companies;
The provisional or pro-forma values, as merged or consolidated, using the
accounting method; AND
Such other information as may be prescribed by the Commission.
III.
7.2.13.4 Procedure, effectivity, limitations and effects
122
Submission to SEC of the Articles
The articles of merger or of consolidation signed and certified as hereinabove
required, shall be submitted to the Securities and Exchange Commission in
quadruplicate for its approval: Provided, that in the case of merger or consolidation of
banks or banking institutions, building and loan associations, trust companies,
insurance companies, public utilities, educational institutions and other special
corporations governed by special laws, the favorable recommendation of the
appropriate government agency shall first be obtained.
IV.
as if surviving or consolidated corporation had itself incurred such liabilities or
obligations.
6. Any claim, action or proceeding pending by or against any may be prosecuted by or
against the surviving or consolidated corporation.
7. Neither the rights of creditors nor any lien upon the property of any of each
constituent corporation shall be impaired by such merger or consolidation.
Action by SEC
If, upon investigation, the Securities and Exchange Commission has reason to
believe that the proposed merger or consolidation is contrary to or inconsistent with
the provisions of this Code or existing laws, it shall set a hearing to give the
corporations concerned the opportunity to be heard. Written notice of the date, time
and place of said hearing shall be given to each constituent corporation at least two
(2) weeks before said hearing. The Commission shall thereafter proceed as provided
in this Code.
7.2.14 Investigations, offenses, and penalties
INVESTIGATIONS, OFFENSES, AND PENALTIES
Effectivity
If the Commission is satisfied that the merger or consolidation of the corporations concerned
is not inconsistent with the provisions of this Code and existing laws, it shall issue a
certificate of merger or of consolidation, at which time the merger or consolidation shall be
effective.
7.2.14.1 Authority of Commissioner
Authority of Commissioner
7.2.14.1.1 Investigation and prosecution of offenses
1. Investigation and Prosecution of Offenses
a. Power to Investigate
The SEC is expressly granted the power to investigate any alleged
violation of the RCC, or of a rule, regulation, or order issued pursuant
thereto.
Limitations
1. Must be consistent with provisions of Corporation Code or existing laws;
2. Issuance of Certificate, not upon mere agreement of the constituent corporations;
3. Claims of employees of the constituent corporation shall be respected;
4. Power to merge or consolidate must be expressly granted by law;
5. Procedure must be followed.
b. Power to Public Findings
The SEC is expressly authorized to publish its findings, orders,
opinions, advisories, or information concerning any such violation as
may be relevant to the general public or to the parties concerned.
Effects
1. The constituent corporations shall become a single corporation.
2. The separate existence of the constituents shall cease except that of the surviving
corporation (in merger) or the consolidated corporation (in consolidation).
3. The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities, franchise of each of the constituent corporations.
4. All property, real or personal, and all receivables due on whatever choses in action,
and all the every other interest thereof, or belonging to, or due to each constituent
corporation, shall be taken and deemed transferred to and vested in such surviving
or consolidated corporation without further act or deed.
5. The surviving or consolidated corporation shall be responsible and liable for all the
liabilities and obligations of each of the constituent corporations in the same manner
Power to Coordinate with Other Agencies SEC is expressly granted the power to
give reasonable notice to and coordinate with the appropriate regulatory agency prior
to any such publication involving companies under their special regulatory
jurisdiction.
2. Administration of oath and issuance of subpoena of Witnesses and Documents
The SEC, through its designated officer has the power to:
a. to administer oaths and affirmations issue subpoena and subpoena duces
tecum take testimony in any inquiry or investigation, and
b. to perform other acts necessary to the proceedings or to the investigation.
3. Cease and Desist Power
123
a. When the SEC has reasonable basis to believe that a person has violated, or
is about to violate this Code, a rule, regulation, or order of the Commission, it
may direct such person to desist from committing the act constituting the
violation.
Sanctions for Violations
7.2.14.2.1 Administrative sanctions
1. Administrative Sanctions
After due notice and hearing, when the Commission finds that any provision of this
Code, rules or regulations, or any of the Commission’s orders has been violated, the
Commission may impose any or all of the following sanctions, taking into
consideration the extent of participation, nature, effects, frequency and seriousness
of the violation:
a. FINE: ₱5,000 - ₱2,000,000;
WHERE: ≤ ₱1,000 a day of continuing violation.
b. SEC may issue a cease and desist order ex parte to enjoin an act or practice
which is:
1) Fraudulent
2) Can be reasonably expected to cause significant, imminent, and
irreparable danger or injury to public safety or welfare.
The ex parte order shall be valid for a maximum period of 20 days,
without prejudice to the order being made permanent after due notice and
hearing.
b. Issuance of a permanent cease or desist order;
c. Suspension or revocation of the certificate of Incorporation; AND
d. Dissolution of the corporation and forfeiture of its assets.
c. Thereafter, the Commission may:
1) Proceed administratively against such a person;
2) Transmit evidence to the Department of Justice for preliminary
investigation or criminal prosecution; and/or
3) Initiate criminal prosecution for any violation of RCC, rule or
regulation.
7.2.14.2.2 Prohibited Acts
7.2.14.2.3 Penalties
Prohibited Acts and Penalties
PROHIBITED
ACTS
7.2.14.1.2 Contempt
1. Contempt
Contempt occurs when a person or entity violates any order, decision, or ruling
issued by the SEC. Any person who, without justifiable cause, fails or refuses to
comply with any lawful order, decision, or subpoena issued by the Commission shall,
after due notice and hearing:
a. Held in Contempt
b. FINED: ≤ ₱30,000
When the refusal amounts to clear and open defiance.
WHO ARE LIABLE?
1. Unauthorized ●
Use
of ●
Corporation
Name
c. DAILY FINE: ₱1,000 until complied.
7.2.14.2 Sanctions for violations
124
PENALTIES
Corporation; and
FINE:
its responsible directors ₱10k - ₱200k
or officers:
a. in contempt; and/or
b. hold
them
administratively,
civilly
and/or
criminally
liable;
and/or
WHEN
THE
VIOLATION
IS
INJURIOUS
OR
DETRIMENTAL TO
THE PUBLIC
c. revoke
the
registration of the
corporation
2. Violation of
Disqualificati
on Provision
FINE:
₱10k - ₱200k
FINE:
₱20k - ₱400k
3. Violation of ●
Duty
to ●
Maintain
Records, to
allow
their
Inspection or
Reproduction
Corporation; or
FINE:
Those responsible for ₱10k - ₱200k
keeping and maintaining
corporate records
FINE:
₱20k - ₱400k
4. Willful
●
Certification
●
of
Incomplete,
Inaccurate,
FAlse
or
Misleading
Statements
or Reports
Auditor; or
The responsible person
for the certification
FINE:
₱40k - ₱400k
5. Collusion
●
with
the
Independent
Auditor
Independent auditor
FINE:
in collusion with the ₱80k - ₱500k
corporation’s directors
or representatives and
the responsible officer
FINE:
₱100k - ₱600k
Those responsible for FINE:
the formation of a ₱200k - ₱2M
corporation
through
fraud; or
assisted
directly
or
indirectly therein
FINE:
₱400k - ₱5M
6. Obtaining
Corporation
Registration
Through
Fraud
●
●
●
●
Director
Trustee Officer
7. Fraudulent
●
Conduct
of ●
Business
FINE:
₱20k - ₱200k
125
Corporation; or
person responsible
FINE:
₱200k - ₱2M
8. Acting
as
Intermediarie
s for Graft
and Corrupt
Practices
●
Those engaged in graft FINE:
and corrupt practices:
₱100k - ₱5M
directors,
officers,
employees, agents,
or representatives
9. Engaging
Intermediarie
s for Graft
and Corrupt
Practices
●
●
Corporation
Intermediary
10. Tolerating
Graft
and
Corrupt
Practices
●
director,
trustee,
or FINE:
officer who knowingly ₱500k - ₱2M
fails to sanction, report,
or file the appropriate
action
with
proper
agencies, allows or
tolerates the graft and
corrupt practices or
fraudulent
acts
committed
by
a
corporation’s directors,
trustees, officers, or
employees
11. Retaliation
Against
Whistleblowe
rs
●
Any
person
who, FINE:
knowingly
and with ₱100k - ₱1M
intent
to
retaliate,
commits
acts
detrimental
to
a
whistleblower such as
interfering
with
the
lawful employment or
livelihood
of
the
whistleblower
FINE:
₱100k - ₱5M
FINE:
₱400k - ₱5M
12. Other
Violations of
the Code
●
i.
Punish for the contempt of the Commission, both direct and indirect, in accordance
with the provisions and prescribed penalties by the Rules of Court.
j. Compel the officers of any registered corporation or association to call meetings of
stockholders or members under its supervision.
k. Issue a subpoena duces tecum and summon witnesses to appear in any
proceedings of the Commission. Also, if necessary, order the examination, search, or
seizure of all documents, records, files, and other important financial information of
any entity under investigation.
l. Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds
provided by law.
m. Exercise other powers that are implied, necessary or incidental from the express
powers of the Commission.
Corporation
FINE:
Dissolution shall not ₱10k - ₱1M
preclude the institution
of appropriate action for
director,
trustee,
or
officer of the corporation
In imposing penalties and additional monitoring and supervision requirements, the
Commission shall take into consideration the size, nature of the business, and capacity of
the corporation. No court below the Court of Appeals shall have jurisdiction to issue a
restraining order, preliminary injunction, or preliminary mandatory injunction in any case,
dispute, or controversy that directly or indirectly interferes with the exercise of the powers,
duties and responsibilities of the Commission that falls exclusively within its jurisdiction.
Group of Sienes
7.2.15 Corporate Governance
7.2.16 Securities
7.2.17 Securities Regulation Code (SRC) Rule 68
7.2.18 SEC Issuances
7.2.14.4 Authority of the Securities and Exchange Commission
Authority of the Securities and Exchange Commission
a. Have jurisdiction and supervision over all corporations, partnership, or associations
who are the grantees of primary franchises and/or a license or a permit issued by the
Government.
b. Formulate policies and recommendations on issues concerning the securities
market, advise Congress and other government agencies.
c. Approve, reject, suspend, revoke or require amendments to registration applications.
d. Regulate, investigate or supervise the activities of persons to ensure compliance.
The Commission can also supervise, monitor, suspend or take over the activities of
exchanges, clearing agencies and other SROs.
e. Impose sanctions on violations of the Code.
f. Prepare, approve, amend or repeal rules, regulations and issue opinions and provide
guidance on and supervise compliance with such rules.
g. Enlist the support of all enforcement agencies of the Government, civil or military as
well as any private institution or person in the implementation of its powers and
functions.
h. Issue cease and desist orders to prevent fraud.
7.2.15 Corporate Governance
WHAT IS CORPORATE GOVERNANCE?
The Philippine Stock Exchange, Inc. (PSE) defines corporate governance (CG) as
the framework of rules, systems and processes that governs the performance by the Board
of Directors and Management of their respective duties and responsibilities to the
stockholders, with due regard to the stakeholders.
Specifically, corporate governance is a system of directing and managing a corporation
which involves the development and achievement of corporate goals; the function of the
board and its relationship with management; control, risk and performance management
systems; compliance with laws and best practices; and corporate self-restraint and ethics,
among others. It is also a means for sustained value creation as it should ultimately create
long-term value for the corporation’s shareholders while taking into consideration the rights
and interests of its stakeholders.
126
The main feature of a security is that a person purchases or acquires the same in the
expectation of obtaining passive income or asset appreciation, that is income or gain
obtained through the effort of another person. This feature makes them attractive and
desirable and necessitates the protection of the investing public.
DISCLOSURE REQUIREMENTS
All listed companies are required to submit a compliance report for the previous year
to the PSE’s disclosure department on or before the 30th of January of the year. The report,
which is to be submitted under oath by the company President, Chairman or duly authorized
representative, and attested to by an independent director, shall indicate the company’s
assessment of its level of adoption of the recommendations stated in the Guidelines. Only
recommendations that are not met or adopted, together with the explanations, shall be
disclosed in detail. The assessment report shall be a regular disclosure requirement for all
listed companies and will be uploaded in the PSE website. Companies should make sure
that a copy of the compliance report is available on their websites. Such a report, or at least
a summary of the deviations, should also be made available in a section in the company’s
annual report that is exclusively dedicated to corporate governance. The disclosure period
shall follow the reporting period adopted by the company in its annual report.
●
Kinds of Securities
(a) Shares of stocks, bonds, debentures, notes evidences of indebtedness,
asset-backed securities;
(b) Investment contracts, certificates of interest or participation in a profit
sharing agreement, certifies of deposit for a future subscription;
(c) Fractional undivided interests in oil, gas or other mineral rights;
(d) Derivatives like option and warrants;
PUBLIC COMPANIES AND REGISTERED ISSUERS
(e) Certificates of assignments, certificates of participation, trust certificates,
voting trust certificates or similar instruments
Public company means any corporation with a class of equity. securities listed on an
Exchange, or with assets in excess of. Fifty Million Pesos (PhP50,000,000.00) and has two
hundred. (200) or more holders, at least two hundred (200) of which hold. at least one
hundred (100) shares of a class of its equity.
(f) Proprietary or nonproprietary membership certificates in corporations; and
(g) Other instruments as may in the future be determined by the Commission.
Registered Issuer - a company that: (1) issues proprietary and/or non-proprietary
shares/certificates; (2} issues equity securities to the public that are not listed in an
Exchange; or (3) issues debt securities to the public that are required to be registered to the
SEC, whether or not listed in an Exchange.
●
Procedure for Registration and Reportorial
The Securities Regulations Code (SRC) provides that securities shall not be sold or
offered for sale or distribution within the Philippines, without a registration statement
duly filed with and approved by the SEC (Commission). Prior to such sale,
information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
The Commission may audit the financial statements, assets and other information of
firm applying for registration of its securities whenever it deems the same necessary
to insure full disclosure or to protect the interest of the investors and the public in
general.
7.2.16 Securities
What is a Security?
- are shares, participation or interests in a corporation or in a commercial enterprise or
profit-making venture and evidenced by a certificate, contract, instruments, whether written
or electronic in character. (Sec 3.1)
127
Procedure:
1. Filing of SWORN REGISTRATION STATEMENT containing the information as the
SEC may by rule require.
a. Signatories to registration statement: Executive officer, principal
operating officer, principal financial officer, comptroller, principal
accounting officer, corporate secretary.
3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by
the proper adjudicatory body.
4. Any security or its derivatives the sale or transfer of which, by law, is under the
supervision and regulation of the Office of the Insurance Commission, Housing
and Land Use Rule Regulatory Board, or the Bureau of Internal Revenue.
b. Written consent of the expert named as having certified any part of
the registration statement, whenever necessary.
5. Any security issued by a bank except its own shares of stock.
TYPES FRAUDULENT TRANSACTIONS AND OTHER MARKET MANIPULATIONS
c. Where the registration statement includes shares to be sold by
selling shareholders, a written certification by such selling
shareholders as to the accuracy of any part of the registration
statement contributed to by such selling shareholders shall also be
filed.
1. Wash sale – any transaction in a security which involves no change in the
beneficial ownership. A series of buy and sale transaction may be placed by one and
the same beneficial owner in the exchange which would not affect any change of
ownership of the shares transacted.
2. PAYMENT of the filing fees which shall not exceed 1/10 of 1% of the aggregate
price at which such securities are proposed to be offered.
2. Matched Order – refers to an order or orders for the purchase or sale of security
with the knowledge that a simultaneous order or orders of substantially the same
size, time and price for the sale or purchase of such security has, or wil be entered
by or for the same or different parties.
3. PUBLICATION of notice of the filing of the registration statement in two
newspapers of general circulation once for two consecutive weeks. 4. Within 45 days
after the date of filing, or by such later date to which the issuer has consented, the
SEC shall give an ORDER declaring the registration statement effective or rejecting
it. 5. PROSPECTUS under oath that all requirements satisfied and all statements in
registration statement and in such prospectus are correct.
Wash Sale and Matched Orders are not in themselves illegal. But they are
considered fraudulent whenever they are resorted to in order to create a false or
misleading appearance of active trading.
3. Marking the close – placing of purchase or sale order, at or near the close of the
trading period in order to affect the closing price likewise affecting the opening price
the following day.
SECURITIES exempt from registration: (GRIB)
1. Any security issued or guaranteed by the Government of the Philippines, or by
any political subdivision or agency thereof, or by any person controlled or supervised
by, and acting as an instrumentality of said Government.
4. Painting the tape – akin to marking the close but the activity is made during
normal trading hours which involves buying activity among nominee accounts at
increasingly higher or lower prices or causing fictitious reports to appear on the ticker
tape.
2. Any security issued or guaranteed by the government of any country with which
the Philippines maintains diplomatic relations, or by any state, province or political
subdivision thereof on the basis of reciprocity: Provided, That the SEC may require
compliance with the form and content for disclosures the SEC may prescribe.
128
5. Squeezing the float – part or portion of the issue/security which is outstanding
but intentionally held by dealers or other person with a view of reselling them later for
profit. Thereby affecting supply of the security or its availability while demand
remains the same or increases, driving the prices up.
8. Circulating or Disseminating Information On Share Price Movement – involves
people providing information that the price of any security listed in the exchange will or is
likely to rise or fall because of manipulative market operations of any one or more persons
conducted for the purpose of raising or depressing the price of the security and thus
inducing the purchase or sale of such security.
6. Hype and Dump – involves the following steps:
a. Purchase of outstanding capital stock of a dormant public shell company
for a nominal amount;
b. Merger of the shell company with the privately held company of the person
or group of persons involved to gain control of the majority of the stocks of
the merged entity;
c. Reverse-split of the shares
d. Reissuance of the shares certificates in the name of the merged entity to
relatives and associates;
e. Hiring a broker-dealer who would market the stocks of the newly merged
entity;
f. Hiring a promoter to “hype” the virtues of the company;
g. When the market reaches the high price, they would “dump” their
shareholdings and bail out.
9. Making False or Misleading Statements – with respect to any material fact, which he
knew or had some reasonable grounds to believe was so false or misleading for the purpose
of inducing the purchase or ]sale of any security.
10. Pegging or Fixing or Stabilizing the price of security effected either alone or with
others through any series of transactions for the purchase or sale thereof, if done for such
purpose.
11. Short Sale – selling the security which the vendor does not own and borrowed only from
another. This is not illegal per se but only regulated.
INSIDER TRADING
Material Non-Public Information: Information that will affect the price of the security or
would influence a person in deciding whether to buy, sell, or hold a security which is not
available to the public.
7. Boiler Room Operations – involves an intensive selling campaign through numerous
salesmen by telephone or through direct mail offerings for securities of either a certain type
or from a specific issuer. Investors are induced to purchase through hard-sell techniques
based on unfounded predictions and mailing of misleading market letters.
What constitutes an Insider?
1. The issuer.
2. A director or officer of the issuer or a person controlling the issuer.
3. A person whose relationship or former relationship to the issuer gives or
gave him access to material nonpublic information.
4. A government employee, or director, or officer of an exchange, clearing
agency, and/or self-regulatory organization who has access to material
non-public information.
5. A person who learns such information by a communication from any of the
foregoing insiders. Insider Trading: when an insider in possession of material
non-public information buys or sells a security.
All 5 above (3 to 7) become illegal/unlawful if its effected to:
a. Raise the price or induce the purchase of a security or of a controlling, controlled
or commonly controlled company by others;
b. Depresses their price to induce the sale of a security, whether of the same or of a
different class, of the same issuer or of a controlling, controlled company, or
commonly controlled company by others; and
c. Creates active trading to induce such purchase or sale through said devices or
schemes.
129
Exceptions: a person in possession of material non-public information can buy or sell
securities:
1. When he can prove that the information was not gained from an insider;
2. If the other party is identified and that he:
a. Disclosed the information; or
b. Had reason to believe that the other party is also in possession of
the information.
Upon issuance of an order of suspension, the Commission shall conduct a hearing. If
the Commission determines that the sale of any security should be revoked it shall
issue an order prohibiting sale of such security.
Until the issuance of a final order, the suspension of the right to sell, though binding
upon the persons notified there of, shall be deemed confidential, and shall not be
published, unless it appears that the order of suspension has been violated after
notice. If, however, the Commission finds that the sale of the security will neither be
fraudulent nor result in fraud, it shall forthwith issue an order revoking the order of
suspension, and such security shall be restored to its status as a registered security
as of the date of such order of suspension.
Presumption: a purchase or sale of a security of the issuer made by an insider or such
insider’s spouse or relatives by affinity or consanguinity within the 2nd degree, legitimate or
common-law, shall be presumed to have been effected while in possession of material
non-public information if transacted:
1. After such information came into existence;
2. But prior to the dissemination of such information to the public and the lapse of a
reasonable time for the market to absorb such information.
7.2.17 SECURITIES REGULATION CODE (SRC) RULE 68
GENERAL FINANCIAL REPORTING REQUIREMENTS
●
What would happen if information contained in the registration statement filed is or has
become misleading, incorrect, inadequate or incomplete in any material respect, or the sale
or offering for sale of the security registered thereunder may work or tend to work a fraud?
-
APPLICATION OF THIS RULE
-
The Commission may require from the issuer such further information as may in its
judgment be necessary to enable the Commission to ascertain whether the
registration of such security should be revoked on any ground specified in this Code.
This Rule states the requirements applicable to the form and content of
financial statements required to be filed with the Commission by corporations
which meet the threshold, as follows:
a.) Stock corporations with paid-up capital stock of P50,000.00 or more
The Commission may also suspend the right to sell and offer for the sale such
security pending further investigation, by entering an order specifying the grounds for
such action, and by notifying the issuer, underwriter, dealer or broker known as
participating in such offering.
Upon the issuance of any such order and notification to the issuer, underwriter,
dealer or broker know as participating in such offering, no further offer or sale of any
such security shall be made until the same is lifted or set aside by the Commission.
Otherwise such sale shall be void.
130
b.)
Non-stock corporations with total assets of P500,000.00 or more, or with
gross annual receipts of P100,000.00 or more.
c.)
Branch offices of stock foreign corporations with assigned capital in the
equivalent amount of P1,000,000.00 or more.
d.)
Branch offices of non-stock corporations with total assets in the equivalent
amount of P1,000,000.00 or more.
e.)
Regional operating headquarters of foreign corporations with total revenues
in the equivalent amount of P1,000,000.00 or more.
-
Financial statements of branch offices of foreign corporations licensed to do
business in the Philippines by the Commission shall comply with the
requirements of this Rule unless determined by the commission to be not
applicable.
(i) LARGE AND/OR PUBLICLY-ACCOUNTABLE ENTITIES
(a) For purposes of this Rule, large or publicly accountable entities are those that
meet any of the following criteria:
DEFINITION OF TERMS USED IN THIS RULE
Financial reporting framework – means a set of accounting principles, standards,
interpretations and pronouncements that must be adopted in the preparation and
submission of the annual financial statements of a particular class of entities. This includes
the Philippine Financial Reporting Standards and the Philippine Financial Reporting
Standards for Small and Medium Entities.
(1) Total assets of more than P350 Million or total liabilities of more than P250
Million; or
(2) Are required to file financial statements under Part II of SRC Rule 68; or
(3) Are in the process of filing their financial statements for the purpose of
issuing any class of instruments in a public market; or
Entity- refers to a juridical person or a corporation registered under the Corporation Code.
(4) Are holders of secondary licenses issued by regulatory agencies.
Error - means an unintentional mistake in the financial statements which reduces or
increases the consolidated total assets, total liabilities or income of the company by five
percent (5%) ( Mathematical mistakes, Oversight or misinterpretation of facts , Unintentional
misapplication of accounting policies).
(b) Large and/or publicly-accountable entities shall use as their financial reporting
framework the Philippine Financial Reporting Standards (“PFRS”) as adopted by
the Commission. However, a set of financial reporting frameworks other than the
PFRS may be allowed by the Commission for certain sub-class (e.g., banks,
insurance companies) upon consideration of the interpretations of any of the bodies
listed in paragraph 1(B)(ii) above.
Fraud - means an intentional act by one or more individuals among management,
employees, or third parties that results in a misrepresentation of financial statements.
Gross negligence means wanton or reckless disregard of the duty of due care in complying
with Philippine Standards on Auditing.
(ii) SMALL AND MEDIUM-SIZED ENTITIES
Material information - means information whose omission or misstatement could influence
the economic decisions of its users.
(a) Small and medium-sized entities (SMEs) are those that meet all of the following
criteria:
Summarized financial information - shall mean the presentation of summarized financial
information as to the assets, liabilities and results of operations of the entity for which the
information is required.
(1) Total assets of between P3M to P350 Million or total liabilities of between
P3M to P250 Million. If the entity is a parent company, the said amounts
shall be based on the consolidated figures;
GENERAL GUIDES TO FINANCIAL STATEMENTS PREPARATION
(2) Are not required to file financial statements under Part II of SRC Rule 68;
A. Financial Reporting Framework
(3) Are not in the process of filing their financial statements for the purpose of
issuing any class of instruments in a public market; and
The financial statements that shall be prepared and filed by entities covered by this
Rule shall be in accordance with the financial reporting framework as prescribed
under this section.
(4) Are not holders of secondary licenses issued by regulatory agencies.
131
(b) SMEs shall use as their financial reporting framework the Philippine Financial
Reporting Standards for SMEs (“PFRS for SMEs”) as adopted by the Commission.
However, the following SMEs shall be exempt from the mandatory adoption of the
PFRS for SMEs and may instead apply, at their option, the PFRS:
(10) Such other cases that the Commission may consider as valid exceptions
from the mandatory adoption of PFRS for SMEs.
(c) An SME availing of any of the above-mentioned grounds for exemption shall
provide a discussion in its notes to financial 6 statements of the facts supporting its
adoption of the PFRS instead of the PFRS for SMEs.
(1) An SME which is a subsidiary of a parent company reporting under the
PFRS;
(d) If an SME that uses the PFRS for SMEs in a current year breaches the floor or
ceiling of the size criteria at the end of that current year, and the event that caused
the change is considered “significant and continuing”, the entity shall transition to the
applicable financial reporting framework in the next accounting period. If the event is
not considered “significant and continuing”, the entity can continue to use the same
financial reporting framework it currently uses.
(2) An SME which is a subsidiary of a foreign parent company which will be
moving towards International Financial Reporting Standards (“IFRS”)
pursuant to the foreign country’s published convergence plan;
(3) An SME which is a subsidiary of a foreign parent company and has been
applying the standards for a non-publicly accountable entity for local reporting
purposes. It is considering moving to PFRS instead of the PFRS for SMEs in
order to align its policies with the expected move to full IFRS by its foreign
parent company pursuant to its country’s published convergence plan;
(e) The determination of what is “significant and continuing” shall be based on
management’s judgment. As a general rule, 20% or more of the consolidated total
assets or total liabilities would be considered significant.
(4) An SME, either as a significant joint venture or associate, is part of a
group that is reporting under the PFRS;
(iii) MICRO ENTITIES
(a) Micro entities are those that meet all of the following criteria:
(5) An SME which is a branch office or regional operating headquarter of a
foreign company reporting under the IFRS;
(1) Total assets and liabilities are below P3 Million;
(2) Are not required to file financial statements under Part II of SRC Rule 68;
(6) An SME which has a subsidiary that is mandated to report under the
PFRS;
(3) Are not in the process of filing their financial statements for the purpose of
issuing any class of instruments in a public market; and
(7) An SME which has a short term projection that shows that it will breach
the quantitative thresholds set in the criteria for an SME. The breach is
expected to be significant and continuing due to its long-term effect on the
company’s asset or liability size;
(4) Are not holders of secondary licenses issued by regulatory agencies.
(b) Micro entities have the option to use as their financial reporting framework either
the income tax basis, accounting standards in effect as of December 31, 2004 or
PFRS for SMEs, provided however, that the financial statements shall at least
consist of the Statement of Management’s Responsibility, Auditor’s Report,
Statement of Financial Position, Statement of Income and Notes to Financial
Statements, all of which cover the two-year comparative periods, if applicable.
(8) An SME which has a concrete plan to conduct an initial public offering
within the next two (2) years;
(9) An SME which has been preparing financial statements using PFRS and
has decided to liquidate;
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(c) If an entity uses a basis of accounting other than the PFRS for SMEs in the
preparation of its financial statements, its management shall assess the acceptability
of such basis of accounting in the light of the nature of the entity and the objective of
the financial statements, or the requirements of the law or regulators.
Signature ______________________
Printed Name of Chief Executive Officer ______________________
B. Responsibility for Financial Statements
(i) The financial statements filed with the Commission are primarily the responsibility
of the management of the reporting company and accordingly, the fairness of the
representations made therein is an implicit and integral part of the management’s
responsibility. The Board of Directors, in discharging its responsibilities, reviews and
approves the financial statements before these are submitted to the stockholders.
Signature ______________________
Printed Name of Chief Financial Officer ______________________
Signed this ____ day of _________
(ii) The Statement of Management’s Responsibility for Financial Statements that
shall be attached to the financial statements shall read as follows:
STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENT
The management of (name of reporting company) is responsible for the prepara
financial statements for the year (s) ended (date), in accordance with the
framework indicated therein. This responsibility includes designing and impleme
the preparation and fair presentation of financial statements that are free from
due to fraud or error, selecting and applying appropriate accounting policies, a
that are reasonable in the circumstances. The Board of Directors or Trustees rev
statements and submit the same to the stockholders or members. (name of
auditors, appointed by the stockholders, has examined the financial statements
with Philippine Standards on Auditing, and in its report to the stockholders o
opinion on the fairness of presentation upon completion of such examination.
(iii) The Chairman of the Board, Chief Executive Officer and Chief Finance Officer
shall all sign the Statement of Management’s Responsibility (SMR) as prescribed by
this Rule. If provided in the company’s by-laws, persons holding equivalent position
as that of the aforementioned signatories shall sign the statement. The failure of any
of the prescribed signatories to sign the SMR constitutes a material deficiency in the
financial statements.
(iv) In case of branch offices or regional operating headquarters of foreign
corporations, the SMR shall be signed by its local manager who is in charge of its
operations within the Philippines. The second paragraph of the Statement may be
deleted since the Philippine branch does not have any local Board of Directors or
stockholders.
(v) The independent auditor’s responsibility for the financial statements required to
be filed with the Commission is confined to the expression of his opinion on such
statements which he has examined.
(vi) In the audit of the company’s financial statements, the management shall provide
the external auditor with the following documents:
Signature______________________
Printed Name of the Chairman of the Board ___________________
(a) Complete set of financial statements as prescribed under the applicable
financial reporting framework of the entity, and If applicable, schedules and
133
reconciliation forming part of the financial statements required under the
existing rules of the Commission;
(iii) All money amounts required to be shown in financial statements may be
expressed in whole currency units (e.g. pesos) or multiples thereof, as appropriate:
provided, that when stated in other than whole currency units, an indication to that
effect is inserted immediately beneath the caption of the statement or schedule, at
the top of the money columns, or at an appropriate point in narrative material.
(b) All information, such as records and documentation, and other matters
that are relevant to the preparation and presentation of the financial
statements. These include schedules, computations, projections,
reconciliations, reports, analyses and other financial information;
(iv) Negative amounts shall be shown in a manner which clearly distinguishes the
negative attribute. When determining methods of display, consideration shall be
given to the limitations of reproduction and microfilming processes.
(c) Any additional information that the auditor may request from management
and when appropriate, from those tasked to perform governance.
(vii) The management shall provide unrestricted access to records and personnel of
the entity from whom the auditor deems it necessary to obtain audit evidence.
(v) The chronological arrangement of data may be with the most recent date to the
right or to the left. However, the ordering used shall be consistent in all financial
statements, tabular data and footnote data in the document.
(viii) The company shall neither allow nor require its independent auditor to prepare
its financial statements and/or any of its supporting documents. The independent
auditor’s duty is to conduct an independent examination of the company’s financial
statements and supporting documents pursuant to the prescribed auditing standards
and practices.
(vi) The financial statements, other than the consolidated financial statements, shall
have the stamped “received” by the Bureau of Internal Revenue (BIR) or its
authorized banks, unless the BIR allows an alternative proof of submission for its
authorized banks (e.g. bank slips) or prohibits acceptance of the financial statements
in certain case (e.g., on-going examination).
(ix) To determine compliance by the company’s management with its representations
in the SMR, this section and other relevant provisions of this Rule, the Commission
may examine the company’s books, records, systems and controls pursuant to the
guidelines set by the Commission.
D. Presentation for Receipt of the Audited Financial Statements
(i) Financial statements required to be submitted by corporations shall be
accompanied by an auditor's report issued by an independent auditor and presented
in accordance with the requirements of this Rule. Failure of compliance shall be
considered a sufficient ground for the denial of receipt of the financial statements and
penalties will be imposed.
C. Form, Order and Terminology
(i) This section shall be applicable to financial statements filed with the Commission
for all corporations covered by this Rule.
(ii) The acceptance and receipt by the Commission of the financial statements shall
be without prejudice to the fines that may be imposed for any material deficiency or
misstatement that may be found upon evaluation of the specific contents thereof.
(ii) Financial statements shall be filed in such form and order, and shall use such
generally accepted terminology as will best indicate their significance and character
in the light of the provisions applicable thereto. The information required with respect
to any statement which shall be added as is necessary to make the required
statements, in the light of the circumstances under which they are made, not
misleading.
QUALIFICATIONS AND REPORTS OF INDEPENDENT AUDITORS
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●
EXAMINATION OF FINANCIAL STATEMENTS BY INDEPENDENT AUDITOR
1.
e. The accreditation of an independent auditor and/or auditing firm shall expire
after three (3) years from the date of approval of the accreditation, renewal may
be filed not later than 30 business days before its expiration.
Financial statements required to be submitted by corporations covered by this
Rule shall be accompanied by an auditor's report issued by an independent
auditor.
f.
Non compliance shall subject the company with the penalties under paragraph
10 of the SRC
2.
●
●
Accreditation under Group A shall be considered a general accreditation which
shall allow the independent auditor to also audit companies under Groups B, C
and D.
TABLE 1 : CATEGORIES OF REGULATED ENTITIES
All registered corporations covered by this Rule shall have independent
auditors who are duly registered with the Board of Accountancy (BOA) of
the Professional Regulation Commission (PRC) in accordance with the rules
and regulations of said professional regulatory bodies.
Group A
1. Issuers of registered
Securities
ADDITIONAL REQUIREMENT FOR INDEPENDENT AUDITORS OF REGULATED
ENTITIES
- The following regulated entities shall have independent auditors accredited
by the Commission under the appropriate category (Refer to Table 1).
2. Issuers of a class of
securites listes in an
exchange
SCOPE AND LIMITATIONS OF ACCREDITATION
3. Public companies or
those which have total
assets of at least Fifty
million pesos
(P50,000,000.00). and
having two hundred (200)
or more holders each
holding at least One
hundred (100) shares of a
class of its equity
securities.
a. The independent auditors and auditing firms (if applicable) of companies under
Groups A and B shall be both accredited by the Commission.
b. For companies under Group C, the accreditation of the auditing firm shall be
sufficient. However, an individual independent auditor shall be accredited by
the Commission as such.
c. Financial statements filed with the Commission shall be the primary
responsibility of the reporting company; hence, the fairness of the
representations made therein is the company’s responsibility
d. The Commission shall not be liable for any liability or loss that may arise from
the selection of the said accredited independent auditor and/or auditing firm
engaged by a corporation for regular audit.
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Group B
1. Issuers of registered
timeshares, proprietary
and nonproprietary
membership certificates;
2. Investment Houses;
3. Brokers and Dealers of
securities;
4. Investment companies;
5. Government Securities
Eligible Dealers (GSEDs);
6. Universal Banks
Registered as Underwriters
of Securities;
7. Investment Company
Advisers;
8. Clearing Agency and
Clearing Agency as
Depository;
9. Stock and Securities
Exchange/s;
10. Special Purpose Vehicles
registered under the
Special Purpose Vehicle
Act of 2002.
Group C
1. Financing Companies
2. Lending Companies
3. Transfer Agents
●
11. Special Purpose
Corporations registered
under the Securitization
Act of 2004 ;
12. Such other corporations
which may be required by
law to be supervised by the
Commission.
●
1. The applicant shall be accredited with the BOA;
2. At the time of application, the applicant shall have at least five (5) years
experience in external audit.
3. The applicant shall have adequate policies and procedures related to the
elements of a system of quality control provided for under Philippine
Standard on Auditing No. 220 (Quality Control for an Audit of Financial
Statements), Philippine Standard on Quality Control No. 1 (Quality
Controls for Firms that Perform Audits and Reviews of Financial Statements,
Other Assurance and Related Services Engagements), and their
amendments.
SCOPE AND LIMITATIONS OF ACCREDITATION
a. The independent auditors and auditing firms (if applicable) of companies under
Groups A and B shall be both accredited by the Commission.
b. For companies under Group C, the accreditation of the auditing firm shall be
sufficient. However, an individual independent auditor shall be accredited by
the Commission as such.
●
SPECIFIC REQUIREMENT
1. Shall have sufficient knowledge on the regulatory requirements, operations
and functions of companies under Group A, B or C.
c. Financial statements filed with the Commission shall be the primary
responsibility of the reporting company; hence, the fairness of the
representations made therein is the company’s responsibility
2. He shall have a total of 60 units of trainings and seminars on the following
topics within the last 3 years: 15 units on Philippine Financial Reporting
Standards, 15 units on Philippine Standards on Auditing, 18 units on
Taxation, 8 units on Professional Ethics, and 4 units on relevant laws and
recent issues affecting business or other areas relevant to the practice of
accountancy.
d. The Commission shall not be liable for any liability or loss that may arise from
the selection of the said accredited independent auditor and/or auditing firm
engaged by a corporation for regular audit.
e. The accreditation of an independent auditor and/or auditing firm shall expire
after three (3) years from the date of approval of the accreditation, renewal may
be filed not later than 30 business days before its expiration.
f.
GENERAL REQUIREMENT
3. The quality of audit work based on the evaluation of the financial statements
of clients shall be acceptable.
4. Shall have the following track record:
Accreditation under Group A shall be considered a general accreditation which
shall allow the independent auditor to also audit companies under Groups B, C
and D.
ACCREDITATION REQUIREMENTS FOR INDIVIDUAL INDEPENDENT AUDITORS OR
SIGNING PARTNERS.
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-
For Group A – a minimum of 5 corporate clients with total assets of at
least 50 million each
-
For Group B – a minimum of 3 corporate clients with total assets of at
least 20 million each
-
-
●
For Group C – a minimum of 3 corporate clients with total assets of at
least 5 million each
●
INDEPENDENCE OF AUDITORS
The term independent auditor as used in the foregoing paragraph refers to an auditor
who fully meets the requirements of independence as provided for in the Code of
Ethics for Professional Accountants in the Philippines
●
SUPPLEMENTAL WRITTEN STATEMENT OF AUDITOR
For Group D – a minimum of 1 corporate clients with total assets of at
least 5 million each, or a minimum of 5 corporate client regardless of the
amount of total asset.
DOCUMENTATION
1. For stock corporations filing under part 1 of this rule shall issue a
supplemental written statement.
2. The statement may be incorporated in the report accompanying income tax
return, which is required to be submitted with the BIR
3. To support the above statement, the auditor may undertake the audit
procedures he deems necessary, such as the following:
1. A notarized application form (SEC Form ExA-001), together with the
prescribed supporting documents
2. The accreditation may be renewed by filing a notarized renewal application
form (SEC Form ExA-001-R) together with the prescribed supporting
documents.
●
(a) Obtain a certification from the issuer’s corporate secretary on the number
of stockholders and their corresponding shareholdings; or
REPORTORIAL REQUIREMENT
1. A regulated entity shall report to the Commission its action on a report of its
independent auditor pertaining to any item in relation to the following:
a. Any material findings involving fraud or error;
b. Losses or potential losses the aggregate of which amounts to at least
ten percent (10%) of the consolidated total assets of the company.
c. Any finding to the effect that the consolidated assets of the company,
on a going concern basis, are no longer adequate to cover the total
claims of creditors
d. Material internal control weaknesses which may lead to financial
reporting problems.
2. The independent auditor shall document management’s explanation and/or
corrective action taken regarding his adverse findings
●
(b) Inspect the stock and transfer book and conduct the tests needed to
validate their entries and balances.
7.2.18 SEC ISSUANCES
ROTATION OF EXTERNAL AUDITOR
●
MEMORANDUM CIRCULAR
Memorandum circular are issuances that publish pertinent and applicable
portions as well as amplifications, of laws, rules, regulations and precedents issued
by the SEC and other agencies/offices.
●
OPINION
Also known as an ‘opinion letter’, a legal opinion is given in the form of a
letter issued by a law firm expressing legal conclusions and/or analysis of a specific
transaction. The recipient of the opinion will then rely on its contents as a basis for
entering into the transaction.
The independent auditors or in the case of an audit firm, the signing partner of
regulated entities shall be rotated every 5 years of engagement. A 2 year cooling off
period shall be observed if the partner or individual auditor is the same as to past
engagement.
137
The delivery of a legal opinion is often a condition in cross-border
transactions and this needs to be satisfied before any advance of money is made. A
legal opinion will seek to reassure a lender that the transaction documents will: (i)
bind the parties involved in the transaction; and (ii) be enforceable against those
parties.
3. Assured/Beneficiary - the person designated by the terms of the policy as the one
to receive the proceeds of the insurance. The insured is also the assured when the
proceeds are payable to him.
Persons than cannot be a beneficiary:
1. Persons who were guilty of adultery or concubinage at the time of donation.
2. Persons found guilty of the same criminal offense
3. Made to a public officer or his wife, descendants or ascendants by reason of his
office
Group 14 - Group ni Monique
INSURANCE LAW
7.3.1 CONCEPT OF INSURANCE
A contract of insurance is an agreement whereby one who undertakes, for a
consideration, to indemnify another against loss, damage, or liability arising from an
unknown or contingent event.
Microinsurance - is a financial product that meets the risk protection needs of the poor
where:
a. the amount of contributions, premiums, fees or charges, computed on a daily basis,
does not exceed 7.5% of the current daily minimum wage rate of a non-agricultural
worker in Metro Manila
b. the maximum sum of guaranteed benefits is not more than 1,000 times of the current
daily minimum wage rate for nonagricultural workers in Metro Manila.
What may be insured?
Any contingent or unknown event, whether past or future, which may damnify a person
having an insurable interest, or create a liability against him.
Overinsurance - occurs when the insured takes an insurance over the same property in an
amount that exceeds the value of his insurable interest.
All rights, title and interest in the policy of insurance taken out by an original owner on
the life or health of the person insured shall automatically vest in the latter upon the death
of the original owner, unless otherwise provided for in the policy.
Double Insurance - happens when the same person is insured twice or more by two or
more insurers separately. The insurance policies also cover the same subject, involve the
same interest, and protect against the same peril.
Parties to a Contract of Insurance
1. Insurer - the party who assumes or accepts the risk of loss and undertakes for a
consideration to indemnify the insured or to pay him a certain sum on the happening
of a specified contingency or event. An insurer must obtain a Certificate of Authority
from the Insurance Commissioner.
7.3.2 ELEMENTS OF AN INSURANCE CONTRACT (PARIS)
1. Payment of premium- As consideration for the insurer's promise, the insured makes
a ratable contribution called "premium," to a general insurance fund.
2. Assumption of Risk- The insurer assumes that risk of loss for a consideration.
3. Risk of loss- The insured is subject to a risk of loss through the destruction or
impairment of that interest by the happening of designated peril.
4. Insurable interest- The insured possesses an interest of some kind susceptible of
pecuniary estimation, known as "insurable interest."
5. Scheme to distribute losses- Such assumption of risk is part of a general scheme to
distribute actual losses among a large group or substantial number of persons
bearing a similar risk.
2. Insured - the party whose loss is the occasion for the payment of the insurance
proceeds by the insurer.
a. Must have capacity to enter into a contract
b. Must not be a public enemy
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period of two (2) years from the date of its issue or of its last reinstatement,
unless the policy provides a shorter period: Provided, however, That suicide
committed in the state of insanity shall be compensable regardless of the
date of commission.
b. Group Life - is essentially a single insurance contract that provides coverage
for many individuals. In its original and most common form, group insurance
provides life or health insurance coverage for the employees of the employer.
c. Industrial Life
7.3.3 CHARACTERISTICS AND NATURE OF INSURANCE CONTRACTS (PAVUR ACU)
1. Personal - as a rule, a contract of insurance is not transmissible since the personal
qualifications of the applicant/insured were considered in the approval.
2. Aleatory - the liability of the insurer depends upon some contingent events.
3. Voluntary - the parties may incorporate terms and conditions (provided that: they do
not contravene and oppose provision of law, public policy, morals, good conduct, and
public order).
GR: the taking out of an insurance contract is not compulsory.
EXP: Liability insurance may be required by law in certain instances
(example: compulsory motor vehicle liability insurance, employees under Labor
Code, a condition to granting a license to conduct a business or calling affecting the
public safety or welfare).
4. Unilateral - impose legal duties only on the insurer who promise to indemnify in case
of loss.
5. Risk-distributing device - it serves to distribute the risk of economic loss among as
many possible to those who are subject to the same kind of risk.
6. Contract of Adhesion - considering that usually it is the insurance company that
prepares the terms and conditions of the contract and the other party merely
“adheres” to the said contract.
7. Contract of Indemnity - the insurer promises to make good only the loss of the
insured.
EXP: on life insurance – it is not applicable because life is not capable of
pecuniary estimation. The only situation where indemnity is applicable to life
insurance is if the amount in the policy is fixed (example: a creditor insures the life of
his debtor to the extent of the debtor’s debt to the creditor).
8. Contract of Utmost Good Faith (uberrimae fides) - it is a contract of good faith which
requires the applicant to make certain disclosures affecting risks of which he may be
aware, or material facts, which he knows or ought to know.
2.) Non-Life Insurance
a. Marine Insurance - it an insurance against risk connected with NAVIGATION,
to which a ship, cargo, freightage, profits, or other insurance interest in
movable property may be exposed during a certain voyage or a fixed period
of time.
b. Fire Insurance - shall include insurance against loss by fire, lightning,
windstorm, tornado or earthquake and other allied risks, when such risks are
covered by extension to fire insurance policies or under separate policies
(Section 169, Insurance Code).
c. Casualty - Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of other types of
insurance such as fire or marine (Section 176, Insurance Code).
3.) Contract of Suretyship - A contract of suretyship shall be deemed to be an
insurance contract, within the meaning of this Code, only if made by a surety who or which,
as such, is doing an insurance business as hereinafter provided (Section 2 (A), Insurance
Code).
7.3.5 VARIABLE CONTRACTS
- any policy or contract on either a group or individual basis 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 investment.
7.3.4 CLASSES
1.) Life Insurance - is insurance on human lives and insurance appertaining thereto or
connected therewith (Section 181, Insurance Code).
a. Individual Life
Note: The insurer in a life insurance contract shall be liable in case of
suicide only when it is committed after the policy has been in force for a
7.3.6 INSURABLE INTEREST
- It is the interest which the law requires the owner of an insurance policy to have in
the person or thing insured.
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-
A person is deemed to have insurable interest in the subject matter insured where he
has a relation or connection with or concern in it that he will derive pecuniary benefit
or advantage from its preservation and will suffer loss or damage from its
destruction, termination or injury by the happening of the event insured against.
PROPERTY INSURANCE
Insurable interest in property is any interest therein, or liability in respect thereof, and
it may consist in:
1. An existing interest.
2. An inchoate interest founded on existing interest.
3. Any expectancy coupled with an existing interest.
Note: Pecuniary interest over the property is always necessary.
General Rule: Pecuniary in nature
LIFE INSURANCE
Exception of the general rule. The expectation of benefit from the continued life of
that person need not necessarily be of a pecuniary nature.
INSURABLE INTEREST IN PROPERTY vs INSURABLE INTEREST IN LIFE INSURANCE
PROPERTY
Every person who has an insurable interest in the life and health of:
1. Himself, his spouse (legal wife only) and children.
2. Any person whom he depends wholly or in part for education or support, or in whom
he has a pecuniary interest.
3. 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.
4. Any person upon whose life any estate or interest vested in him depends.
LIFE
Extent
Limited to the actual value of the interest
thereon
Unlimited (except in life insurance effected
by a creditor on the life of the debtor)
Existence of Insurable Interest
Must exist when the insurance takes effect
and when loss occurs, but need not exist in
the meantime
Test: is whether or not the person is interested in the preservation of the insured life despite
the insurance.
Must exist at the time the policy takes place
but need not exist at the time of loss
Basis of Expectation
Measure: conditions sine qua non:
1. Positive: will you benefit if the person does not die;
2. Negative: the amount of loss and effect of that loss, or the amount by which you will
be damnified.
There must be legal basis
Need not have legal basis
Insurable Interest of the Beneficiary
Must have insurable interest over the thing
Consent: of the person whose life is insured is not essential to the validity of the insurance
as long as the insured has legal insurable interest at the inception of the policy.
Creditor: may only insure the life of the debtor up to the amount of debt. If debt has been
paid prior to death, the creditor can no longer recover.
If the debtor insures his own life for the benefit of the creditor, upon full payment of
debt, the insurance will inure to the benefit of the debtor's estate upon death.
Need not have insurable interest over the
life of the insured, BUT if secured by the
beneficiary, he must have insurable interest
MORTGAGED PROPERTY
Mortgagor: as owner, has an insurable interest to the extent of its value, even though the
mortgage debt equals such value.
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Mortgagee: has an insurable interest in the mortgaged property to the extent of the debt
secured; such interest continues until the mortgage debt is extinguished.
Cognition Theory - an insurance contract is perfected only when the applicant-insured has
knowledge of the acceptance and approval by the insurer of his application.
Loss Payable Mortgage Clause
The mortgagor secures an insurance over the property and designates the
mortgagee as the beneficiary (or assigns the policy to the mortgagee), the insurance is
deemed to be upon the interest of the mortgagor, who does not cease to be a party to the
original contract and
1. Any act of his, prior to the loss, which would otherwise avoid the insurance, will have
the same effect, although the property is in the hands of the mortgagee,
2. But any act which, under the contract of insurance which is to be performed by the
mortgagor, may be performed by the mortgagee.
Note: The mere submission of an application without the corresponding approval of the
insurer, even if no memorandum or rejection as provided, does not result in a perfected
contract of insurance.
Premiums - consideration paid by the insured to the insurer for undertaking the assumption
of the risk covered by the insurance contract.
General Rule: No binding contract of insurance if there is no payment of premium,
considering that it is one of the elements of an insurance contract.
Exceptions:
1. Whenever a grace period provision applies.
2. Agreement to grant credit extension of the premium.
3. Parties intended the policies to be valid despite payment of insurance
premiums in installment.
4. Insurer granted a credit term for the payment of the premium and loss occurs
before the expiration of the term, recovery on the policy should be allowed.
5. Parties are barred by estoppel.
EFFECT OF CHANGE OF INTEREST IN INSURED PROPERTY
General Rule: a change of interest in any part of a thing insured unaccompanied by a
corresponding change of interest in the insurance, suspends the insurance to an
equivalent extent, until the interest in the thing and the interest in the insurance are vested
in the same person.
Exceptions:
1. In life, health and accident insurance.
2. Change of interest in the thing insured after the occurrence of an injury which
results in a loss.
3. Change of interest in one or more several distinct things, separately insured by
one policy.
4. Change of interest by will or succession on the death of the insured.
5. Transfer of interest by one or several partners, joint owners or owners in
common, who are jointly insured, to the others.
6. When a policy is so framed that it will inure to the benefit of whomsoever, during
the continuance of the risk, may become the owner of the interest insured.
7.3.8 RESCISSION OF INSURANCE CONTRACT
Grounds for Rescission:
1. Breach of Material Warranty
Warranty - a statement or promise by the insured set forth in the policy. The falsity or
non-fulfillment of which, renders the policy voidable at the election of the insurer.
General Rule: violation of material warranty or of a material provision of a policy will
entitle the other party to RESCIND the contract.
Exception:
a. Loss occurs before the time arrives for the performance of the warranty
b. The performance becomes unlawful at the place of the contract
c. Performance become impossible
7.3.7 PERFECTION OF THE CONTRACT OF INSURANCE
A contract of insurance is consensual, therefore it is perfected by the meeting of
the minds between the insured and insurer.
2. False Representation (Misrepresentation)
Representation - an oral or written statement of a fact or condition affecting the risk,
made by the insured to the insurer, tending to induce the insurer to assume risk.
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Kinds:
a. Affirmative - affirmation of a fact when the contract begins.
b. Promissory - promise to be performed after policy was issued
RULE: A concealment whether intentional or unintentional entitles the injured
party to RESCIND a contract of insurance.
4. Alteration of the thing insured
An alteration in the use or condition of a thing insured from that to which it is limited
by the policy made without the consent of the insurer, by means within the control
of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire
insurance. (Sec. 170)
Characteristics:
a. Not part of the contract but merely a collateral inducement to it
b. May be oral or written
c. Made before or the same time of issuing the policy
d. May be altered or withdrawn before the insurance is effected but not
afterwards
e. Presumed to refer to the date on which the contract goes into effect
INCONTESTABILITY CLAUSE
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.
RULE:
● A representation is deemed to be false when the fact fails to correspond
with its assertions or stipulations.
● If representation is materially false, whether affirmative or promissory, the
injured party is entitled to RESCIND the contract from the time when the
representation becomes false.
Purpose: to assure a policy holder that his beneficiaries would receive payment without
question as to the validity of the policy
3. Concealment
A neglect to communicate that which a party knows or ought to communicate.
Requisites:
1. It must be a life insurance.
2. It must be payable on death of the insured.
3. It must be in force during the lifetime of the insured for at least 2 years from its date
of issue or its last reinstatement.
Requisites:
1. Party concealing is duty bound to disclose the material fact
2. The other party has no means of ascertaining the fact concealed
3. Party concealing makes no warranty as to the fact concealed
4. The party knows or ought to know such fact which he neglects to
communicate or disclose to the other party
5. Concealment takes place at the time the contract is entered into and not
afterwards
7.3.9 CLAIMS SETTLEMENT AND SUBROGATION
Claim settlement is the indemnification of that suffered by the insured.
Conditions before the insured may recover on the policy after the loss
1. The insured or some person entitled to the benefit of the insurance, without
unnecessary delay, must give written notice to the insurer (IC, Sec. 90).
2. When required by the policy, insured must present a preliminary proof loss
which is the best evidence he has in his power at the time (IC, Sec. 91).
Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due,
in forming his estimate of the disadvantages of the proposed contract, or in making
his inquiries.
Q: When must a just claim on life insurance be paid?
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A:
1. Applicable only to property insurance - the value of human life is regarded as
unlimited and therefore, no recovery from a third party can be deemed adequate to
compensate the insured's beneficiary.
2. The right of insurer against a third party is limited to the amount recoverable from the
latter by the insured.
1. The proceeds shall be paid immediately upon the maturity of the policy if there is
such a maturity date.
2. If the policy matures by the death of the insured, within sixty (60) days after
presentation of the claim and filing of the proof of the death of the insured
Q: When must a just claim on a non-life insurance be paid?
A:
1. Proceeds shall be paid within thirty (30) days after proof of loss is received by the
insurer and ascertainment of the loss or damage is made either by agreement or by
arbitration.
2. If no ascertainment is made within sixty (60) days after receipt of proof of loss, it shall
be paid within ninety (90) days after such receipt.
Group 7: Group ni Mila
7.4 Cooperatives
7.4.1 0rganization and Registration of Cooperatives
7.4.2 Administration
7.4.3 Responsibilities, Rights and Privileges of Cooperatives
7.4.4 Membership
7.4.5 Capital, Property of Funds
7.4.6 Audit, Inquiry and Members’ Right to Examine
7.4.7 Allocation and Distribution of Funds
7.4.8 Types and Categories of Cooperatives
7.4.9 Merger and Consolidation of Cooperatives
7.4.10 Dissolution of Cooperatives
Q: When should the insurance claim be filed?
A:
1. General rule: At the time agreed upon but not less than 1 year from the date of the
insurer's rejection of the claim. If there is no stipulation-10 years
2. Compulsory Motor Vehicle Liability Insurance (CMVLI)- 6 months from date of
accident
3. Motor vehicle insurance- 1 year from the denial of the claim
7.4 Cooperatives
7.4.1 0rganization and Registration of Cooperatives
SUBROGATION
If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract (NCC, Art. 2207).
What is a Cooperative?
According to Article 3 of the Republic Act No. 9520 (RA 9520), a cooperative is an
autonomous and duly registered association of persons, with a common bond of interest,
who have voluntarily joined together to achieve their social, economic, and cultural needs
and aspirations by making equitable contributions to the capital required, patronizing their
products and services and accepting a fair share of the risks and benefits of the undertaking
in accordance with universally accepted cooperative principles.
The payment by the insurer to the insured operates as an equitable assignment to
the insurer of all the remedies that the insured may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon,
nor does it grow out of, any privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim
Objectives and Goals of a Cooperative
Article 7, RA 9520 provides that the primary objective of every cooperative is to help
improve the quality of life of its members. Towards this end, the cooperative shall aim to:
RULES ON SUBROGATION
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1. Provide goods and services to its members to enable them to attain increased
income, savings, investments, productivity, and purchasing power, and promote among
themselves equitable distribution of net surplus through maximum utilization of economies of
scale, cost-sharing and risk-sharing;
2. Provide optimum social and economic benefits to its members;
3. Teach them efficient ways of doing things in a cooperative manner;
4. Propagate cooperative practices and new ideas in business and management;
5. Allow the lower income and less privileged groups to increase their ownership in
the
wealth of the nation; and
6. Cooperate with the government, other cooperatives and people- oriented
organizations to further the attainment of any of the foregoing objectives.
Code, election of the members of the board shall be held in accordance with its
bylaws or election guideline of such electric cooperative; and
➔ • To approve developmental plans of the cooperative.
Subject to such other provisions of this Code and only for purposes of prompt and intelligent
decision-making, the general assembly may be a THREE-FOURTHS (3/4) VOTE OF ALL
ITS MEMBERS with voting rights, present and constituting a quorum, DELEGATE SOME
OF ITS POWERS TO A SMALLER BODY OF THE COOPERATIVE. These powers shall be
enumerated under the bylaws of the cooperative.
Meetings
Cooperative Principles
● Voluntary and Open Membership
● Democratic Member Control
● Member Economic Participation
● Autonomy and Independence
● Education, Training and Information
● Cooperation Among Cooperatives
● Concern for Community
• A regular meeting shall be held ANNUALLY by the general assembly on a date fixed in
the bylaws, or if not so fixed, on any dated within ninety (90) days after the close of
each fiscal year: Provided, That notice of regular meetings shall be sent in WRITING, by
posting or publication, or through other electronic means to all members of record.
• Whenever necessary, a special meeting of the general assembly may be called at ANY
TIME by a MAJORITY VOTE of the board of directors or as provided for in the bylaws:
Provided, That a notice in writing shall be sent ONE (1) WEEK PRIOR to the meeting to all
members who are entitled to vote. However, a special meeting shall be called by the board
of directors after compliance with the required notice within from at least TEN PER
CENTUM (10%) of the total members who are entitled to vote to transact specific business
covered by the call
o NOTE: "If the board FAILS to call a regular or a special meeting within the given
period, the Authority, upon petition of TEN PER CENTUM (10%) of all the
members of the cooperative who are entitled to vote, and for good cause shown,
shall issue an order to the petitioners directing them to call a meeting of the
general assembly by giving proper notice as required in this Code or in the bylaws;
• In the case of a newly approved cooperative, a special general assembly shall be called,
as far as practicable, within ninety (90) days from such approval
• The Authority may call a special meeting of the cooperative for the purpose of reporting to
the members the result of any examination or other investigation of the cooperative affairs
• Notice of any meeting may be waived, expressly or impliedly, by any member.
7.4.2 Administration
Composition of the General Assembly - The general assembly shall be composed of
such members who are entitled to vote under the articles of cooperation and bylaws of the
cooperative.
Powers of the General Assembly - The general assembly shall be the HIGHEST
policy-making body of the cooperative and shall exercise such powers as are stated in this
Code, in the articles of cooperation and in the bylaws of the cooperative. The general
assembly shall have the following exclusive powers which CANNOT be delegate:
➔ • To determine and approve amendments to the articles of cooperation and
bylaws;
➔ • To elect or appoint the members of the board of directors, and to remove them
for cause. However, in the case of the electric cooperatives registered under this
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Quorum - A quorum shall consist of at least twenty-five per centum (25%) of all the
members entitled to vote. In the case of cooperative banks, the quorum shall be as provided
in Article 99 of this Code (one half plus one of the number of voting shares of all the
members in good standing). In the case of electric cooperatives registered under this Code,
a quorum, unless otherwise provided in the bylaws, shall consist of five per centum (5%) of
all the members entitled to vote.
Voting System - Each member of a primary cooperative shall have only one (1) vote. In the
case of members of secondary or tertiary cooperatives, they shall have one (1) basic vote
and as many incentive votes as provided for in the bylaws but not exceed five (5) votes. The
votes cast by the delegates shall be deemed as votes cast by the members thereof.
• NOTE: "However, the bylaws of a cooperative OTHER THAN A PRIMARY may
provide for voting by proxy. Voting by proxy means allowing a delegate of a cooperative to
represent or vote on behalf of another delegate of the same cooperative.
• Any person engaged in a business similar to that of the cooperative or who in any way has
a conflict of interest with it, is DISQUALIFIED from election as a director of said cooperative
Meeting of the Board and Quorum Requirement.
• In the case of primary cooperatives, regular meetings of the board of directors shall be held
at least once a month.
• Special meetings of the board of directors may be held at any time upon the call of the
chairperson or a majority of the members of the board:
o Provided, That written notice of the meeting specifying the agenda of the special
meeting shall be given to all members of the board at least one (1) week before the
said meeting.
• A majority of the members of the Board shall constitute a quorum or the conduct of
business, unless the bylaws proved otherwise. (THIS IS FOR THE MEETING OF THE
BOARDS DO NOT BE CONFUSED WITH THE 25% IN ARTICLE 35 PERTAINING TO
THE QUORUM CONSTITUTING ALL OF THE MEMBERS)
• Directors CANNOT attend or vote by proxy at board meetings.
Composition and Term of the Board of Directors - Unless otherwise provided in the
bylaws, the direction and management of the affairs of a cooperative shall be vested in a
board of directors which shall be composed of not less than five (5) nor more than fifteen
(15) members elected by the general assembly for a term of two (2) years and shall hold
office until their successors are duly elected and qualified, or until duly removed for caused.
Vacancy in the Board of Directors - Any vacancy in the board of directors, OTHER THAN
BY EXPIRATION OF TERM, may be filled by the vote of at least a majority of the remaining
directors, if still constituting a quorum; otherwise, the vacancy must be filled by the
general assembly in a regular or special meeting called for the purpose. A director so
elected to fill a vacancy SHALL SERVE ONLY THE UNEXPIRED TERM OF HIS
PREDECESSOR in office.
Powers of the Board of Directors - The board of directors shall be responsible for the
strategic planning, direction-setting and policy-formulation activities of the cooperatives.
Directors.
• Any member of a cooperative who under the bylaws of the cooperative, has the right to
vote and who possesses all the qualifications and none of the disqualifications provided in
the laws or bylaws shall be eligible for election as director.
• The cooperative may, by resolution of its board of directors, admit as directors, or
committee member one appointed by any financing institution from which the cooperative
received financial assistance solely to provide technical knowledge not available within its
membership. Such director or committee member not be a member of the cooperative
and shall have no powers, rights, nor responsibilities except to provide technical
assistance as required by the cooperative.
• The members of the board of directors SHALL NOT HOLD any other position directly
involved in the day to day operation and management of the cooperative.
Officers of the Cooperative - The board of directors shall elect from among themselves the
chairperson and vice-chairperson, and elect or appoint other officers of the cooperative from
outside of the board in accordance with their bylaws. All officers shall serve during good
behavior and shall not be removed except for cause after due hearing. Loss of confidence
shall not be a valid ground for removal unless evidenced by acts or omission causing loss of
confidence in the honesty and integrity of such an officer. No two (2) or more persons with
relationships up to the third civil degree of consanguinity or affinity nor shall any
person
engaged in a business similar to that of the cooperative nor who in any other manner
has interests in conflict with the cooperative shall serve as an appointive officer.
Committees of Cooperatives
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★ The bylaws may create an executive committee to be appointed by the board of
directors with such powers and duties as may be delegated to it in the bylaws or by a
majority vote of all the members of the board of directors.
★ The bylaws shall provide for the creation of an audit, election, mediation and
conciliation, ethics, and such other committees as may be necessary for the conduct
of the affairs of the cooperative.
➔ The members of both the audit and election committee shall be elected by
the general assembly and the rest shall be appointed by the board.
➔ The audit committee shall be directly accountable and responsible to the
general assembly.
➔ It shall have the power and duty to continuously monitor the adequacy and
effectiveness of the cooperative's management control system and audit the
performance of the cooperative and its various responsibility centers.
cooperative, be liable for damages and shall be ACCOUNTABLE FOR DOUBLE THE
PROFITS which otherwise would have accrued to the cooperative.
Compensation
• In the ABSENCE of any provisions in the bylaws fixing their compensation, the directors
shall not receive any compensation except for reasonable per diems:
➢ Provided however, That the directors and officers SHALL NOT BE
ENTITLED TO ANY PER DIEM when, in the preceding calendar year: the
cooperative REPORTED A NET LOSS OR HAD A DIVIDEND RATE LESS
THAN THE OFFICIAL INFLATION RATE FOR THE SAME YEAR.
➢ Any compensation other than per diems may be granted to directors by a
MAJORITY VOTE of the members with voting rights at a regular or special
general assembly meeting specifically called for the purpose: Provided, That
NO additional compensation other than per diems shall be paid during the
FIRST YEAR OF EXISTENCE OF ANY COOPERATIVE.
• The COMPENSATION of officers of the cooperative as well as the members of the
committee as well as the members of the committees created pursuant to this Code or its
bylaws may be FIXED IN THE BYLAWS.
"(3) Unless already fixed in the bylaws, the compensation of all other employees shall be
DETERMINED BY THE BOARD OF DIRECTORS.
NOTE: Unless otherwise provided in the bylaws, the board, in case of a vacancy in the
committees, may call an election to fill the vacancy or appoint a person to fill the same
subject to the provision that the person elected or appointed shall serve only for the
unexpired portion of the term.
Functions, Responsibilities and Training Requirements of Directors, Officers and
Committee Members - The functions and responsibilities of directors, officers and
committee members, as well as their training requirements, shall be in accordance with the
rules and regulations issued by the Authority.
Dealings of Directors, Officers, or Committee Members - A contract entered into by the
cooperative with one (1) or more of its directors, officers, and committee members IS
VOIDABLE, AT THE OPTION OF THE COOPERATIVE, UNLESS ALL the following
conditions are present:
➔ That the presence of such director in the board meeting wherein contract was
approved was not necessary to constitute a quorum for such meeting;
➔ That the vote of such director was not necessary for the approval of the contract;
➔ That the contract is fair and reasonable under the circumstances; and
➔ That in the case of an officer or committee member, the contract with the officer or
committee member has been previously authorized by the general assembly or by
the board of directors.
Liability of Directors, Officers and Committee Members - Directors, officers and
committee members, who are willfully and KNOWINGLY VOTE FOR OR ASSENT to
patently unlawful acts or who are guilty of gross negligence or bad faith in directing the
affairs of the cooperative or acquire any personal or pecuniary interest in conflict with their
duty as such directors, officers or committee members shall be LIABLE JOINTLY AND
SEVERALLY for all damages or profits resulting therefrom to the cooperative, members,
and other persons.
NOTE: "When a director, officer or committee member attempts to acquire or acquires, in
violation of his duty, any interest or equity adverse to the cooperative in respect to any
matter which has been reposed in him in confidence, he shall, as a trustee for the
NOTE: "Where ANY OF THE FIRST TWO CONDITIONS set forth in the preceding
paragraph is absent, in the case of a contract with a director, such contract may be ratified
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by a three-fourths (3/4) vote of all the members with voting rights, present and constituting
a quorum in a meeting called for the purpose: Provided, That full disclosure of the adverse
interest of the directors involved is made at such meeting, and that the contract is fair and
reasonable under the circumstances.
7.4.3 Responsibilities, Rights and Privileges of Cooperatives
Address - Every cooperative shall have an official postal address to which all notices and
communications shall be sent. Such address and every change thereof shall be registered
with the Authority.
Disloyalty of a Director - A director who, by virtue of his office, acquires for himself an
opportunity which should belong to the cooperative shall be liable for damages and
must account for DOUBLE the profits that otherwise would have accrued to the cooperative
by refunding the same, unless his act has been ratified by a three-fourths (3/4) vote of all
the members with voting rights, present and constituting a quorum. This provision shall be
applicable, notwithstanding the fact that the director used his own funds in the
venture.
Books to be Kept Open.
• Every cooperative shall have the following documents ready and accessible to its members
and representatives of the Authority for inspection during reasonable office hours at its
official address:
o A copy of this Code and all other laws pertaining to cooperatives
o A copy of the regulations of the Authority
o A copy of the articles of cooperation and bylaws of the cooperative;
o A register of members
o The books of the minutes of the meetings of the general assembly, board of
directors and committee
o Share books, where applicable
o Financial statement
o Such other documents as may be prescribed by laws or the bylaws.
Illegal Use of Confidential Information.
• A director or officer, or an associate of a director or officer, who, for his benefit or
advantage or that of an associate, makes use of confidential information that, if generally
known, might reasonably be expected to adversely affect the operation and viability of the
cooperative, shall be held:
o Liable to compensate the cooperative for the direct losses suffered by the cooperative
as a result of the illegal use of information; and
o Accountable to the cooperative for any direct benefit or advantage received or yet to
be received by him or his associate, as a result of the transaction
• The cooperative shall take the necessary steps to enforce the liabilities described in
subsection (a).
• The accountant or the bookkeeper of the cooperative shall be responsible for the
maintenance of the cooperative in accordance with generally accepted accounting practices.
He shall also be responsible for the production of the same at the time of audit or inspection.
o NOTE: The audit committee shall be responsible for the continuous and periodic
review of the books and records of account to ensure that these are in accordance
with generally accepted accounting practices. He shall also be responsible for the
production of the same at the time of audit or inspection.
• Each cooperative shall maintain records of accounts such that the true and correct
condition and the results of the operation of the cooperative may be ascertained therefrom
at any time. The financial statements, audited according to generally accepted auditing
standards, principles and practices, shall be published ANNUALLY and shall be kept posted
in a conspicuous place in the principal office of the cooperative.
• Subject to the pertinent provisions of the National Internal Revenue Code and other laws, a
cooperative MAY DISPOSE by way of burning or other method of complete destruction any
document, record or book pertaining to its financial and nonfinancial operations which are
Removal
● All complaints for the removal of any elected officer shall be filed with the board of
directors. Such officers shall be given the opportunity to be heard.
● Majority of the board of directors may place the officer concerned under preventive
suspension pending the resolution of the investigation.
● Upon finding prima facie evidence of guilt, the board shall present its
recommendation for removal to the general assembly.
● An elective officer may be removed by THREE FOURTHS (3/4) votes of the regular
members present and constituting a quorum, in a regular or special general
assembly meeting called for the purpose. The officer concerned shall be given an
opportunity to be heard at said assembly.
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already MORE THAN FIVE (5) YEARS OLD except those relating to transactions which are
the subject of civil, criminal and administrative proceedings.
o An inventory of the audited documents, records and books to be disposed of shall
be drawn up and certified to by the board secretary and the chairman of the audit
committee and presented to the board of directors which may thereupon approve the
disposition of said records.
• A COPY OF ANY ENTRY IN ANY book, register or list regularly kept in the course of
business in the possession of a cooperative shall, if duly certified in accordance with the
rules of evidence, be ADMISSIBLE AS EVIDENCE of the existence of entry and prima facie
evidence of the matters and transactions therein recorded.
• No person or a cooperative is possession of the books of such cooperative shall, in any
legal proceedings to which the cooperative is not a party, be compelled to produce any of
the books of the cooperative, the contents of which can be proved and the matters,
transactions and accounts therein recorded, unless by order of a competent court.
Reports
• Every cooperative shall draw up regular reports of its program of activities, including those
in pursuance of their socio-civic undertakings, showing their progress and achievements AT
THE END OF EVERY FISCAL YEAR.
o The reports shall be made accessible to its members, and copies thereof shall
be furnished to all its members or record.
o These reports shall be filed with the Authority within one hundred twenty (120)
days from the end of the calendar year.
o The form and contents of the reports shall be as prescribed by the rules of the
Authority.
o Failure to file the required reports shall subject the accountable officer/s to fines
and penalties as may be prescribed by the Authority, and shall be a ground for the
revocation of authority of the cooperative to operate as such.
o The fiscal year of every cooperative shall be the calendar year except as may
be otherwise provided in the bylaws.
• If a cooperative fails to make, publish and file the reports required herein, or fails to include
therein any matter required by the Code, the Authority shall, WITHIN FIFTEEN (15) days
from the expiration of the prescribed period, send such cooperative a written notice, stating
its non-compliance and the commensurate fines and penalties that will be imposed until
such time that the cooperative has complied with the requirements.
Bonding of Accountable Officers - Every director, officer, and employee HANDLING
FUNDS, securities or property on behalf of any cooperative shall be COVERED BY A
SURETY BOND to be issued for a duly registered insurance or bonding company for the
faithful performance of their respective duties and obligations. The board of directors shall
determine the adequacy of such bonds.
o "Upon the filing of the application for registration of a cooperative, the bonds of the
accountable officers shall be required by the Authority. Such bonds shall be renewed
manually and the Authority shall accordingly be informed of such renewal.
Preference of Claims
• Notwithstanding the provisions of existing laws, rules and regulations to the contrary, but
subject to the prior claim of the Authority, any debt due to the cooperative from the member
shall
CONSTITUTE A FIRST LIEN upon any raw materials, production, inputs, and products
produced; or any land, building, facilities, equipment, goods or services acquired and held,
by such member through the proceeds of the loan or credit granted by the cooperative to
him for as long as the same is not fully paid.
• No property or interest on property which is subject to a lien under paragraph (1) shall be
sold nor conveyed to third parties WITHOUT THE PRIOR PERMISSION OF THE
COOPERATIVE.
o The lien upon the property or interest shall continue to exit even after the sale or
conveyance thereof until such lien has been duly extinguished.
• Notwithstanding the provisions of any law to the contrary, any sale or conveyance made in
contravention of paragraph (2) hereof shall be VOID.
Register of Members as Prima Facie Evidence - Any register or list of members shares
kept by any registered cooperative shall be PRIMA FACIE EVIDENCE of the following
particulars entered therein:
• The date on which the name of any person was entered in such register or list of member
• The date on which any such person ceased to be a member.
Probative Value of Certified Copies of Entries
Instrument for Salary or Wage Deduction
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taxes and fees, including not limited to final taxes on members' deposits and documentary
tax. Notwithstanding the provisions of any law or regulation to the contrary, such
cooperatives dealing with nonmembers shall enjoy the following tax exemptions:
• Cooperatives with accumulated reserves and undivided net savings of not more than Ten
million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal
or barangay taxes of whatever name and nature.
o Such cooperatives shall be exempt from customs duties, advance sales or
compensating taxes on their importation of machineries, equipment and spare
parts used by them and which are not available locally certified by the department
of trade and industry (DTI).
o All tax free importations shall not be sold nor the beneficial ownership thereof be
transferred to any person until after five (5) years, otherwise, the cooperative and
the transferee or assignee shall be SOLIDARILY LIABLE TO PAY TWICE THE
AMOUNT OF THE IMPOSED TAX AND / OR DUTIES.
• A member of a cooperative may, notwithstanding the provisions of existing laws to the
contrary, execute an instrument in favor of the cooperative authorizing his employer to
deduct from his/her salary or wages, commutation of leave credits and any other
monetary benefits payable to him by the employer and remit such amount as maybe
specified in satisfaction of a debt or other demand due from the member to the
cooperative.
• Upon the execution of such instrument and as may be required by the cooperative
contained in a written request, the employer shall make the deduction in accordance with
the agreement and remit forthwith the amount so deducted WITHIN TEN (10) DAYS after
the end of the payroll month to the cooperative. The employer shall make the deduction for
as long as such debt or other demand remains unpaid by the employee.
• The term "employer" as used in this article shall include all private firms and the national
and local governments and government-owned or controlled corporations who have under
their employer a member of a cooperative and have agreed to carry out the terms of the
instrument mentioned in paragraphs (1) and (2) of this article.
• The provisions of this article shall apply to all similar agreements referred to in paragraph
(1) and were enforced prior to the approval of this Code.
• Notwithstanding the provisions of existing laws to the contrary, the responsibilities of the
employer as stated in paragraphs (1) and (2) of this article shall be mandatory: Provided,
That in the case of private employer, the actual and reasonable cost deducting and remitting
may be collected.
• Cooperatives with accumulated reserves and divided net savings of more than Ten million
pesos (P10,000,000.00) shall fee the following taxes at the full rate:
o Income Tax - On the amount allocated for interest on capitals: Provided, That the same tax
is not consequently imposed on interest individually received by members: Provided, further,
That cooperatives regardless of classification, are exempt income tax from the date of
registration with the Authority;
o Value-Added Tax On transactions with non-members: Provided, however, That
cooperatives duly registered with the Authority; are exempt from the payment of
value-added tax; subject to Sec. 109, sub-sections L, M and N of Republic Act No. 9337,
the National Internal Revenue Code, as amended:
Primary Lien - Notwithstanding the provision of any law with the contrary, a cooperative
shall have primary lien upon the capital, deposits or interest of a member for any debt
due to the cooperative from such a member.
• Section 109 Subsection L:
❖ Sales by agricultural cooperatives to their members as well as the sales of their produce
to non-members; their importation of, direct farm inputs, machineries and equipment and
their spare parts thereof to be used directly and exclusively in the productions and/or
processing of their produce.
Tax Treatment of Cooperative - Duly registered cooperatives under this Code which do
not transact any business with non-members or the general public shall not be
subject to any taxes and fees imposed under the internal revenue laws and other tax
laws. Cooperatives NOT falling under this article shall be governed by the succeeding
section.
o Section 109 Subsection M:
❖ Gross Receipts from lending activities by credit or multi-purpose cooperatives
Tax and Other Exemptions - Cooperatives transacting business with both members and
non-members shall not be subjected to tax on their TRANSACTIONS WITH MEMBERS. In
relation to this, the transactions of members with the cooperative shall not be subject to any
o Section 109 Subsection N:
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❖ Sales by non-agricultural, non-electric, and non-credit cooperatives: Provided that
the share capital contribution of each member does not exceed Fifteen thousand
pesos (P15,000)
court judgment rendered in its favor or any instrument relative to a bond of any accountable
officer of a cooperative for the faithful performance of his duties and obligations.
• Cooperatives shall be exempt from the payment of all court and sheriff's fees payable
to the Philippine Government for and in connection with all actions brought under this
Code, or where such actions are brought by the Authority before the court, to enforce the
payment of obligations contracted in favor of the cooperative.
• All cooperatives shall be exempt from putting up a bond for bringing an appeal
against the decision of an inferior court or for seeking to set aside any third party
claim: Provided, That a certification of the Authority showing that the net assets of the
cooperative are in excess of the amount of the bond required by the court in similar cases
shall be accepted by the court as a sufficient bond.
• Any security issued by cooperatives shall be exempt from the provisions of the Securities
Act provided such security SHALL NOT BE SPECULATIVE.
Provided that the exempt transaction under Sec. 109 (L) shall include sales made by
cooperatives duly registered with the Authority organized and operated by its member to
undertake the production and processing of raw materials or of goods produced by its
members into finished or process products for sale by the cooperative to its members and
non-members: Provided, further, That any processed product or its derivative arising from
the raw materials produced by its members, sold in the name and for the account of the
cooperative: Provided , finally, That at LEAST TWENTY-FIVE PER CENTUM (25%) of the
net income of the cooperatives is returned to the members in the form of interest and/or
patronage refunds;
o All other taxes unless otherwise provided herein; and
o Donations to charitable, research and educational institutions and reinvestment to
socioeconomic projects WITHIN THE AREA OF OPERATION OF THE COOPERATIVE
may be tax deductible.
• All cooperatives, regardless of the amount of accumulated reserves and undivided net
savings shall be exempt from payment of local taxes and taxes on transactions with
banks and insurance companies:
o Provided, That all sales or services rendered for non-members shall be subject to
the applicable percentage taxes sales made by producers, marketing or service
cooperatives:
o Provided further, that nothing in this article shall preclude the examination of the
books of accounts or other accounting records of the cooperative by duly
authorized internal revenue officers for internal revenue tax purposes only, after
previous authorization by the Authority.
• In areas where there are no available notaries public, the judge, exercising his ex officio
capacity as notary public, shall render service, free of charge, to any person or group of
persons requiring the administration of oath or the acknowledgment of articles of
cooperation and instruments of loan from cooperatives NOT EXCEEDING FIVE HUNDRED
THOUSAND PESOS (P500,000.00).
• Any register of deeds shall accept for registration, free of charge, any instrument relative to
a loan made under this Code which does not exceed Two Hundred Fifty Thousand Pesos
(P250,000.00) or the deeds of title of any property acquired by the cooperative or any paper
or document drawn in connection with any action brought by the cooperative or with any
Privileges of Cooperatives - Cooperatives registered under this Code, notwithstanding the
provisions of any law to the contrary, be also accorded the following privileges:
• Cooperatives shall enjoy the privilege of depositing their sealed cash boxes or
containers, documents or any valuable papers in the safes of the municipal or
city treasurers and other government offices free of charge, and the custodian
of such articles shall issue a receipt acknowledging the articles received duly
witnessed by another person.
• Cooperatives organized among government employees, notwithstanding any law or
regulation to the contrary, shall enjoy the free use of any available space in their agency,
whether owned or rented by the Government.
• Cooperatives rendering special types of services and facilities such as cold storage, ice
plant, electricity, transportation, and similar services and facilities shall secure a franchise
therefore, and such cooperatives shall open their membership to all persons qualified in their
areas of operation.
• In areas where appropriate cooperatives exist, the preferential right to supply government
institutions and agencies rice, corn and other grains, fish and other marine products, meat,
eggs, milk, vegetables, tobacco and other agricultural commodities produced by their
members shall be granted to the cooperatives concerned.
• Preferential treatment in the allocation of fertilizers, including seeds and other agricultural
inputs and implements, and in rice distribution shall be granted to cooperatives by the
appropriate government agencies.
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• Preferential and equitable treatment in the allocation or control of bottomries of commercial
shipping vessels in connection with the shipment of goods and products of cooperatives.
• Cooperatives and their federations, such as farm and fishery producers and suppliers,
market vendors and such other cooperatives, which have for their primary purpose the
production and/or the marketing of products from agriculture, fisheries and small
entrepreneurial industries and federations thereof, shall have preferential rights in the
management of public markets and/or lease of public market facilities, stalls or spaces:
Provided, That these rights shall only be utilized exclusively by cooperatives: Provided,
further, That no cooperative forming a joint venture, partnership or any other similar
arrangement with a non-cooperative entity can utilize these rights.
• Cooperatives engaged in credit services and/or federations shall be entitled to loans
credit lines, rediscounting of their loan notes, and other eligible papers with the Development
Bank of the Philippines, the Land Bank of the Philippines and other financial institutions
except the Bangko Sentral ng Pilipinas (BSP).
o NOTE: "The Philippine Deposit Insurance Corporation (PDIC) and other
government agencies, government-owned and controlled corporations and
government financial institutions shall provide technical assistance to registered
national federations and unions of cooperatives which have significant engagement
in savings and credit operations in order for these federations and unions to
establish and/or strengthen their own autonomous cooperative deposit insurance
systems.
• A public transport service cooperative may be entitled to financing support for the
acquisition and/or maintenance of land and sea transport equipment, facilities and parts
through the program of the government financial institutions. It shall have the preferential
right to the management and operation of public terminals and ports whether land or sea
transport where the cooperative operates and on securing a franchise for active or potential
routes for the public transport.
• Cooperatives transacting business with the Government of the Philippines or any of its
political subdivisions or any of its agencies or instrumentalities, including government-owned
and controlled corporations SHALL BE EXEMPT FROM PREQUALIFICATION BIDDING
REQUIREMENTS NOTWITHSTANDING THE PROVISIONS OF REPUBLIC ACT NO.9184,
OTHERWISE KNOWN AS, THE GOVERNMENT PROCUREMENT ACT.
• Cooperative shall enjoy the privilege of being represented by the provincial or city fiscal or
the Office of the Solicitor General, free of charge, except when the adverse party is the
Republic of the Philippines.
• Cooperatives organized by faculty members and employees of educational institutions
shall have the preferential right in the management of the canteen and other services related
to the operation of the educational institution where they are employed: Provided, That such
services are operated within the premises of the said educational institution.
• The appropriate housing agencies and government financial institutions shall create a
special window for financing housing projects undertaken by cooperatives, with interest
rates and terms equal to, or better than those given for socialized housing projects. This
financing shall be in the form of blanket loans or long-term wholesale loans to qualified
cooperatives, without need for individual processing.
o The Authority, in consultation with the appropriate government agencies and
concerned cooperative sector, shall issue rules and regulations on all matters
concerning housing cooperatives.
7.4.4 Membership
Kinds of Membership in a Cooperative
There are two (2) kinds of members under Article 26, RA 9520:
1. Regular members; and
2. Associate members
A regular member is one who has complied with all the membership requirements and
entitled to all the rights and privileges of membership as stated in the Cooperative Code and
the cooperative by laws.
An associate member has no right to vote and be voted upon and is entitled only to such
rights and privileges provided by the cooperative's bylaws.
When does an Applicant for Membership in a Cooperative acquire His Rights as a
Member?
An applicant becomes a cooperative member when his application is approved by
the board of directors. He may exercise his rights as a member after he makes the
payments that are due to the cooperative, as set forth by Article 28, RA 9520.
How is Membership in a Cooperative Terminated?
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As provided under Article 30, RA 9520,membership in a cooperative may be
terminated by reason of death or insanity of a member in a primary cooperative, or the
insolvency or dissolution of a member in a secondary or tertiary cooperative.
Membership may be terminated by a vote of the majority of all the members of the
board of directors for the following causes:
1. When a member has not patronized any of the services of the cooperative for an
unreasonable period of time as may be previously determined by the board of directors;
2. When a member has continuously failed to comply with his obligations;
3. When a member has acted in violation of the bylaws and the rules of the cooperative;
and
4. For any act or omission injurious or prejudicial to the interest or the welfare of the
cooperative. In the above scenarios, such members shall be informed of the intended
termination in writing and shall be given an opportunity to be heard before the board makes
its decision.
Limitation on Share Capital Holdings - No member of PRIMARY COOPERATIVE other
than the cooperative itself shall own or hold more than TEN PER CENTUM (10%) of the
share capital of the cooperative.
NOTE: "Where a member of cooperative dies, his heir shall be entitled to the shares of the
decedent:
• Provided, That the total shareholding of the heir DOES NOT EXCEED TEN PER CENTUM
(10%) OF THE SHARE CAPITAL OF THE COOPERATIVE; Provided, further, That the heir
QUALIFY and is ADMITTED AS MEMBERS OF THE COOPERATIVE:
o Provided finally , That where the heir fails to qualify as a member or where his
total shareholding exceeds ten per cent (10%) of the share capital , the share or
shares excess will REVERT TO THE COOPERATIVE upon payment to the heir of
the value of such shares.
Assignment of Share Capital Contribution or Interest.- Subject to the provisions of this
Code, no member shall transfer his shares or interest in the cooperative or any part thereof
UNLESS.
• He has held such share capital contribution or interest for not less than one (1)
year.
• The assignment is made to the cooperative or to a member of the cooperative or to
a person who falls within the field of the membership of the cooperative; and
• The board of directors has approved such an assignment.
May a Member Withdraw His Membership from a Cooperative?
Yes. Under Article 30, RA 9520, a member may withdraw his membership from a
cooperative by giving a 60-day notice to the board of directors.
7.4.5 Capital, Property of Funds
Capital - The capitalization of cooperatives and the accounting procedures shall be
governed by the provisions of this Code and the regulations which shall be issued.\
Capital Build-Up - The bylaws of every cooperative shall be provided for a reasonable and
realistic member capital build-up program to allow the continuing growth of the members'
investment in their cooperative as their economic conditions continue to improve.
Capital Sources - Cooperatives registered under this Code may derive their capital from
any or all of the following sources:
• Member's share capital;
• Loans and borrowings including deposits;
• Revolving capital which consists of the deferred payment of patronage refunds, or interest
on share capital; and
• Subsidies, donations, legacies, grants, aids and such other assistance from any local or
foreign institution whether public or private: PROVIDED, That capital coming from such
subsides, donations, legacies, grants, aids and other assistance SHALL NOT BE DIVIDED
into individual share capital holdings at any time but shall instead form part of the donated
capital or fund of the cooperative.
• NOTE: "Upon dissolution, such donated capital shall be subject to escheat.
Shares - The term "share" refers to a unit of capital in a primary cooperative the par value of
which may be fixed to any figure not more than One thousand pesos (P1,000.00). The
share of capital of a cooperative is the money paid or required to be paid for the operations
of the cooperative. The method for the issuance of share certificates shall be prescribed in
its bylaws.
Fines - The bylaws of a cooperative may prescribe a fine on unpaid subscribed share
capital. Provided that such a fine is fair and reasonable under the circumstances.
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Investment of Capital - A cooperative may invest its capital in any of the following:
• In shares or debentures or securities of any other cooperative;
• In any reputable bank in the locality, or any cooperative;
• In securities issued or guaranteed by the Government;
• In real state primarily for the use of the cooperative or its members; or
• In any other manner authorized in the bylaws.
standards for cooperatives as jointly promulgated by the Philippine Institute of Certified
Public Accountants (PICPA) and the Authority.
• Thereafter, the board of directors shall present the complete audit report to the
general assembly in its next meeting
Non Liability for Defamations - The auditor IS NOT LIABLE to any person in an action for
defamation based on any act, done, or any statement made by him in good faith in
connection with any matter he is authorized or required to do pursuant to this Code.
Revolving Capital - The general assembly of any cooperative may authorize the board of
directors to raise a revolving capital to strengthen its capital structure by deferring the
payment of patronage refunds and interest on share capital or by the authorized deduction
of a percentage from the proceeds of products sold or services rendered, or per unit of
product or services handled. The board of directors shall issue revolving capital certificates
with serial number, name, amount, and rate of interest to be paid and shall distinctly set forth
the time of retirement of such certificates and the amounts to be returned."
Right to Examine - A member shall have the right to examine the records required to be
kept by the cooperative under Article 52 of this Code during reasonable hours on business
days and
he may demand, in writing, for a copy of excerpts from said records without charge except
the cost of production.
7.4.6 Audit, Inquiry and Members’ Right to Examine
NOTE: "Any officer of the cooperative WHO SHALL REFUSE to allow any member of the
cooperative to examine and copy excerpts from its records SHALL BE LIABLE to such
member for damages and shall be guilty of an offense which shall be punishable under
Article 140 of this Code:
• Provided, That if such refusal is pursuant to a resolution or order of the board of
directors, the liability under this article shall be imposed upon the directors who
voted for such refusal:
• Provided, further, That it shall be a defense to any action under this article that the
member demanding to examine and copy excerpts from the cooperative records
has improperly used any information secured through any prior examination of the
records of such cooperative or was not acting in good faith or for a legitimate
purpose in making his demand.
Annual Audit - Cooperatives registered under this Code shall be subject to an annual
financial, performance and social audit. The financial audit shall be conducted by an external
auditor who satisfies all the following qualifications:
• He is independent of the cooperative or any of its subsidiary that he is auditing;
and
• He is a member in good standing of the Philippine Institute of Certified Public
Accountants (PICPA) and is accredited by both the Board and Accountancy and
the Authority
The social audit shall be conducted by an independent social auditor accredited by the
Authority. Performance and social audit reports which contain the findings and
recommendations of the auditor shall be submitted to the board of directors.
Safety of Records - Every cooperative shall, at its principal office, keep and carefully
preserve the records required by this Code to be prepared and maintained. It shall take all
necessary precautions to prevent its loss, destruction or falsification.
The Authority, in consultation with the cooperative sector, shall promulgate the rules and
standards for the social audit of cooperatives.
Audit Report - The auditor shall submit to the board of directors and to the audit committee
the financial audit report which shall be in accordance with the generally accepted auditing
7.4.7 Allocation and Distribution of Funds
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Net Surplus - Notwithstanding the provisions of existing laws, the net surplus of
cooperatives shall be determined in ACCORDANCE WITH ITS BYLAWS. Every cooperative
shall determine its net surplus at the CLOSE OF EVERY FISCAL YEAR and at such other
times as may be prescribed by the bylaws.
●
Any provision of law to the contrary notwithstanding, the net surplus shall not be construed
as profit but as an excess of payments made by the members for the loans borrowed, or the
goods and services availed by them from the cooperative or the difference of the rightful
amount due to the members for their products sold or services rendered to the cooperative
including other inflows of assets resulting from its other operating activities and which shall
be deemed to have been returned to them if the same is distributed as prescribed herein.
●
ART. 86. Order of Distribution - The net surplus of every cooperative shall be distributed
as follows:
An amount for the reserve fund which shall be AT LEAST TEN PER CENTUM (10%) of net
surplus: Provided, That, in the first five (5) years of operation after registration, this amount
shall NOT BE LESS THAN FIFTY PER CENTUM (50%) of the net surplus:
● The reserve fund shall be used for the stability of the cooperative and to meet net
losses in its operations. The general assembly may decrease the amount allocated
to the reserve fund when the reserve fund already exceeds the share capital. Any
sum recovered on items previously charged to the reserve fund shall be credited to
such fund.
● The reserve fund shall NOT BE UTILIZED FOR INVESTMENT, other than those
allowed in this Code. Such sum of the reserve fund in excess of the share capital
may be used at any time for any project that would expand the operations of the
cooperative upon the resolution of the general assembly.
●
Upon the dissolution of the cooperative, the reserve fund SHALL NOT BE
DISTRIBUTED among the members. The general assembly may resolves:
★ To establish a usufructuary trust fund for the benefit of any federation
or union to which the cooperative is affiliated; and
★
To donate, contribute, or otherwise dispose of the amount for the
benefit of the community where the cooperative operates. If the
members cannot decide upon the disposal of the reserve fund, the
same shall go to the federation or union to which the cooperative is
affiliated.
●
●
●
●
An amount for the education and training fund, SHALL NOT BE MORE than ten per
cent (10%) of the net surplus. The bylaws may provide that certain fees or a portion
thereof be credited to such a fund. The fund shall provide for the training,
development and similar other cooperative activities geared towards the growth of
the cooperative movement:
Half of the amounts transferred to the education and training fund annually under
this subsection shall be spent by the cooperative for EDUCATION AND TRAINING
PURPOSES; while the other half may be REMITTED TO A UNION OR
FEDERATION chosen by the cooperative or of which it is a member. The said union
or federation shall submit to the Authority and to its contributing cooperatives the
following schedules:
★ List of cooperatives which have remitted their respective Cooperative
Education and Training Funds (CETF);
★ Business consultancy assistance to include the nature and cost; and
★ Other training activities undertaken specifying therein the nature,
participants and cost of each activity.
Upon the dissolution of the cooperative, the unexpended balance of the education
and training fund belonging to the cooperative shall be credited to the cooperative
education and training fund of the chosen union or federation.
An amount for the community development fund, which SHALL NOT BE LESS
THAN THREE PER CENTUM (3%) OF THE NET SURPLUS. The community
development fund shall be used for projects or activities that will benefit the
community where the cooperative operates
An optional fund, a land and building, and any other necessary fund the total of
which SHALL NOT EXCEED SEVEN PER CENTUM (7%).
The remaining net surplus shall be made available to the members in the form of
interest on share capital NOT TO EXCEED the normal rate of return our investments
and patronage refunds:
★ Provided, That any amount remaining after the allowable interest and the
patronage refund have been deducted shall be credited to the reserve fund.
"The sum allocated for patronage refunds shall be made available at the same rate to all
patrons of the cooperative in proportion to their individual patronage: Provided, That:
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In the case of a member patron with PAID-UP SHARE CAPITAL contribution, his
proportionate amount of patronage refund shall BE PAID TO HIM unless he agrees
to credit the amount to his account as additional share capital contribution;
★ In the case of a member patron with UNPAID SHARE CAPITAL contribution, his
proportionate amount of patronage refund shall be CREDITED TO HIS ACCOUNT
until his account until his share capital contribution has been fully paid;
★ In the case of a NON-MEMBER PATRON, his proportionate amount of patronage
refund shall be SET ASIDE IN A GENERAL FUND for such patrons and shall be
allocated to individual non-member patrons only upon request and presentation of
evidence of the amount of his patronage. The amount so allocated shall be credited
to such patrons toward payment of the minimum capital contribution for membership.
When a sum equal to this amount has accumulated at any time within a period
specified in the bylaws, such patron shall be deemed and become a member of the
cooperative if he so agrees or requests and complies with the provisions of the
bylaws for admission to membership; and
★ If within any period of time specified in the bylaws, any subscriber who has NOT
FULLY PAID HIS SUBSCRIBED SHARE CAPITAL or any non-member patron who
has accumulated the sum necessary for membership but who DOES NOT
REQUEST nor agree to become a member or FAILS TO COMPLY with the
provisions of the bylaws for admission to membership, the amount so accumulated
or credited to their account together with any part of the general fund for non
member patrons SHALL BE CREDITED TO THE RESERVE FUND OR TO THE
EDUCATION AND TRAINING FUND OF THE COOPERATIVE, AT THE OPTION OF
THE COOPERATIVE.”
3. Marketing Cooperative– one which engages in the supply of production inputs to
members and markets their products;
4. Producers Cooperative– is one that undertakes joint production whether agricultural or
industrial. It is formed and operated by its members to undertake the production and
processing of raw materials or goods produced by its members into finished or processed
products for sale by the cooperative to its members and non-members. Any end product or
its derivative arising from the raw materials produced by its members, sold in the name and
for the account of the cooperative, shall be deemed a product of the cooperative and its
members;
5. Service Cooperative– one which engages in medical and dental care, hospitalization,
transportation, insurance, housing, labor, electric light and power, communication,
professional and other services;
6. Multipurpose Cooperative– one which combines two (2) or more of the business
activities of these different types of cooperatives;
7. Advocacy Cooperative– a primary cooperative which promotes and advocates
cooperativism among its members and the public through socially oriented projects,
education and training, research and communication, and other similar activities to reach out
to its intended beneficiaries;
8. Agrarian Reform Cooperative– one organized by marginal farmers majority of which are
agrarian reform beneficiaries for the purpose of developing an appropriate system of land
tenure, land development, land consolidation or land management in areas covered by
agrarian reform;
9. Cooperative Bank– one organized for the primary purpose of providing a wide range of
financial services to cooperatives and their members;
10. Dairy Cooperative– one whose members are engaged in the production of fresh milk
which may be processed and/or marketed as dairy products;
11. Education Cooperative– one organized for the primary purpose of owning and
operating licensed educational institutions notwithstanding the provisions of Republic Act
No. 9155, otherwise known as the Governance of Basic Education Act of 2001;
12. Electric Cooperative– one organized for the primary purpose of undertaking power
generations, utilizing renewable energy sources, including hybrid systems, acquisition and
operation of subtransmission or distribution to its household members;
13. Financial Service Cooperative– one organized for the primary purpose of engaging in
savings and credit services and other financial services;
14. Fishermen Cooperative– one organized by marginalized fishermen in localities whose
products are marketed either as fresh or processed products;
★
7.4.8 Types and Categories of Cooperatives
What are the Types of Cooperatives?
There are several types of cooperatives listed under Article 23 of RA 9520. Under the said
provision, cooperatives may fall under any of the following types:
1. Credit Cooperative– one that promotes and undertakes savings and lending services
among its members. It generates a common pool of funds in order to provide financial
assistance to its members for productive and provident purposes;
2. Consumers Cooperative– is one of the primary purpose of which is to procure and
distribute commodities to members and non-members;
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15. Health Services Cooperative– one organized for the primary purpose of providing
medical, dental and other health services;
16. Housing Cooperative– one organized to assist or provide access to housing for the
benefit of its regular members who actively participate in the savings program for housing. It
is co owned and controlled by its members;
17. Insurance Cooperative– one engaged in the business of insuring life and poverty of
cooperatives and their members;
18. Transport Cooperative– one which includes land and sea transportation, limited to
small vessels, as defined or classified under the Philippine maritime laws, organized under
the provisions of this Code;
19. Water Service Cooperative– one organized to own, operate and manage waters
systems for the provision and distribution of potable water for its members and their
households;
20. Workers Cooperative– one organized by workers, including the self employed, who are
at same time the members and owners of the enterprise. Its principal purpose is to provide
employment and business opportunities to its members and manage it in accordance with
cooperative principles; and
21. Other types of cooperatives may be determined by the Authority.
●
●
7.4.9 Merger and Consolidation of Cooperatives
(1) Two (2) or more cooperatives may merge into a single cooperative which shall either be
one of the constituent cooperatives or the consolidated cooperative.
➢ No merger or consolidation shall be valid unless approved by a THREE-FOURTHS
(3/4) vote of all the members with voting rights, present and CONSTITUTING A
QUORUM of each of the constituent cooperatives at separate general assembly
meetings. The dissenting members shall have the right to exercise their right to
withdraw their membership pursuant to Article 30.
●
the value of the assets of the cooperative would be less than the aggregate
amount of its debts and liabilities exclusive of his share capital contribution.
The death or insanity of a member in a primary cooperative, and the insolvency
or dissolution of a member in a secondary or tertiary cooperative may be
considered valid grounds for termination of membership: Provided, That in case
of death or insanity of an agrarian reform beneficiary-member of a cooperative,
the next-of-kin may assume the duties and responsibilities of the original member
Membership in the cooperative may be terminated by a vote of the majority of all
the members of the board of directors for any of the following causes:
● When a member has not patronized any of the services of the cooperative
for an unreasonable period of time as may be previously determined by
the board of directors
● When a member has continuously failed to comply with his obligations
● When a member has acted in violation of the bylaws and the rules of the
cooperative
● For any act or omission injurious or prejudicial to the interest or the welfare
of the cooperative.
● The Authority shall issue the guidelines governing the procedure of merger
or consolidation of cooperatives.
● In any case, the merger or consolidation shall be effective upon the
issuance of the certificate of merger or consolidation by the Authority.
Effects of Merger and Consolidation. - The merger or consolidation of cooperatives shall
have the following effects:
➔ The constituent cooperatives shall become a single cooperative which, in case of
merger, shall be the surviving cooperative, and, in case of consolidation, shall be the
consolidated cooperative;
➔ The separate existence of the constituent cooperatives shall cease, except that of
the surviving or the consolidated cooperative;
➔ The surviving or the consolidated cooperative shall possess all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of a
cooperative organized under this Code;
➔ The surviving or the consolidated cooperative shall possess all the assets, rights,
privileges, immunities and franchises of each of the constituent cooperatives; and
➔ The surviving or the consolidated cooperative shall be responsible for all the
liabilities and obligations of each of the constituent cooperatives in the same manner
Article 30 states that –
● A member of a cooperative may, for any valid reason, withdraw his membership
from the cooperative by giving a sixty (60) day notice to the board of directors.
Subject to the bylaws of the cooperative, the withdrawing member shall be
entitled to a refund of his share capital contribution and all other interests in the
cooperative: Provided, That such fund shall not be made if upon such payment
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as if such surviving or consolidated cooperative had itself incurred such liabilities or
obligations. Any claim, action or proceeding pending by or against any such
constituent cooperatives may be prosecuted by or against the surviving or
consolidated cooperative, as the case may be. Neither the rights of creditors nor any
lien upon the property of any of such constituent cooperatives shall be impaired by
such merger or consolidation.
"If the petition is sufficient in form and substance, the Authority shall issue an order
reciting the purpose of the petition and shall fix a date which shall not be less than thirty (30)
nor more than sixty (60) days after the entry of the order.
Before such date, a copy of the order shall be published at least once a week for
three (3) consecutive weeks in a newspaper of general circulation published in the
municipality or city where the principal office of the cooperative is situated or in the absence
of such local newspaper, in a newspaper of general circulation in the Philippines, and a copy
shall likewise be posted for three (3) consecutive weeks in three (3) public places in the
municipality or city where the cooperative's office is located.
"Upon expiry of the five (5) day notice to file objections, the Authority shall proceed
to hear the petition and try any issue raised in the objection filed; and if the objection is
sufficient and the material allegations of the petition are proven, it shall issue an order to
dissolve the cooperative and direct the disposition of its assets in accordance with existing
rules and regulations. The order of dissolution shall set forth therein:
● The assets and liabilities of the cooperative;
● The claim of any creditor; o The number of members; and
● The nature and extent of the interests of the members of the cooperative.
7.4.10 Dissolution of Cooperatives
Voluntary Dissolution Where no Creditors are Affected
If the dissolution of a cooperative does not prejudice the rights of any creditor having
a claim against it, the dissolution may be affected by a majority vote of the board of
directors, and by a resolution duly adopted by the affirmative vote of at least three fourths
(3/4) of all the members with voting rights, present and constituting a quorum at a meeting to
be held upon call of the directors:
Provided, That the notice of time, place and object of the meeting shall be published
for three (3) consecutive weeks in a newspaper published in the place where the principal
office of said cooperative is located, or if no newspaper is published in such place, in a
newspaper of general circulation in the Philippines:
Provided, further, That the notice of such meeting is sent to each member of record
either by registered mail or by personal delivery at least thirty (30) days prior to said
meeting.
A copy of the resolution authorizing the dissolution shall be certified to by a majority
of the board of directors and countersigned by the board secretary. The Authority shall
thereupon issue the certificate of dissolution.
Involuntary Dissolution - A cooperative may be dissolved by order of a competent court
after due hearing on the grounds of:
● Violation of any law, regulation or provisions of its bylaws; or
● Insolvency.
Dissolution by Order of the Authority - The Authority may suspend or revoke, after due
notice and hearing, the certificate of registration of a cooperative on any of the following
grounds:
● Having obtained its registration by fraud
●
Existing for an illegal purpose
● Willful violation, despite notice by the Authority, of the provisions of this Code or its
bylaws
● Willful failure to operate on a cooperative basis
● Failure to meet the required minimum number of members in the cooperative.
Voluntary Dissolution Where Creditors Are Affected
Where the dissolution of a cooperative may prejudice the rights of any creditor, the
petition for dissolution shall be filed with the Authority.
The petition shall be signed by a majority of its board or directors or other officers
managing its affairs, verified by its chairperson or board secretary or one of its directors and
shall set forth all claims and demands against it and that its dissolution was resolved upon
by the affirmative vote of at least three-fourths (3/4) of all the members with voting rights,
present and constituting a quorum at a meeting called for that purpose.
Dissolution by Failure to Organize and Operate - If a cooperative has not commenced
business and its operation within two (2) years after the issuance of its certificate of
registration or has not carried on its business for two (2) consecutive years, the Authority
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shall send a formal notice to the said cooperative to show cause as to its failure to operate.
Failure of the cooperative to promptly provide justifiable cause for its failure to operate shall
warrant the Authority to delete its name from the roster of registered cooperatives and shall
be deemed dissolved.
deposits should their banks close; resolve problem banks while still open; hasten the
liquidation process for closed banks; and administer stiffer sanctions and penalties against
those who engage in unsafe and unsound banking practices.
Insurable Deposits under PDIC Law that is covered by PDIC Insurance
1. By Deposit Type:
a. Savings Deposit
b. Special Savings
c. Demand/Checking Account
d. Negotiable Order of Withdrawal (NOW)
e. Certificate of Time Deposits
f. Foreign Currency Deposit
2. By Deposit Account:
a. Single Accounts - accounts held under one name, either as natural person or
juridical entity
b. Joint Accounts - accounts held under more than one name
Liquidation of a Cooperative - Every cooperative whose charter expires by its own
limitation or whose existence is terminated by voluntary dissolution or through an
appropriate judicial proceeding shall nevertheless CONTINUE TO EXIST FOR THREE (3)
YEARS AFTER THE TIME IT IS DISSOLVED; not to continue the business for which it was
established but for the purpose of prosecuting and defending suits by or against it;
settlement and closure of its affairs; disposition, conveyance and distribution of its properties
and assets.
NOTES:
● "At any time during the said three (3) years, the cooperative is authorized and
empowered to convey all of its properties to trustees for the benefit of its members,
creditors and other persons in interest. From and after any such conveyance, all
interests which the cooperative had in the properties are terminated.
●
"Upon the winding up of the cooperative affairs, any asset distributable to any
creditor, shareholder or member who is unknown or cannot be found shall be given
to the federation or union to which the cooperative is affiliated with.
● "A cooperative shall only distribute its assets or properties upon lawful dissolution
and after payment of all its debts and liabilities, except in the case of decrease of
share capital of the cooperative and as otherwise allowed by this Code.
●
●
●
Regardless of the conjunctions “and”, “or”, “and/or” used shall be insured
separately from single accounts.
Unless there is a different sharing stipulated, the insured amount up to the
maximum deposit insurance coverage of P500,000 shall be divided equally.
Joint accounts held in the names of a juridical entity and a natural person shall
be presumed to belong solely to the juridical entity.
Items that are not covered by PDIC Deposit Insurance
1. Investment products such as bonds and securities, trust accounts and other similar
instruments
2. Deposit accounts or transactions which are unfunded and that are fictitious or fraudulent
3. Deposit accounts or transactions constituting and/or emanating from, unsafe and unsound
banking practice/s, as determined by PDIC, in consultation with BSP, after due notice and
hearing, and publication of a cease-and-desist order issued by PDIC against such deposit
accounts or transactions
4. Deposits that are determined to be the proceeds of an unlawful activity as defined under
RA 9160, as amended. Unsafe and unsound deposit-related activities include, among
others:
Rules and Regulations on Liquidation - The Authority shall issue the appropriate
implementing guidelines for the liquidation of cooperatives."
8.0 Law on Other Business Transactions
Group 6 - Group ni She
8.1 PDIC (RA 3591) - amended by RA 10846 signed into law on May 23, 2016
PDIC is a government instrumentality that promotes and safeguard the interests of
the depositing public by way of providing permanent and continuing insurance coverage on
all insured deposits. PDIC has the authority to help depositors have access to their insured
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●
●
●
●
Deposit-related activity without the approval or adequate controls required under
existing laws, rules, and regulations
Failure to keep bank records within bank premises
Granting high interest rates, when bank has
a. Negative unimpaired capital, or
b. Liquid assets to deposit ratio less than 10%
Non-compliance with PDIC regulations
3. Who are not required to file deposit insurance claims?
Depositors with valid deposit accounts with balances of Php100,000 and below are
not required to file claims provided they have no obligations with the closed bank and have
complete and updated addresses in the bank records or have updated these through the
Mailing Address Update Form (MAUF) issued by the PDIC. Depositors with deposit
balances of Php100,000 and below may update their addresses using the MAUF and submit
to PDIC representatives stationed at the closed bank premises before the start of the onsite
claims settlement operations. These depositors are entitled to immediate/early payment of
deposit insurance claims as part of PDIC’s initiative to provide convenience to small
depositors. Payments to these depositors are sent as postal money orders to the depositors’
mailing addresses.
Maximum Liability
The amount due to any bona fide depositor for legitimate deposits in an insured bank net of
any obligation of the depositor to the insured bank as of the date of closure, but not to
exceed P500,000.00. However, a depositor with single accounts AND joint accounts may
have insured deposits up to P1,000,000.00.
4. Steps in filing deposit insurance claim
a. Prepare the following documents:
● Original evidence of deposits such as savings passbook, certificate of time deposit,
bank statement, unused checks, and ATM card.
● Original copy of one (1) valid photo-bearing identification documents (ID) with clear
signature of depositor/claimant.
● If the depositor is below 18 years old, a photocopy of his/her birth certificate from the
Philippine Statistics Authority (PSA) or duly certified copy from the local civil registrar
and valid IDs of the parent.
● Original copy of a notarized Special Power of Attorney (SPA) for claimants who are
not the signatories in the bank records. In the case of a minor depositor, the SPA
must be executed by the parent.
b. Submit to:
● If filing personally:
> The PDIC representatives at the premises of the closed bank during Claims
Settlement Operations (CSO) or to the PDIC Public Assistance Center at the 3rd
Floor, SSS Bldg., 6782 Ayala Avenue corner V.A. Rufino Street, Makati City after the
onsite CSO.
> If filing through Mail
● Send the accomplished and notarized Claim Form and requirements to The
Claims Processing Department of PDIC
● 4/F SSS Building, 6782 Ayala Avenue corner V.A. Rufino St. 1226 Makati City
Requirements for Claims of Insured Deposits
1. When are claims filed?
Claims are filed during the claims settlement operations period, as announced in the
Notice to Depositors published in national or local newspapers, or posted in the bank
premises and conspicuous places within the locality, and in the PDIC website. Depositors
have 2 years from PDIC’s takeover of the closed bank to file their deposit insurance claims.
2. Who are required to file deposit insurance claims?
a. Depositors with valid deposit accounts with balances more than P100,000.
b. Depositors who have outstanding obligations with the closed bank regardless of
amount of deposits.
c. Depositors who have no updated addresses in the bank records or who have not
updated their address through the Mailing Address Update Form (MAUF) issued by the
PDIC.
d. Depositors who maintain their accounts under the name of business entities, regardless
of type of account and account balance.
e. Depositors with accounts not eligible for early payment, regardless of type of account
and account balance per advice of PDIC.
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5. Who should sign the deposit insurance claim form?
a. Depositor of the account – for depositors 18 years old and above
b. Parent – if the depositor is below 18 years old
c. Agent – in the case of “By” accounts
d. Trustee – in the case of “In Trust for (ITF” accounts)
e. Each Depositor – in the case of joint accounts such as “Or”, “And/Or” or “And”
Accounts
❖ Prohibited Act: It shall be unlawful for any official or employee of a bank to disclose to
any person or for an independent auditor hired by a bank to conduct its regular audit to
disclose to any person other than a bank director, official or employee authorized by the
bank, any information concerning said deposits.
8.2.3 Deposits covered
1. Peso deposits: All deposits of whatever nature with banks or banking institutions in
the Philippines including investments in bonds issued by the Government of the Philippines,
its political subdivisions and its instrumentalities, are considered absolutely confidential
and may not be examined, inquired or looked into by any person, government official,
bureau or office, unless:
8.2 Secrecy of Bank Deposits
8.2.1 Purpose
8.2.2 Prohibited acts
8.2.3 Deposits covered
8.2.4 Exceptions
8.2.5 Garnishment of deposits including foreign deposits
a. When there is a written permission of the depositor or investor.
b. Impeachment cases.
c. Upon the order of a competent court in cases of bribery or dereliction of duty of
public officials.
d. Upon the order of a competent court in cases where the money deposited or
invested is the subject of litigation.
e. Upon order of the competent court or tribunal in cases involving unexplained
wealth under RA 3019.
f. Upon inquiry by the Commissioner of BIR for the purpose of determining the
net estate of a deceased depositor.
g. Upon the order of a competent court or in proper cases by the AMLC where there
is probable cause of money laundering and in some instances even without court
order.
h. Disclosure to the Treasurer of the Philippines for dormant deposits for at least
10 years under the Unclaimed Balances Act (RA 3936).
i. Report of banks to AMLC of covered and/or suspicious transactions.
j. Upon order of the CA, examination by law enforcement officers in terrorism cases
under the Human Security Act of 2007 (RA 9372).
k. Examination is made in the course of a special or general examination of a
bank and is specifically authorized by MB after being satisfied that there is
reasonable ground to believe that a bank fraud or serious irregularity has been or is
being committed and that it is necessary to look into the deposit to establish such
fraud or irregularity.
BANK SECRECY ACT
8.2 Secrecy
❖Secrecy is the practice of hiding information from certain individuals or groups who
do not have the "need to know", perhaps while sharing it with other individuals. That which
is kept hidden is known as the secret.
8.2.1 Purpose of Bank Deposits
❖ Purpose: to give encouragement to the people to deposit their money in banking
institutions and to discourage private hoarding so that the same may be properly utilized by
banks in authorized loans to assist in the development of the country.
8.2.2 Prohibited acts
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l. Examination is made by an independent auditor hired by the bank to conduct
its regular audit provided that the examination is for audit purposes only and the
results thereof shall be for the exclusive use of the bank
Group 6 - Group ni She LOL
8.3 Truth in Lending Act
TRUTH IN LENDING ACT (R.A. No. 3765)
To protect the public from lack of awareness of the true cost of credit by
requiring from the creditor the disclosure of full information incidental to a credit
transaction.
8.2.4 Exceptions
Disclosure Requirements:
2. Foreign currency deposits: except:
Creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent
applicable and in accordance with rules and regulations prescribed by the Board, the
following information:
a. When there is written consent of depositor under Section 8 of the Foreign Currency
Deposits Act(RA 6426)
b. Under Section 11 of the Anti-Money Laundering Act (probable cause established that it
is related to an unlawful activity as defined or money laundering)
c. Under Section 27 and 28 of the Human Security Act (existence of probable cause in
anti-terrorism cases and those involving persons charged with or suspected of the crime of
terrorism or conspiracy to commit terrorism, judicially declared and outlawed terrorist
organization, association, or group of persons, or member of such organization, association,
or group of persons)
1.
2.
3.
4.
The cash price or delivered price of the property or service to be acquired;
The amounts, if any, to be credited as down payment and/or trade-in;
The difference between the amounts set forth under clauses (1) and (2);
The charges, individually itemized, which are paid or to be paid by such person
in connection with the transaction but which are not incident to the extension of
credit;
5. The total amount to be financed;
6. The finance charge expressed in terms of pesos and centavos; and
7. The percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation
8.2.5 Garnishment of deposits including foreign deposits
Garnishment: Bank accounts may be garnished by the creditors of the depositor. The
amount of deposit is not actually disclosed, hence, no violation. Exceptions:
1. Foreign currency deposits, Section 8 of RA 6426 (Note: In Salvacion v. Central Bank, GR
94723,August 21, 1997, foreign currency deposits made by a transient or a tourist are not
the kind of deposit protected by law. Hence, a dollar deposit made by a transient or a tourist
may be subject to garnishment.)
Who are the creditors/lenders that are required to disclose?
1. Banks and other financial institutions
● The following regulations shall apply to all banks engaged in the following
types of credit transactions:
a. Any loan, mortgage, deed of trust, advance and discount;
b. Any conditional sales contract, any contract to sell, or sale or contract of sale
of property or services, either for present or future delivery, under which part
or all of the price is payable subsequent to the making of such sale or
contract;
c. Any rental-purchase contract;
2. Exempt under Rules of Court
Penalties for violation: imprisonment of not more than 5 years or a fine not more than
P20,000.00 or both
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d. Any contract or arrangement for the hire, bailment, or leasing of property;
e. Any option, demand, lien, pledge, or other claim against, or for delivery of,
property or money;
f. Any purchase, or other acquisition of, or any credit upon security of any
obligation or claim arising out of any of the foregoing; and
g. Any transaction or series of transactions having a similar purpose or effect.
■
A promissory note that grants the power to unilaterally fix the interest
rate means that the promissory note does not contain a clear
statement in writing of finance charges.
Sources: Bangko Sentral ng Pilipinas, R.A 3765, REO Excellence(Seminar Video)
ANTI-MONEY LAUNDERING ACT (RA 9160, AS AMENDED BY RA 9194)
2. Any person in the business of extending loans, or selling or renting property
on a time, credit or installment basis, either as principal or as agent.
Policy
Categories of credit transactions are outside the scope of these regulations:
1. Credit transactions which do not involve the payment of any finance charge by the
debtor; and
2. Credit transactions in which the debtor is the one specifying a definite and fixed set
of credit terms such as bank deposits, insurance contracts, sale of bonds, etc.
To protect and preserve the integrity and confidentiality of bank accounts and to ensure that
the Philippines shall not be used as a money-laundering site for the proceeds of any
unlawful activity. Consistent with its foreign policy, the State shall extend cooperation in
transnational investigations and prosecutions of persons involved in money laundering
activities whenever committed.
What are the effects if the creditor fails to disclose?
● Credit transaction remains valid and enforceable, but debtor are afforded the
following remedies:
○ File a civil case for recovery of damages in the amount of 100 or twice the
finance charge required by the creditor, whichever is greater, but not to
exceed Php 2000.
■ It must be brought within 1 year from the date of the occurrence of the
violation, in any court of competent jurisdiction.
○ Criminal case can be filed when non-disclosure is willful.
■ Penalty :
● Fine not less than 1000 or more than 5000
● Imprisonment for not less than 6 months, nor more than 1 year
● Both
○ The lender/creditors will have no rights to collect such charges or
increases thereof, even if stipulated in the promissory note.
■ Examples:
■ Requiring a debtor to sign credit documents and promissory notes in
blank, and then unilaterally filling them up later.
Money Laundering
-
a crime whereby the proceeds of an unlawful activity are transacted, thereby making
them appear to have originated from legitimate sources.
How committed?
1. Any person knowing that any monetary instrument or property represents, involves
or relates to, the proceeds of any unlawful activity:
a. Transacts said money instrument or property
b. Converts, transfers, disposes of, moves, acquires, possesses or uses said
monetary instrument or property
c. Conceals or disguises the true nature, source, location, disposition,
movement or ownership of or rights with respect to said monetary instrument
or property
d. Attempts or conspires to commit money laundering offenses referred to in (a),
(b) or ©
e. Aids, abets, assists in or counsels the commission of the money laundering
offenses referred to in (a), (b) or (c); and
162
f.
Performs or fails to perform any act as a result of which he facilitates the
offense of money laundering referred to in (a), (b) or (c).
2. Any person knowing that a covered or suspicious is required to be reported to the
AMLC, fails to do so
4.
5.
Prosecution
6.
Any person may be charged with and convicted of both the offense of money laundering and
the unlawful activity. The prosecution of any offense under AMLA shall proceed
independently of any proceeding relating to the unlawful activity.
Covered Transaction
A transaction in cash or other equivalent monetary instrument involving a total amount in
excess of P500,000.00 within one banking day; for covered persons like casinos, a single
casino cash transaction (involving the receipt of cash by a casino paid by or behalf of a
customer or payout of cash by a casino to a customer or to any person in his/her behalf)
involving an amount in excess of P5,000,000 or its equivalent in any other currency.
7.
Covered Persons: (Natural or Juridical)
1. Banks, non-banks, quasi-banks, trust entities, foreign exchange dealers, pawnshops,
money changers, remittance and transfer companies and other similar entities and
other similar entities and all other persons and their subsidiaries and affiliates
supervised or regulated by the BSP;
2. Insurance companies, pre-need companies and other persons supervised or
regulated by the Insurance Commission;
3. (i) Securities dealers, brokers, salesmen, investment houses and other similar
persons managing securities or rendering services as investment agent, advisor, or
consultant,
(ii) mutual funds, close-end Investment companies, common trust funds, and other
similar persons, and;
(ii) other entities administering or otherwise dealing in currency, commodities or
financial derivatives based thereon, valuable objects, cash substitutes and other
similar monetary instruments or property supervised and regulated by SEC;
Jewelry dealers in precious stones, who, as a business, trade in precious stones, for
transactions in excess of P1,000,000;
5. Jewelry dealers in precious metals, who, as a business, trade in precious metals,
for transactions in excess of P1,000,000;
Company service provides which, as a business, provide any of the following
services to third parties: (i) acting as a formation agent of juridical persons; (ii) acting
as (or arranging for another person to act as) a director or corporate secretary of a
company, a partner of a partnership, or a similar position in relation to other juridical
persons; (iii) providing a registered office, business address or accommodation,
correspondence or administrative address for a company, a partnership or any other
legal person or arrangement; and (iv) acting as (or arranging for another person to
act as) a nominee shareholder for another person;
Persons who provide any of the following services:
a. Managing of client money, securities or other assets;
b. Management of bank, savings or security accounts;
c. Organization of contributions for the creation, operation or management of
companies; and
d. Creation, operation or management of juridical persons or arrangements, and
buying and selling
8. Casinos, including internet and ship-based casinos, with respect to their casino cash
transactions related to their gaming operations.
Excluded Persons
Lawyers and accountants acting as independent legal professionals in relation to information
concerning their clients or where disclosure of information would compromise client
confidences or the attorney-client relationship
Obligations of covered institutions
163
1. Customer identification: Covered persons shall establish and record the true identity
of its clients based on official documents .
2. Record keeping: All records of all transactions of covered institutions shall be
maintained and safely stored for 5 years from the date of transactions.
3. Reporting of covered and suspicious transactions: Covered persons shall report to
the AMLC all covered the AMLC transactions and suspicious transactions within 5
working days from occurrence thereof, unless concerned prescribes a different
period not exceeding 15 working days.
4. Should a transaction be determined to be both a covered and a suspicious
transaction, it shall be reported as a suspicious transaction.
5. When reporting, it shall not be considered a violation of bank secrecy laws and
similar laws. It shall be prohibited from communicating, directly or indirectly, in any
manner or by any means, to any person the fact that a covered or suspicious
transaction report was made, the content thereof, or any other information in relation
thereto.
6. The transaction is in any way related to an unlawful activity or offense under this Act
that is about to be, is being or has been committed
7. Any transaction that is similar or analogous to any of the foregoing
Stages of Money Laundering
1. Placement - The launderer inserts the money into a legitimate financial institution.
2. Layering - Sending money through various financial transactions to change its form
and make it more difficult to follow.
3. Integration - The money re-enters the mainstream economy in legitimate-looking
form, appearing to have come from legitimate transaction.
Unlawful activities
Any act or omission or series or combination thereof involving or having relation to
1. Kidnapping for ransom under Article 267 of RPC
2. Sections 4, 5, 7, 8, 9, 10, 12, 13, 14, 15 and 16 of Comprehensive Dangerous Drugs
Act (RA 9165)
a. Importation of prohibited drugs
b. Sale of prohibited drugs
c. Administration of prohibited drugs
d. Distribution of prohibited drugs
e. Transportation of prohibited drugs.
f. Maintenance of a den, dive, or resort for prohibited users
g. Manufacture of prohibited drugs
h. Possession of prohibited drugs
i. Use of prohibited drugs
j. Cultivation of plants which are sources of prohibited drugs
k. Culture of plants which are sources of prohibited drugs
3. Section 3, paragraphs B, CE, G, H and I of RA 3019 or the Anti-Graft and Corrupt
Practices Act
a. Directly or indirectly requesting or receiving any gift, present, share,
percentage, or benefit for himself or for any other person in connection with
contract or transaction between the Government and any party, wherein the
public officer in his official capacity has to intervene under the law
b. Directly or indirectly requesting or receiving any gift, present, or other
pecuniary or material benefit, for himself or for another, from any person for
Safe Harbor
No administrative, criminal, or civil proceedings, shall lie against any person for having made
a transaction report in the regular performance of his duties and in good faith, whether such
results in any criminal prosecution under Philippine laws.
Suspicious Transaction
Transactions with covered institutions, regardless of the amount involved, where any of the
following circumstances exist:
1. There is no underlying legal or trade obligation, purpose or economic justification
2. The client is not properly identified
3. The amount involved is not commensurate with the business or financial capacity of
the client
4. Taking into account all known circumstances, it may be perceived that the client's
transaction is structured and/or the client's past transactions with the covered
institution in order to avoid being the subject of reporting requirements under the Act
5. Any circumstances relating to the transaction which is observed to deviate from the
profile of the client and/or the client's past transactions with the covered institution.
164
whom the public officer, in any manner or capacity, has secured or obtained,
or will secure or obtain, any government permit or license, in consideration for
the help given or to be given
c. Causing any undue injury to any party, including the government, or giving
any private party any unwarranted benefits, advantage, or preference in the
discharge of his official, administrative, or judicial functions through manifest
partiality, evident bad faith, or gross inexcusable negligence
d. Entering, on behalf of the government, into any contract or transaction
manifestly and grossly disadvantageous to the same, whether or not the
public officer profited or will profit thereby
e. Directly or indirectly having financial or pecuniary interest in any business
contract or transaction in connection with which he intervenes or takes part in
his official capacity, or in which he is prohibited by the Constitution or by any
law from having any interest
f. Directly or indirectly becoming interested, for personal gain, or having
material interest in any transaction or act requiring the approval of a board,
panel, or group of which he a member, and which exercise of discretion in
such approval, even if he votes against the same or he does not participate in
the action of the board, committee, panel, group .
4. Plunder under RA 7080
5. Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of RPC
a. Robbery with violence or intimidation of persons
b. Robbery with physical injuries, committed in an uninhabited place and by a
band, or with use of firearms on a street, road, or alley
c. Robbery in an uninhabited house or public building or edifice devoted to
worship
6. Jueteng and masiao under PD 1602
7. Piracy on the high seas under RPC and PD 532
a. Piracy on the high seas
b. Piracy in inland Philippine waters
c. Aiding and abetting pirates and brigands
8. Qualified theft under Article 310 of RPC
9. Swindling under Article 315 of RPC
10. Smuggling under RA 455 and RA 1937
11. Violations of Electronic Commerce Act (RA 8792)
12. Hijacking and other violations under RA 6235
13. Destructive arson and murder as defined under RPC
14. Terrorism and conspiracy to commit terrorism under Sections 3 and 4 of RA 9372
15. Financing terrorism under Section 4 and offenses punishable under Sections 5, 6, 7,
and 8 of RA 10168
16. Bribery under Articles 210, 211 and 211-A of RPC and corruption of public officers
under Article 212 of RPC
17. Frauds and illegal exactions and transactions under Articles 213, 214, 215 and 216
of RPC
18. Malversation of public funds and property under Articles 217 and 222 of RPC
19. Forgeries and counterfeiting under Articles 163, 166, 167, 168, 169 and 176 of RPC
20. Violations of Sections 4, 5 and 6 of RA 9208 (Anti-Trafficking in Persons Act)
21. Violations of Sections 86 to 106 of Chapter VI of RA 8550 (Philippine Fisheries
Code)
22. Violations of Sections 101 to 107 and 110 of RA 7942 (Philippine Mining Act)
23. Violations of Section 27(c), (e), (f), (g) and (i) of RA 9147 (Wildlife Resources
Conservation and Protection Act)
24. Violation of Section 7(b) of RA 9072 (National Caves and Cave Resources
Management Protection Act)
25. Violation of RA 6539 (Anti-Carnapping Act)
26. Violation of Section 1, 3 and 5 of PD 1866 (Illegal/Unlawful Possession of Firearms
and Explosives)
27. Violation of PD 1612 (Anti-Fencing Law)
28. Violation of Section 6 of RA 8042 (Migrant Workers Act)
29. Violation of RA 8293 (Intellectual Property Code)
30. Violation of Section 4 of RA 9995 (Anti-Photo and Video Voyeurism Act)
31. Violation of Section 4 of RA 9775 (Anti-Child Pornography Act)
32. Violations of Sections 5, 6, 7, 8, 9, 10(c), (d) and €, 11, 12 and 14 of RA 7610
(Special Protection of Children)
33. Fraudulent practices and other violations under RA 8799 (Securities Regulation
Code)
34. Felonies or offenses of a similar nature that are punishable under the penal laws of
other countries
35. Violation of Sec 19(a)(3) of RA 10697 (Strategic Trade Management Act) as
amended by RA 11521 effective January 31, 2021
36. Violations of Sec 254 of Chapter II of Title X of the NIRC (Tax Evasion) as amended
by RA 11521 effective January 31, 2021
165
7. To freeze any monetary instrument or property alleged to be proceeds of any
unlawful activity
8. To implement such measures as may be necessary and justified under RA 9160 to
counteract money laundering
9. To receive and take action in respect of, any request from foreign states for
assistance in their own anti- money laundering operations provided in RA 9160
10. To develop educational programs on the pernicious effects of money laundering, the
methods and techniques used in money laundering, the viable means of preventing
money laundering and the effective ways of prosecuting and punishing offenders
11. To enlist the assistance of any branch, department, bureau, office, agency or
instrumentality of the government, Including GOCCS, in undertaking any and all
anti-money laundering operations, which may include the use of its personnel,
facilities and resources for the more resolute prevention, detection and investigation
of money laundering offenses and prosecution of offenders.
12. To impose administrative sanctions for the violation of laws, rules, regulations,
orders, and resolutions issued pursuant to law
13. “In the conduct of its investigation, the AMLC shall apply for the issuance of a search
and seizure order with any competent court” (as included in RA 11521 effective
January 31, 2021)
14. “In the conduct of its investigation, the AMLC shall apply for the issuance of
subpoena ad testificandum and/or subpoena duces tecum with any competent court”
as included in RA 11521 effective January 31, 2021
15. “To implement targeted financial sanctions in relation to proliferation of weapons of
mass destruction and its financing, including ex parte freeze, without delay, against
all funds and other assets that are owned and controlled, directly or indirectly,
including funds and assets derived or generated therefrom, by individuals or entities
designated and listed under United Nations Security Council Resolution Number
1718 of 2006 and 2331 of 2015 and their successor resolutions as well as any
binding resolution of the Security Council” as included in RA 11521 effective January
31, 2021
16. “To preserve, manage or dispose assets pursuant to a freeze order, asset
preservation order, or judgment of forfeiture: Provided, however, that pending
turnover to the national government, all expenses incurred in relation to the duties
herein mentioned shall be deducted from the amount to be turned over to the
national government” as included by RA 11521 effective January 31, 2021
Jurisdiction
1. Regional Trial Court: all cases on money laundering
2. Sandiganbayan: if committed by public officers and private persons who are in conspiracy
with such public officers
‫ ܀‬AMLC is composed of:
1. Chairman: BSP Governor
2. Members:
a. Commissioner of Insurance Commission
b. Chairman of SEC
Note: It shall act unanimously in discharging its functions.
Functions of AMLC
1. To investigate suspicious transactions and covered transactions deemed suspicious
after determination by AMLC, money laundering activities and other violations of this
Act (as included by RA 11521 effective January 31, 2021)
2. To require and receive covered transaction reports from covered institutions
3. To issue orders addressed to the appropriate Supervising Authority or the covered
institution to determine the true identity of any monetary instrument or property
subject of a covered transaction report or request for assistance from a foreign State,
or believed by the Council, on the basis of substantial evidence to be in whole or in
part, whenever located, representing, involving or related to, directly or indirectly, in
any manner or by any means, the proceeds of an unlawful activity
4. To institute civil forfeiture proceedings and all other remedial proceedings through the
OSG
5. To cause the filing of complaints with the DOJ or Ombudsman for the prosecution of
money laundering offenses
6. To initiate investigations of covered transactions, money laundering activities and
other violations of RA 9160
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Asset Forfeiture
8.5.1 Patents
1. Civil Forfeiture - Upon determination that probable cause exists that any monetary
instrument or property is in any ways related to an unlawful activity or a money
laundering offense, the AMLC shall file with the regional trial court, through the Office
of the Solicitor General, a verified petition for civil forfeiture.
A grant issued by the government to an inventor, designer or maker, the right to exclude
others from making, using or selling his invention, design or utility model within the
country for a specific term, in exchange of his patentable disclosure.
2. No Prior Criminal Charge, Pendency of or Conviction Necessary - No prior
criminal charge, pendency of or conviction for an unlawful activity or money
laundering offense is necessary for the commencement or the resolution of a petition
for civil forfeiture.
PATENTABLE INVENTIONS
Any technical solution of a problem in any field of human activity which is new, involves an
inventive step and is industrially applicable.
3. Asset Forfeiture in Money Laundering Cases - Where there is conviction for
money laundering, the court shall issue a judgment of forfeiture in favor of the
Government of the Philippines with respect to the monetary instrument or property
found to be proceeds of an unlawful activity.
REQUIREMENTS FOR AN INVENTION TO BE PATENTABLE
(1) new / novelty
(2) involves an inventive step
(3) industrially applicable.
Group 9 - Group ni Khyla
8.5 Intellectual Property Law (except provisions under Part 1)
INTELLECTUAL PROPERTY RIGHTS
Intangible property rights granted by law to owners of intellectual creations such as
inventions, designs, signs, and names used in commerce, and literary and artistic works.
Examples of Patentable Inventions:
a.
Inventions;
b.
Utility Model;
c.
Industrial Designs; and
d.
Lay-Out Designs
DIFFERENCES BETWEEN COPYRIGHT, TRADEMARKS, AND PATENTS
Main difference: SCOPE OF PROTECTION
COPYRIGHT - confined to literary and artistic works which are original intellectual creations
in the literary and artistic domain protected from the moment of their creation
NONPATENTABLE INVENTIONS
TRADEMARK (for goods & services), SERVICE MARK (for services) - any visible sign
capable of distinguishing the goods and services of an enterprise.
- include a stamped or marked container of goods
TRADE NAME - means the name or designation identifying or distinguishing an enterprise
(1)
a.
b.
167
Discoveries, scientific theories, mathematical methods
Drugs & medicines, mere discovery of a:
New form or new property of a known substance which does not result in enhancement
of the known efficacy of that substance;
Any new property or new use for a known substance; or
c. Mere use of a known process unless such known process results in a new product that
employs at least one new reactant.
(2) Schemes, rules and methods of performing mental acts, playing games or doing
business, and programs for computers
(3) Methods for treatment of the human and animal body by surgery or therapy and
diagnostic methods practiced on the human and animal body.
Exceptions: Products and composition for use in any of these methods
(4) Plant varieties or animal breeds or essentially biological process for the production of
plants or animals
Exceptions: Micro-organisms; non-biological and microbiological processes
(5) Aesthetic creations
(6) Anything contrary to public order or morality
(7) Methods of doing business, such as method or system for transacting business
(8) Programs for computers [subject to copyright]
The ultimate goal of a patent system is to bring new designs and technologies in to the
public domain through disclosure. Ideas, once disclosed to the public without the protection
of a valid patent, are subject to appropriation without significant restraint
Exception:
NON-PREJUDICIAL DISCLOSURES
Any disclosure of the invention made within 12 months before the filing date does not
prejudice application if the disclosure is made by:
a. The inventor;
b. A patent office and the information was contained (a) in another application filed by the
inventor and should not have been disclosed by the office, or (b) in an application filed
without the knowledge or consent of the inventor by a third party which obtained the
information directly or indirectly from the inventor; or
c. A third party which obtained the information directly or indirectly from the inventor
ELEMENTS OF A PATENT
INVENTIVE STEP
Standards of Registrability:
i. Novelty;
ii. Involves an inventive step; and
iii. Industrially applicable.
An invention involves an inventive step if, 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.
Invention based on systematic steps, not coincidence.
Additional Requirements:
iv. Patentable subject matter [Sec. 22]
v. Sufficient disclosure
NOVELTY
INDUSTRIAL APPLICABILITY
An invention shall not be considered new if it forms part of a prior art.Prior Art
a.
Everything which has been made available to the public anywhere in the world,
before the filing date or the priority date of the application claiming the invention;
b.
Already covered by an earlier application.
An invention that can be produced and used in any industry.
General Rule:
168
OWNERSHIP OF A PATENT
Ø Where two or more applicants filed for the same invention to the applicant who has the
earliest filing date or the earliest priority date
I. RIGHT TO PATENT
IV. PRIORITY CLAIM
General Rule:
An application for patent filed by any person who has previously applied for the same
invention in another country which by treaty, convention, or laws affords similar privileges to
Filipino citizens shall be considered as filed as of the date of filing the foreign application,
provided that:
Belongs to the inventor, his heirs or assigns. When two or more persons have jointly made
an invention the right to a patent shall belong to both of them jointly.
Exception:
(1)
Inventions created pursuant to employment or a commissioned work
(1)
A local application expressly claims priority
(2)
A local application is filed within 12 months from priority date (application date of
foreign application for patent)
The person who commissions the work shall own the patent.
(2)
The employer has the right to the patent if the invention is the result of the
performance of the employee’s regularly assigned duties, unless there is an agreement,
express or implied, to the contrary.
- The employee, if the inventive activity is not a part of his regular duties even if the
employee uses the time, facilities and materials of the employer.
(3)
Certified copy of priority application and English translation thereof within 6 months
from filing date
Priority date: date of filing of FOREIGN application for the same invention.
II. TERM OF PATENT
Remedies of the true and actual inventor
20 years from the filing date of the application and non-renewable.
Ø It is not absolute; patent shall cease to be in effect if any of the prescribed annual
fees is not paid.
Ø After the expiration, subject matter of patent becomes part of public domain
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 an actual inventor:
The court shall order for his substitution as patentee or at the option of the true
inventor:
III. FIRST TO FILE RULE
It grants the patent rights to the person who first files a patent application for that
invention, whether or not he is the inventor.
a. Cancel the patent
b. Claim actual and other damages in his favor if warranted by the
circumstances
Ø If two or more persons have made the invention separately and independently of each
other, the right to the patent belong to the person who filed an application for such invention.
169
RIGHTS CONFERRED BY A PATENT
II. Use by Prior User
(1) To restrain, prohibit, and prevent
(2) Where the subject matter of a patent is a product any unauthorized person or entity
from making, using, offering for sale, selling reporting that product
(3) Where the subject matter of a patent is a process, any unauthorized person or entity
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
(4) To assign or transfer by succession the patent.
(5) To conclude licensing contracts.
A person other than the applicant, who started using in good faith the invention in the
Philippines, or undertaken serious preparation to use the same, before the filing date or
priority date of the application, shall have the right to continue to use thereof but his right
may only be transferred or assigned further with his enterprise or business.’
III. Use by Government
The government or a third person authorized by it may use the patent without authority of
the patent owner if:
(1) public interest so requires (Sec. 74.1, IPC)
(2) the manner of exploitation by the owner of the patent is anti-competitive (Sec.
(3) 74.2, IPC)
(4) in case of drugs and medicines, there is a national emergency or other
(5) circumstances of extreme urgency requiring the use of the invention
(6) in case of drugs and medicines, there is public non-commercial use of the patent
(7) by the patentee, without satisfactory reason (Sec. 8, RA 9502)
(8) in case of drugs and medicines, the demand for the patented article in the
(9) Philippines is not being met an adequate extent and under reasonable terms.
LIMITATIONS CONFERRED BY A PATENT
I. General Limitations
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) Exploitation of the patent if done privately and on a non-commercial scale or
purpose, provided it does not significantly prejudice economic interest of the owner
of the patent;
(3) Act of making or using the patent if for the sole purpose of scientific research and
experiment;
(4) In case of drugs and medicines , where the act includes testing, using, making or
selling the invention, including any data related thereto, solely for the purposes
reasonably related to the development and submission of information and issuance
of approvals by government regulatory agencies required under any Philippine or
foreign law;Preparation for individual cases, in a pharmacy or by a medical
professional, a medicine in accordance with a medical prescription;
(5) Use of the patented product if it occurs in vehicles in transit in the country, provided
that such invention is used exclusively for the needs of the ship, vessel aircraft, or
land vehicle and not use for the manufacturing of things to be sold in the Philippines;
PATENT INFRINGEMENT
The making, using, offering for sale, selling or importing a patented product or a product
obtained directly or indirectly from a patented process, or the use of a patented process
without the authorization of the patentee
CONTRIBUTORY INFRINGER
Actively induces the infringement of a patent or provides the infringer with a component of a
patented product or of a product produced because of a patented process knowing it to be
essentially adopted for infringing and not suitable for substantial non-infringing. He is jointly
and severally liable (I.e. solidary) with the infringer
170
DOCTRINE OF PATENT EXHAUSTION
It espouses that the patentee who has already sold his invention and has received all the
royalty and consideration for the same will be deemed to have RELEASED the invention
from his monopoly
8.5.2 Trademark, Service Marks and Trade Names
TRADEMARK, SERVICE MARK, AND TRADE NAME
Effect:
The invention becomes open to the use of the purchaser without further restrictions.
MARK
Refers to any visible sign capable of distinguishing the goods (trademark) or services
(service mark) of an enterprise from other enterprises and shall include a stamped or
marked container of goods
TYPES OF PATENT INFRINGEMENT
I. Literal Infringement Test
There is infringement of patent under this test if one makes, uses or sells an item that
contains all the elements of the patent claim
KINDS OF TRADEMARK
It is satisfied by either of the following:
(1)
a. Exactness Rule - the item that is being sold, made or used conforms exactly to the
patent claim of another
b. Addition Rule - one makes, uses, or sells an item that has all the elements of the
patent claim of another plus other element
(2)
(3)
II. Doctrine of Equivalents Test
An infringement also takes place when a device appropriates a prior invention by
incorporating its innovative concepts and although with some modification and change
perform substantially the same way to achieve the same result (function-means-and-result
test)
(4)
In other words, the principle or mode of operation must be the same or substantially the
same.
(5)
171
Trademark – any visible sign capable of distinguishing the GOODS of an
enterprise.
Service mark – refers to a mark used to distinguish certain SERVICES as
those provided by a specific enterprise.
Well-known mark – refers to a mark considered well-known by the competent
authority of the country where protection of the mark is sought. It is a kind of
mark that is PROTECTED, with or without registration. (In determining whether a
mark is well-known, the knowledge of the relevant sector of the public shall be
pertinent.)
Collective mark – refers to any visible sign, designated as such in the
application for registration and capable of distinguishing the origin or any other
common characteristics. It includes the quality of goods or services of different
enterprises which use the sign under the control of the registered owner of the
collective mark.
Slogan – refers to short words or phrases that capture a company’s brand
essence, personality and positioning and distinguish firm from competition. It is
protected as word marks.
(3)
Suggestive marks – Marks that hint or suggest the nature or quality of the
good or service without directly describing it. They are “subtly descriptive” and
are entitled to protection despite lack of distinctiveness. (EX. “JAGUAR” for
automobile.)
(4)
Arbitrary marks – Common words used as marks, but are unrelated to the
good or service they represent. (EX. “APPLE” for electronic product.)
(5) Fanciful or “coined” marks – These are invented or “coined” words that do
not have any meaning and are made solely for the purpose of the mark. They are
considered “strong” marks for purposes of registration and protection for being
inherently distinctive. (EX. “KODAK” for camera.)
FUNCTIONS OF TRADEMARK
Main function:
Enable consumers to IDENTIFY a product of a particular company so as to distinguish it
from other identical or similar products provided by competitors.
Other functions:
a. Indicate the origin of the goods to which they are attached
b. Guarantee the standard of quality of the goods
c. Advertise the goods
TRADENAME
Refers to the name or designation identifying or distinguishing an enterprise.
SPECTRUM OF DISTINCTIVENESS
(1)
(2)
Ø It need not be registered with IPO before an infringement suit may be filed, but it is
required to be previously used in trade or commerce in the Philippines.
Generic marks – It constitutes the name of an article or substance; or
comprise the genus. These must remain in the public domain and can NEVER be
registered as a trademark. (EX. “SUGAR” for refined sugar, “KAPE” for instant
coffee, “WATER” for bottled water.)
TRADEMARK
Descriptive marks – Consists exclusively of signs or of indications that may
serve in trade to designate the kind, quality, quantity, intended purpose, etc.
These are words that merely describe the product or service or refer to their
quality or characteristic.
a. General rule: Descriptive marks are not entitled to protection and are
too weak to function as a trademark.
TRADE NAME
EXISTENCE
Distinct from
existence of
proprietor
b.
Exception:
i.Doctrine of Secondary meaning, infra.
ii.
If used in an arbitrary or fanciful manner and with no relation to the
product it identifies
iii.
If used as part of a coined mark
iv.
If used as part of a composite mark
v.
If it acquired a secondary meaning
the Attached to the
the natural or judicial
person who does
business
PURPOSE
Designates
the Identifies
goods or services distinguishes
enterprise
172
and
an
offered by person or
enterprise
REGISTRATION
Must be registered No need
before IPO to be registered
protected
protected.
to
to
be
be
TRADEMARK
GOODWILL
Right
which
protects
the
interests
of
producers in their
marks and in the
goodwill earned.
Reputation
and
public confidence
that a business
venture has earned
through a period of
creditable dealings.
TRADEMARK
LABEL
Registered before
DTI
TRANSFERABILITY
May be transferred
with
or
without
transfer
of
the
business
Designed to identify Merely name what
the user or origin
is
within
the
container
or
package; may or
may
not
be
trademark
Change
of
ownership of trade
names must be
made with the
transfer
of
enterprise.
REMEDIES
A
trademark
or
service mark owner
can
avail
of
administrative, civil
and
criminal
remedies
A
trade
name
owner only has
civil
and
administrative
remedies
173
TRADEMARK
BRAND NAME
Any
distinctive
words, drawing, etc.
or
combinations
used to distinguish
goods or services.
Name that is given
to a product by the
company
that
produces or sells it.
(1)
Consist of immoral and deceptive matter, or matter which may disparage or
falsely suggest a connection with persons (living or dead), institutions, beliefs or
national symbols or bring them into contempt or disrepute
(2) Consist of the flag or coat of arms or other insignia of the Philippines or any of
its political subdivisions, or any foreign nation or any simulation thereof
(3) Consist of the name, portrait or signature identifying a living person, except by
his WRITTEN consent, or the name, portrait or signature of a deceased
President of the Philippines during the life of his widow, if any, except by written
consent of the widow.
a.
as to the use of Surname:
i.
Surnames are FREE to be USED by all
persons having that surname (Sec. 123.1, IPC)
ii.
Exception:
1.
When surname has acquired distinctiveness by acquiring
secondary meaning
2.
When surname has another meaning other than a surname
May include brand
name
ACQUISITION OF TRADEMARK
Ø Acquired through REGISTRATION made validly in accordance with the provision of
the IPC
Ø Registration is NECESSARY before one can file an action for infringement.
OWNERSHIP OF TRADEMARK
Ø Right to register a trademark is based on OWNERSHIP (only the OWNER can
register the trademark)
§ mere distributor of a product bearing trademark, even if permitted to use said
trademark, has no right to and cannot register that said trademark
Exception:
Valid transfer or assignment of trademark
§ a local importer MAY make an application for the registration of a foreign
trademark, trade name or service mark IF he is DULY AUTHORIZED by the
actual owner of the name or other mark of ownership.
(4)
Identical with a registered mark belonging to a different proprietor or a mark
with an earlier filing priority date, in respect of:
a.
same goods or services
b.
closely related goods or services
c.
if it nearly reassemble such mark as to be likely to deceive or cause
confusion
i.
First-to-File Rule, is not applicable to:
DURATION OF TRADEMARK
ii.
prior registration made in bad faith
iii.
where the prior registration was preceded by a prior use in
good faith and in the concept of an owner by another
iv.
where it would conflict with a claim to priority right
(5)
Identical with, or 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 USE FOR IDENTICAL OR SIMILAR goods or
services
Certificate of Registration of a Trademark shall remain in force for 10 YEARS
Ø May be renewed for a period of 10 years at its expiration upon payment of the
prescribed fee and upon filing of a request. (Unlimited renewal)
NONREGISTRABLE MARKS
174
(6)
Identical with, or confusingly similar to, or constitute a translation of a mark
considered well-known in accordance with the preceding paragraph, which is
REGISTERED in the Philippines with respect to goods or services which are
NOT SIMILAR to those which registration is applied for (Sec. 123.1.f, IPC)
(7) Likely to mislead the public, particularly as to the nature, quality, characteristics
or geographical origin of the goods or services
(8) Consist exclusively of signs generic for the goods or services
a. General rule: Generic marks are in capable of appropriation by any single
individual to the exclusion of others (cannot acquire secondary meaning)
b.
Exception: when made distinctive by combination with another word or
generic marks.
DOCTRINE OF SECONDARY MEANING
Generic, indicative or distinctive marks are not registrable, nothing shall prevent the
registration of any such sign or device when such kind of mark 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.
Acquiring Secondary Meaning - refers to a mark that is initially non-distinctive and thus
not a protective mark may acquire distinctiveness and become a trademark through use.
(9)
Consists exclusively of signs or of indications that have become customary or
unusual to designate goods or services in everyday language and establish trade
practices (Sec. 123.1.i, IPC)
a.
They can no longer distinguish the goods and services because they
are used so often to refer to the goods and services
(10) Consists of shapes that may be necessitated by technical factors or by the
nature of the goods themselves or factors that affect their intrinsic value
(11) Consists of color alone, unless defined by a given form
a.
Color Depletion Rule - the registrability of color alone is PROHIBITED
because eventually all types of colors will be exhausted if exclusive
acquisition is permitted
(12) Consists exclusively of signs or indications that may serve in trade to designate
the quality, quantity, intended purpose, value, geographical origin, time or
production of goods or rendering of the services, or other characteristics of goods
(Sec. 123.1.j, IPC)
a.
Descriptive Geographical Terms - now they're attractive that
designates geographical location and would tend to be regarded by
buyers as descriptive of the geographic location of origin of the goods or
services
Unless
secondary
meaning
has
been
established
to
graphically-descriptive mark, due to its general public domain
classification, is perceptibly disqualified from trademark registration
(13) Contrary to public order or morality
REGISTRATION
It is NOT compulsory, no sanctions for not registering, but there are business consequences
for such failure.
BENEFIT OF TRADEMARK REGISTRATION
(1) Ensure that consumers can distinguish between products
(2) Enables companies to differentiate their products
(3)
Serves as a marketing tool and the basis for building a brand image and
reputation
(4) May be licensed to provide a direct source of revenue through royalties
(5) Crucial component of franchising agreements
(6) Maybe a valuable business asset
(7) Encourages companies to invest in maintaining or improving product quality
(8) May be useful for obtaining franchising
RULE ON PRIOR USE
PRIOR USE is NOT required for registration, but there must be ACTUAL USE after
registration.
175
Ø DECLARATION OF ACTUAL USE and evidence to that effect
■
Within 3 years from filing date of the application , otherwise, the
application shall be REFUSED or REMOVED from the Register
packages, wrappers, receptacles, or advertisements intended to be used in
commerce upon or in connection with the SODA.
Ø If no actual use: DECLARATION OF NON-USE - to show valid reason based on the
existence of obstacle to such use
■
Within 1 year from the 5th anniversary of the date of registration of the
mark
●
WHEN NON -USE OF MARK IS EXCUSED
(1)
(2)
Caused by circumstances arising independently of the will of the owner
Use of which does not alter its distinctive character though the use of different
from the form in which it is registered
(3) Use of mark in connection with one or more of the goods/services belonging to
the class in which the mark is registered
(4) Use of a mark by a company related to the applicant/registrant
(5) Use of mark by a person controlled by the registrant
TRADEMARK INFRINGEMENT
Any person who shall commit the following acts without the consent of the owner shall be
liable in a civil action for infringement:
○
Use in commerce of any reproduction or colorable imitation of a registered
mark or a dominant feature thereof, in connection with (SODA):
■
S - Sale
■
O - Offering for sale
■
D - Distribution
■
A - Advertising of any goods or services including other preparatory steps
necessary to carry out the sale of any good or services on or in connection
with which such use is likely to cause confusion, or to cause mistake, or to
deceive
■
○
Reproduction, counterfeit, copy or colorable imitation of a registered mark or
dominant feature thereof and application of the same to labels, signs, print
176
Who may file:
○
REGISTRANT of the mark can file a case for infringement
■
There is infringement of trademark when the USE of the mark
involved would be likely to cause confusion or mistake in the mind
of the public or to deceive purchasers as to the origin of the
source of the commodity
CONFUSION
OF GOODS OR
SERVICES
CONFUSION
OF BUSINESS
OR OF ORIGIN
Exist when the
purchaser would
be induced to
purchase
one
product
or
service because
of the similarity
of the mark
exists when one
party’s product
or
service
though different
from
one
another,
might
reasonably
be
assumed
to
originate
from
the latter and the
public
would
then be deceived
into the belief
that
there is
some connection
between
the
parties
Similar
marks
are used in the
same kinds of
goods
or
services
TRADEMARK INFRINGEMENT
(1)
Test on Confusion of Origin - Whether the non-competing articles may be
classified under two different classes because they are deemed not to possess
the same descriptive properties.
similar marks are
employed
in
different
or
non-competing
goods
or
services
■
Intent to deceive or complete imitation is NOT required in
trademark infringement
ELEMENTS OF INFRINGEMENT (R-TILT)
(1) R – Registration of trademark in IPO
(2) T – Trademark is reproduced, copied, counterfeited or colorably imitated
(3)
I – It is used in connection with the sale, offering for sale or advertising of
goods, services or business or applied to labels, signs, wrappers, etc. intended to
be used in connection with such goods, services or business
(4) L – Lack of consent on the part of the registered owner or their assignee
(5) T – There is, in the use or application a likelihood of confusion
a.
NOTE:
i.
Fraudulent intent is NOT necessary and complete
imitation is not required
ii.
There shall be no infringement of trademarks or trade
names of imported or sold drugs and medicines and imported
off-patent drugs and medicines
iii.
TRADE NAMES, unlike trademarks, need not be
registered before an infringement suit may be filed by its owner
against the owner of an infringing trademark
1.
It is required that the trade name is previously
used in trade or commerce in the Philippines.
(2)
Striking Difference Rule - In a trademark infringement and unfair competition
case, the defending party must endeavour to establish the difference between
the two marks.
a.
The difference must not only be significant but also striking.
(3)
Colorable Imitation - It refers to such similarity in form, content, words, sound,
meaning, special arrangement or general appearance of the mark or trade name
with that of the other mark or trade name in their overall presentation or their
essential, substantive or distinctive parts as would likely mislead or confuse
persons in the ordinary course of purchasing the genuine article
(4)
Idem Sonans Rule - Two trademarks used on identical or related goods may
be confusingly similar if they have similar sound or pronunciation
a.
Similarity of sound or pronunciation and spelling may be sufficient to
make two marks confusingly similar when applied to merchandise of the
same descriptive properties
TEST OF CONDFUSION OF ORIGIN
1. Dominancy Test
1. Focuses on the similarity of the prevalent features of the competing
trademarks which might cause confusion or deception, and thus infringement
TYPES OF CONFUSION OF TRADEMARKS AND TRADE NAME
NOTE: Actual confusion is NOT required. The test is whether the public is likely to be
deceived.
177
2. If the competing trademark contains main, essential, dominant or prevalent
feature of another, and confusion or deception is likely to result, infringement
takes place
1. relies on visual, aural and connotative comparisons and overall
impressions between the two trademarks
3. Duplication or imitation is not necessary; nor is it necessary that the infringing
label should suggest an effort to imitate
4. The question is whether the use of the marks involved is likely to cause
confusion or mistake in the mind of the public or deceive purchasers
2. Holistic Test
1. Mandates that the entirety of the marks in question be considered in
determining confusing similarity
2. Relies on visual comparisons
1. The discerning eye of the observer must focus not only on the
predominant words but also on the other features appearing in labels
in order that he may draw his conclusion whether one is confusingly
similar to the other
purchasers with special knowledge not possessed by the ordinary
purchaser would avoid mistake by the exercise of this special knowledge
TRADEMARK VS CONFUSION OF ORIGIN
TRADEMARK
INFRINGEMENT
UNFAIR
COMPETITION
DEFINITION
Unauthorized
of trademark
use Passing off the
one’s goods as
those of another
UNFAIR COMPETITION
FRAUDULENT INTENT
This involves employing deception or any other means contrary to good faith by which a
person passes off his goods or business or services for those of one who has already
established goodwill thereto (Sec. 168.2, IPC)
Fraudulent intent is Fraudulent intent is
UNNECESSARY
ESSENTIAL
REGISTRATION
●
●
Essential Elements:
○
Confusing similarity in the general appearance of the goods
○
Fraud or intent to deceive the public and fraud a competitor
Prior registration of
trademark
is a
prerequisite to the
action
TEST TO DETERMINE UNFAIR COMPETITION
○
Whether certain goods have been intentionally clothed with an
appearance which is likely to deceive the ORDINARY PURCHASER
exercising ordinary care, and not whether a certain limited class of
SCOPE
178
Registration
of
trademark is NOT
prerequisite to the
action
Limited scope
3. Lectures, sermons, addresses, dissertations prepared for oral delivery, whether or
not reduced in writing or other material form;
4. Letters;
5. Dramatic or dramatico-musical compositions; choreographic works or entertainment
in dumb shows;
6. Musical compositions, with or without words;
7. Works of drawing, painting, architecture, sculpture, engraving, lithography or other
works of art; models or designs for works of art;
8. Original ornamental designs or models for articles of manufacture, whether or not
registrable as an industrial design, and other works of applied art;
9. Illustrations, maps, plans, sketches, charts and three-dimensional works relative to
geography, topography, architecture or science;
10. Drawings or plastic works of a scientific or technical character;
11. Photographic works including works produced by a process analogous to
photography; lantern slides;
12. Audiovisual works and cinematographic works and work produced by a process
analogous to cinematography or any process for making audio-visual recordings;
13. Pictorial illustrations and advertisements;
14. Computer programs; and
15. Other literary, scholarly, scientific and artistic works. [Sec. 172.1, RA 8293]
Wider scope
GOODS INVOLVE
SAME class of DIFFERENT
goods or services classes of goods
must be involved
or services may be
involved
8.5.3 COPYRIGHT
It is the right over literary and artistic works which are original intellectual creations in
the literary and artistic domain protected from the moment of creation.
ORIGINAL WORKS
DERIVATIVE WORKS
When a work is considered original:
1) The work is an independent creation of the author;
2) It must not be copied from the work of another.
These are works based upon one or more pre-existing works.
These are protected as new works, provided they shall not:
(1) Affect the force of any subsisting copyright upon the original works employed or
any part thereof; or
(2) Be construed to imply any right to such use of the original works, or to secure or
extend copyright in such original works. [Sec. 173.2, RA 8293]
COPYRIGHTABLE ORIGINAL WORKS
The following are the original works entitled to copyright protection:
1. Books, pamphlets, articles and other writings;
○ Published or not
○ Verbal or numerical form
2. Periodicals and newspapers;
○ News expressed in video footage
○ Television Newscast (news expression that underwent creative process)
Example: SCRA published volumes of court and tribunal decisions protected as derivative
works under Sec. 173.1.
179
b. Copyright waived by the owner in favor of the public;
c. Works which do not enjoy copyright protection as in the case of
unregistered works under previous law.
8. Useful Articles
COPYRIGHTABLE DERIVATIVE WORKS
The following derivative works shall also be protected by copyright:
1. Dramatizations, translations, adaptations, abridgments, 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. [Sec. 173.1, RA 8293]
Difference between Useful Articles and Work of Applied Art
NON-COPYRIGHTABLE WORKS
1. Any idea, procedure, system method or operation, concept, principle, discovery or
mere data as such, even if they are expressed, explained, illustrated or embodied in
a work;
Example: the format or mechanics of a TV show
2. News of the day and other miscellaneous facts having the character of mere items of
press information;
3. Any official text of a legislative, administrative or legal nature, as well as any official
translation thereof;
4. Pleadings;
5. Original decisions of courts and tribunals;
6. Works of the Philippine Government, created by any of its officers, employees, or
any subdivisions and instrumentalities including government-owned and controlled
corporations. [Sec. 171.11, RA 8293]
General Rule: No copyright shall subsist in any work of the Government.
Exceptions:
a. When copyright is transferred by assignment or bequest in favor of the
government [Sec. 176.3];
b. Author of speeches, lectures, sermons, addresses and dissertations shall
have exclusive right of making a collection of his work
c. Works made by an employee of the government which is not as a part of
his regularly prescribed official duties (i.e. not considered a “Work of the
Government”) may enjoy copyright.
7. Works of Public Domain, which includes
a. Expired copyright;
Useful Articles
Works of Applied Art
Articles having intrinsic utilitarian function
that is not merely to portray the
appearance of the article or to convey
information.
Artistic
creations with utilitarian
functions, but has an identifiable
artistic work or creation incorporated
thereto
that
is
physically
or
conceptually separable.
Non-copyrightable
Copyrightable only to the extent that
such design incorporates pictorial,
graphic or sculptural features that can
be identified separately from and are
capable of existing independently of
the utilitarian aspect of the article.
OWNERSHIP OF COPYRIGHT
180
Single Creator
Author of the work, his heirs or assigns
Joint Creator
If the work consists of:
a. Unidentifiable parts: co-authors jointly as
co-owners, unless there is a country agreement
b. Identifiable parts: author of each part owns the
part that he has created
Employee’s Creation
Commissioned Work
If the creation is:
a. Part of his regular duty: Employer, unless there is
an agreement
b. Not a part of his regular duty: Employee
Joint Creator
Lifetime of the last surviving author and fifty (50) years
after his death
Anonymous
Pseudonymous Work
Creator, unless there is a written stipulation to the contrary
Note: the work itself is owned by the person who
commissioned the work
Cinematographic Work
Anonymous
Pseudonymous Work
If unpublished, 50 years from their making
For Exhibition purposes: Producer
Work of Applied Art
For all other purpose: Producer, Author of the scenario,
Composer, Field Director, Author of the work
Photographic
Audiovisual Work
Contributor is deemed to have waive his right, unless he
expressly reserves it.
Letters
Writer
Newspaper Article
Single Creator
Lifetime of the creator and fifty (50) years after his death
Lifetime of the author and fifty (50) years after his death
A. COPYRIGHT OR ECONOMIC RIGHTS
These shall consist of the exclusive right to carry out, authorize or prevent the
following acts:
a. Reproduction of the work or substantial portion of the work;
b. Dramatization, translation, adaptation, abridgment, arrangement or other
transformation of the work;
c. The first public distribution of the original and each copy of the work by sale
or other forms of transfer of ownership;
d. Rental of the original or a copy of:
i.
An audiovisual or cinematographic work,
ii.
A work embodied in a sound recording,
iii.
A computer program,
DURATION OF COPYRIGHT
Duration
Work, 50 years from the publication of work
RIGHTS CONFERRED TO A COPYRIGHT OWNER
Note: the letter itself is owned by the recipient.
Type of Work
25 years from the date of making
If unpublished, 50 years from the date of making
and Publishers are deemed representative of the author,
unless:
a. The contrary appears
b. Pseudonyms or adopted name leaves no doubt on
author’s identity
c. Author discloses his identity
Collective Work
and 50 years after the date of their first publication; except
where, before the expiration of said period, the author's
identity is revealed or is no longer in doubt, the first two
mention rules shall apply
181
iv.
A compilation of data and other materials or a musical work in graphic
form
v.
Irrespective of the ownership of the original or the copy which is the
subject of the rental;
e. Public display of the original or a copy of the work;
f. Public performance of the work; and
g. Other communication to the public of the work. [Sec. 177, RA 8293]
C. RIGHT TO TRANSFER, ASSIGN, OR LICENSE
The author has the right to assign or license the copyright and/or the material object
in whole or in part, and they allow the owner to derive financial reward from the use
of his works by others. [Sec. 180.1, RA 8293 as amended by RA 10372]
Rights of Assignee: Within the scope of the assignment or license, the assignee or
licensee is entitled to all the rights and remedies which the assignor or licensor had
with respect to the copyright.
B. MORAL RIGHTS
Right of owner to accounting: The copyright owner has the right to regular
statement of accounts from the assignee or the licensee with regard to assigned or
licensed work.
The author of a work shall, independently of the economic rights in Section 177 or
the grant of an assignment or license with respect to such right, have the right:
1. Right of Paternity: To require that the authorship of the works be attributed
to him, in particular, the right that his name, as far as practicable, be indicated
in a prominent way on the copies, and in connection with the public use of his
work; [Sec. 193.1, RA 8293]
2. To make any alterations of his work prior to, or to withhold it from publication;
[Sec. 193.2, RA 8293]
3. Right of Integrity: To object to any distortion, mutilation or other modification
of, or other derogatory action in relation to, his work which would be
prejudicial to his honor or reputation; [Sec. 193.3, RA 8293]
4. To restrain the use of his name with respect to any work not of his own
creation or in a distorted version of his work. [Sec. 193.4, RA 8293]
Designation of Society: The owners of copyright and related rights or their heirs
may designate an IPO-accredited society of artists, writer, composers, and other
right-holders to collectively manage their economic or moral rights on their behalf.
Filing of Assignment of License: An assignment or exclusive license may be filed
in duplicate with the National Library upon payment of the prescribed fee for
registration in books and records kept for the purpose. Upon recording, a copy of the
instrument shall be returned to the sender with a notation of the fact of record.
Notice of the record shall be published in the IPO Gazette.
D. RIGHT TO PROCEEDS IN SUBSEQUENT TRANSFERS (Droit de Suites or Art
Proceeds Rights)
Waiver of Moral Rights - An author may waive his rights mentioned above
by a written instrument, but no such waiver shall be valid where its effects
is to permit another:
i.
ii.
In every sale or lease of
1. an original work of painting or
2. sculpture or of the original manuscript of a writer or composer
To use the name of the author, or the title of his work, or otherwise to
make use of his reputation with respect to any version or adaptation of
his work which, because of alterations therein, would substantially
tend to injure the literary or artistic reputation of another author; or
To use the name of the author with respect to a work he did not
create.
Subsequent to the first disposition thereof by the author, the author or his heirs shall
have:
An inalienable right to participate in the gross proceeds of the sale or
lease to the extent of five percent (5%)
182
This right shall exist during the lifetime of the author and fifty (50) years after his
death.
c. Commercial rental to the public of the original and copies of their sound
recordings
The above shall not apply to prints, etchings, engravings, works of applied art, or
works of similar kind wherein the author primarily derives gain from the proceeds of
reproductions.
C. SINGLE EQUITABLE REMUNERATION
The right to be paid a single equitable remuneration by the user to be shared with the
performers equally, in the absence of any agreement, when a sound recording
published for commercial purposes, or a reproduction of such sound recording, is:
OTHER RIGHTS
A. PERFORMER’S RIGHTS
1. As regards their performances, the right of authorizing:
a. The broadcasting and other communication to the public of their
performance; and
b. The fixation of their unfixed performance. [Sec. 203.1, RA 8293]
a. Used directly for broadcasting or
b. Used for other communication to public; or
c. Publicly performed with the intention of making and enhancing profit. [Sec.
209, RA 8293]
Such right shall be maintained and exercised 50 years after his death, by his
heirs, and in default of heirs, the government, where protection is claimed.
[Sec. 204.2, RA 8293]
D. RIGHTS OF BROADCASTING ORGANIZATIONS
1. The rebroadcasting of their broadcasts; [Sec. 211.1, RA 8293]
2. The recording in any manner, including the making of films or the use of video tape,
of their broadcasts for the purpose of communication to the public of television
broadcasts of the same; [Sec. 211.2, RA 8293]
3. The use of such records for fresh transmissions or for fresh recording. [Sec.
211.3, RA 8293]
2. Copyright or Economic Rights
a. Reproduction of Performance
b. First public distribution of the original and copies of their performances
c. Commercial rental to the public of the original and copies of their
performances
d. Making available to public of their performances by wire or wireless
means
3. Moral Rights
4. Right to additional remuneration
a. Of at least 5% of their first communication or broadcast’s original
compensation, for every subsequent communication or broadcast.
E. PUBLISHER’S COPYRIGHT
In addition to the right to publish granted by the author, his heirs, or assigns, the
publisher shall have a copyright consisting merely of the right of reproduction of
the typographical arrangement of the published edition of the work. [Sec.174,
RA 8293]
B. RIGHTS OF PRODUCERS OF SOUND RECORDINGS
1. Copyright or Economic Rights
a. Reproduction of their sound recordings
b. First public distribution of the original and copies of their sound recordings
F. COPYRIGHT IN A WORK OF ARCHITECTURE
The copyright in any such work shall include:
183
a. The right to control the erection of any building which reproduces the whole
or a substantial part of the work either in its original form or in any form
recognizably derived from the original
5. The reproduction and communication to the public of literary, scientific or artistic
works as part of reports of current events by means of photography,
cinematography or broadcasting to the extent necessary for the purpose;
6. The inclusion of a work in a publication, broadcast, or other communication to the
public, sound recording or film, if such inclusion is made by way of illustration for
teaching purposes and is compatible with fair use:
However, it shall not include the right to control the reconstruction or rehabilitation in
the same style as the original of a building to which that copyright relates. [Sec. 186,
RA 8293]
Provided, That the source and of the name of the author, if appearing in the work,
are mentioned;
LIMITATIONS ON COPYRIGHT
The following acts shall not constitute infringement of copyright:
7. The recording made in schools, universities, or educational institutions of a work
included in a broadcast for the use of such schools, universities or educational
institutions:
1. 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 recording must be deleted within a reasonable period after
they were first broadcast:
Provided, that such copies and distribution shall be made on a non-profit basis and
shall indicate the copyright owner and the date of the original publication.
Provided, further, That such recording may not be made from audiovisual works
which are part of the general cinema repertoire of feature films except for brief
excerpts of the work;
2. The recitation or performance of a work, once it has been lawfully made accessible
to the public, if done privately and free of charge or if made strictly for a charitable
or religious institution or society;
3. The making of quotations from a published work if they are compatible with fair
use and only to the extent justified for the purpose, including quotations from
newspaper articles and periodicals in the form of press summaries:
8. The making of ephemeral recordings by a broadcasting organization by means of
its own facilities and for use in its own broadcast;
9. The use made of a work by or under the direction or control of the Government, by
the National Library or by educational, scientific or professional institutions where
such use is in the public interest and is compatible with fair use;
10. The public performance or the communication to the public of a work, in a place
where no admission fee is charged in respect of such public performance or
communication, by a club or institution for charitable or educational purpose only,
whose aim is not profit making, subject to such other limitations as may be provided
in the Regulations;
11. Public display of the original or a copy of the work not made by means of a film,
slide, television image or otherwise on screen or by means of any other device or
process:
Provided, That the source and the name of the author, if appearing on the work, are
mentioned;
4. The reproduction or communication to the public by mass media of articles on
current political, social, economic, scientific or religious topic, lectures,
addresses and other works of the same nature, which are delivered in public if
such use is for information purposes and has not been expressly reserved:
Provided, That the source is clearly indicated;
184
Provided, That either the work has been published, or, that original or the copy
displayed has been sold, given away or otherwise transferred to another person by
the author or his successor in title; and
b. Where the works are isolated articles contained in composite works or brief
portions of other published works and the reproduction is necessary to supply
them; when this is considered expedient, to person requesting their loan for
purposes of research or study instead of lending the volumes or booklets
which contain them; and
c. Where the making of such limited copies is in order to preserve and, if
necessary, in the event that is lost, destroyed or rendered unusable, replace
a copy, or to replace, in the permanent collection of another similar library or
achieve, a copy which has been lost, destroyed or rendered unusable and
copies are not available with the publisher.
12. Any use made of a work for the purpose of any judicial proceedings or for the giving
of professional advice by a legal practitioner.
The above shall be interpreted in such a way as to allow the work to be used in a manner
which does not conflict with the normal exploitation of the work and does not unreasonably
prejudice the right holder's legitimate interest.
Note: It shall not be permissible to produce a volume of a work published in several
volumes or to produce missing tomes or pages of magazines or similar works, unless
the volume, tome or part is out of stock;
REPRODUCTION OF PUBLISHED WORK
1. Reproduction of a single copy: The private reproduction of a published work in a
single copy shall be permitted, without the authorization of the owner of copyright
in the work. Where:
a. The reproduction is made by a natural person
b. Exclusively for research and private study
Provided that every library which, by law, is entitled to receive copies of a printed
work, shall be entitled, when special reasons so require, to reproduce a copy of a
published work which is considered necessary for the collection of the library but
which is out of stock.
DOCTRINE OF FAIR USE
EXCEPT: The permission granted shall not extend to the reproduction of:
a. A work of architecture in form of building or other construction;
b. An entire book, or a substantial past thereof, or of a musical work in which
graphics form by reprographic means;
c. A compilation of data and other materials;
d. Any work in cases where reproduction would unreasonably conflict with a
normal exploitation of the work or would otherwise unreasonably prejudice
the legitimate interests of the author;
e. A computer program
2. Reproduction by Libraries: any library or archive whose activities are not for profit
may, without the authorization of the author of copyright owner, make a single
copy of the work by reprographic reproduction:
a. Where the work by reason of its fragile character or rarity cannot be lent to
user in its original form;
A privilege, in persons other than the owner of the copyright, to use the copyrighted
material in a reasonable manner without his consent, notwithstanding the monopoly
granted to the owner by the copyright. It is meant to balance the monopolies enjoyed by
the copyright owner with the interests of the public and of society.
The fair use of copyrighted work for criticism, news reporting, teaching (including multiple
copies for classroom use), research and similar purposes is not an infringement of copyright.
[Sec. 185.1, RA 8293]
Factors to consider in determining Fair Use:
a. The purpose and character of the use, including whether such use is of a commercial
nature or is for non-profit educational purposes;
185
b. The nature of the copyrighted work;
c. The amount and substantiality of the portion used in relation to the copyrighted work
as a whole; and
d. The effect of the use upon the potential market for or value of the copyrighted work
3.
COPYRIGHT INFRINGEMENT
4.
A person infringes a right protected under this Act when one:
a. Directly commits an infringement;
b. Benefits from the infringing activity of another person who commits an
infringement if the person benefiting:
i.
Has been given notice of the infringing activity; and
ii.
Has the right and ability to control the activities of the other person;
c. With knowledge of infringing activity, induces, causes or materially contributes
to the infringing conduct of another. [Sec. 216, RA 8293 as amended by RA
10372]
Piracy
Plagiarism
Any unauthorized copying of
copyrighted
materials
for
commercial purposes, and the
unauthorized commercial dealing of
copied materials
It is the act of appropriating the literary
composition of another, or parts or
passage of his writings, or the ideas
or language of the same and passing
them off as a product of one's mind.
5.
6.
7.
made due to such infringement; In proving profits: The plaintiff shall be required to
prove sales only, and the defendant shall be required to prove every element of cost
which he claims [Sec. 216.1(b)]
Such damages which to the court shall appear to be just and shall not be regarded
as penalty, in lieu of actual damages and profits; [Sec. 216.1(b)]
Impounding during the pendency of the action, upon such terms and conditions as
the court may prescribe, sales invoices and other documents evidencing sales, all
articles and their packaging alleged to infringe a copyright and implements for
making them; [Sec. 216.1(c)]
Deliver under oath for destruction without any compensation all infringing copies
or devices, as well as all plates, molds, or other means for making such infringing
copies as the court may order; [Sec. 216.1(d)]
Such other terms and conditions, including the payment of moral and exemplary
damages, which the court may deem proper, wise and equitable and the destruction
of infringing copies of the work even in the event of acquittal in a criminal case; [Sec.
216.1(e)]
Criminal liability
Offense
Incorporation in one’s own work of
that of another without the proper
acknowledgement thereof.
REMEDIES FOR INFRINGEMENT
1. An injunction restraining infringement; [Sec. 216.1(a)]
2. Actual damages, including legal costs and other expenses, as he may have
incurred such due to the infringement, as well as the profits the infringer may have
186
Imprisonment
Fine
First
one (1) year to three
(3) years
Fifty thousand pesos (P50,000) to One
hundred fifty thousand pesos (P150,000)
Second
three (3) years and
one (1) day to six (6)
years
One hundred fifty thousand pesos
(P150,000) to Five hundred thousand
pesos (P500,000)
DATA PRIVACY ACT
Third
six (6) years and one
(1) day to nine (9)
years
(R.A. No. 10173)
Five hundred thousand pesos (P500,000)
to One million five hundred thousand
pesos (P1,500,000)
8.6.1 Definitions
1.) DECLARATION OF POLICY
- It is the policy of the State to protect the fundamental human right of privacy,
of communication while ensuring free flow of information to promote
innovation and growth.
- The State recognizes the vital role of information and communications
technology in nation-building and its inherent obligation to ensure that
personal information in information and communications systems in the
government and in the private sector are secured and protected.
In all cases, subsidiary imprisonment in cases of insolvency. [Sec. 217.1, RA 8293 as
amended by RA 10372]
Note: The copyright owner may elect, at any time before final judgment is rendered, to
recover instead of actual damages and profits, an award of statutory damages a sum
equivalent to the filing fee of the infringement action but not less than Php 50,000.00.
·
2.) COMMISSION
- Shall refer to the National Privacy Commission created by virtue of this Act.
Statutory damages = Sum of Filing Fee > Php 50,000.00
3.) CONSENT OF THE DATA SUBJECT
- Freely given, specific, informed indication of will, whereby the data subject
agrees to the collection and processing of personal information about and/or
relating to him or her. Consent shall be evidenced by written, electronic or
recorded means. It may also be given on behalf of the data subject by an
agent specifically authorized by the data subject to do so.
In case the infringer was not aware and had no reason to believe that his acts constitute an
infringement of copyright, the court in its discretion may reduce the award of statutory
damages to a sum of not more than Ten thousand pesos (Php10,000.00). [Sec. 216.1]
·
Statutory damages < Php10,000.00
Note: The amount of damages to be awarded shall be doubled against any person who:
4.) DATA SUBJECT
- refers to an individual whose personal information is processed.
a. Circumvents effective technological measures; or
b. Having reasonable grounds to know that it will induce, enable, facilitate or conceal
the infringement:
c. Remove or alter any electronic rights management information from a copy of a
work, sound recording, or fixation of a performance; or
d. Distribute, import for distribution, broadcast, or communicate to the public works or
copies of works without authority, knowing that electronic rights management
information has been removed or altered without authority. [Sec. 216.1(b)]
5.) DIRECT MARKETING
- refers to communication by whatever means of any advertising or marketing
material which is directed to particular individuals.
6.) FILING SYSTEM
- refers to any act of information relating to natural or juridical persons to the
extent that, although the information is not processed by equipment operating
automatically in response to instructions given for that purpose, the set is
structured, either by reference to individuals or by reference to criteria relating
to individuals, in such a way that specific information relating to a particular
person is readily accessible.
Prescriptive Period: However, no damages may be recovered under this Act after the
lapse of four (4) years from the time the cause of action arose. [Sec. 226, RA 8293]
7.) INFORMATION AND COMMUNICATIONS SYSTEM
187
-
refers to a system for generating, sending, receiving, storing or otherwise
processing electronic data messages or electronic documents and includes
the computer system or other similar device by or which data is recorded,
transmitted or stored and any procedure related to the recording,
transmission or storage of electronic data, electronic message, or electronic
document.
c. The classification, salary range and responsibilities of the position held by the
individual; and
d. The name of the individual on a document prepared by the individual in the
course of employment with the government.
3. Information about an individual who is or was performing service under contract for a
government institution that relates to the services performed. This includes: The terms of the
contract, and the name of the individual given in the course of the performance of those
services;
8.) PERSONAL INFORMATION CONTROLLER
- refers to a person or organization who controls the collection, holding,
processing or use of personal information, including a person or organization
who instructs another person or organization to collect, hold, process, use,
transfer or disclose personal information on his or her behalf. The term
excludes:
1. A person or organization who performs such functions as instructed
by another person or organization; and
2. An individual who collects, holds, processes or uses personal
information in connection with the individual’s personal, family or
household affairs.
4. Information relating to any discretionary benefit of a financial nature. Such as the granting
of a license or permit given by the government to an individual, including the name of the
individual and the exact nature of the benefit;
5. Personal information processed for journalistic, artistic, literary or research purposes;
6. Information necessary in order to carry out the functions of public authority. This includes:
the processing of personal data for the performance by the independent, central monetary
authority and law enforcement and regulatory agencies of their constitutionally and
statutorily mandated functions.
a. Secrecy of Bank Deposits Act (RA 1405);
b. The Foreign Currency Deposit Act (RA 6426); and
c. The Credit Information System Act (RA 9510).
9.) PERSONAL INFORMATION PROCESSOR
- refers to any natural or juridical person qualified to act as such under this Act
to whom a personal information controller may outsource the processing of
personal data pertaining to a data subject.
7. Information necessary for banks and other financial institutions under the jurisdiction of
the independent, central monetary authority or BSP to comply with the Credit Information
System Act (RA 9510) and Anti-Money Laundering Act (RA 9160) and other applicable laws.
8.6.2 Scope of Application
THE DATA PRIVACY ACT OF 2012 APPLIES TO:
1. The processing of ALL types of personal information; and
2. To ANY natural and juridical person involved in personal information processing including:
Those personal information controllers and processors who use equipment that are located
in the Philippines, although not found or established in the Philippines; or Those who
maintain an office, branch or agency in the Philippines subject to the immediately
succeeding paragraph.
- Information about any individual who is or was an officer or employee of a
government institution that relates to the position or functions of the individual,
including:
a. The fact that the individual is or was an officer or employee of the
government institution;
b. The title, business address and office telephone number of the individual;
8. Personal information originally collected from residents of foreign jurisdictions in
accordance with the laws of those foreign jurisdictions, including any applicable data privacy
laws, which is being processed in the Philippines.
PROTECTION AFFORDED TO JOURNALISTS AND THEIR SOURCE
- No amendment or repeal of Republic Act No. 522, which affords the publishers,
editors or duly accredited reporters of any newspaper, magazine or periodical of
general circulation protection from being compelled to reveal the source of any news
report or information appearing in said publication which was related in any
confidence to such publishers, editor, or reporter.
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EXTRATERRITORIAL APPLICATION: This Act applies to an act done or practice engaged
in and outside of the Philippines by an entity if;
- The act, practice or processing relates to personal information about a Philippine
citizen or a resident;
- The entity has a link with the Philippines, and the entity is processing personal
information in the Philippines or even if the processing is outside the Philippines as
long as it is about Philippine citizens or residents such as, but not limited to, the
following:
a. A contract is entered in the Philippines;
b. A juridical entity unincorporated in the Philippines but has central
management and control in the country; and
c. An entity that has a branch, agency, office or subsidiary in the Philippines and
the parent or affiliate of the Philippine entity has access to personal
information; and
- The entity has other links in the Philippines such as, but not limited to:
➢ The entity carries on business in the Philippines; and
➢ The personal information was collected or held by an entity in the Philippines.
8.6.4 Processing of Personal Data
PROCESSING
PERSONAL INFORMATION
any operation or set of operations
performed upon personal information
including, but not limited to: collection,
recording,
organization,
storage,
updating or modification, retrieval,
consultation,
use,
consolidation,
blocking, erasure or destruction of data.
any information whether recorded in a
material form or not, from which the
identity of an individual is apparent or
can be reasonably and directly
ascertained by the entity holding the
information, or when put together with
other information would directly and
certainly identify an individual.
THE PROCESSING OF PERSONAL INFORMATION
SHALL BE ALLOWED, SUBJECT TO:
a. Compliance with the requirements of this Act and other laws allowing disclosure of
information to the public; and
b. Adherence to the principles of transparency, legitimate purpose and
proportionality.
8.6.3 Data Privacy Principles
THE PROCESSING OF PERSONAL INFORMATION SHALL BE ALLOWED, SUBJECT
TO:
1. Compliance with the requirements of the Data Privacy Act and other laws allowing
disclosure of information to the public and
2. Adherence to the following principles:
a.) Principle of Proportionality: The Processing of Personal data shall be
adequate, relevant, suitable, necessary, and not excessive in relation to a
declared and specified purpose. Personal Data shall be processed by the
Company only if the purpose of the Processing could not reasonably be
fulfilled by other means.
b.) Principle of Legitimate Purpose: The Processing of Personal Data by
the Company shall be compatible with a declared and specified purpose
which must not be contrary to law, morals, or public policy.
c.) Principle of Transparency: The Data Subject must be aware of the
nature, purpose, and extent of the Processing of his or her Personal Data by
the Company, including the risks and safeguards involved, the identity of
persons and entities involved in processing his or her Personal Data, his or
her rights as a Data Subject, and how these can be exercised. Any
information and communication relating to the Processing of Personal Data
should be easy to access and understand, using clear and plain language.
PERSONAL INFORMATION MUST BE:
a. Collected for specified and legitimate purposes determined and declared, and
later processed in a way compatible with such declared, specified and legitimate
purposes only;
• When purposes are determined and declared: before, or as soon as
reasonably practicable after collection.
b. Processed fairly and lawfully;
c. Accurate, relevant and, where necessary for purposes for which it is to be
used, the processing of personal information, kept up to date.
• Inaccurate or incomplete data must be rectified, supplemented,
destroyed or their further processing restricted;
d. Adequate and not excessive in relation to the purposes for which they are
collected and processed;
e. Retained only for as long as necessary for the fulfillment of the purposes for
which the data was obtained or for the establishment, exercise or defense of legal
claims, or for legitimate business purposes, or as provided by law; and
f. Kept in a form which permits identification of data subjects for no longer than is
necessary for the purposes for which the data were collected and processed.
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•
•
Provided that personal information collected for other purposes may
lie processed for historical, statistical or scientific purposes, and in
cases laid down in law may be stored for longer periods.
Provided, further, that adequate safeguards are guaranteed by said
laws authorizing their processing.
Except: Where such interests are overridden by fundamental rights and freedoms of
the data subject which require protection under the Philippine Constitution.
GENERAL RULE: THE PROCESSING OF SENSITIVE PERSONAL INFORMATION
EXCEPTIONS:
• Obtained the given consent specific to the purpose prior to the processing:
• In general: the data subject’s
• In cases involving privileged information: all parties involved in the exchange
• The processing of the same is provided for by existing laws and regulations.
• Provided, That such regulatory enactments guarantee the protection of the
sensitive personal information and the privileged information:
• Provided, further, That the consent of the data subjects are not required by
law or regulation permitting the processing of the sensitive personal
information or the privileged information;
• The processing is necessary to protect the life and health of the data subject
or another person, and the data subject is not legally or physically able to
express his or her consent prior to the processing;
• The processing is necessary to achieve the lawful and noncommercial
objectives of public organizations and their associations.
Provided that:
- such processing is only confined and related to the bona fide
members of these organizations or their associations,
- that the sensitive personal information are not transferred to third
parties and
- that consent of the data subject
• The processing is necessary for purposes of medical treatment, is carried out
by a medical practitioner or a medical treatment institution, and an adequate
level of protection of personal information is ensured; or was obtained prior to
processing;
• The processing is necessary for purposes of medical treatment, is carried out
by a medical practitioner or a medical treatment institution, and an adequate
level of protection of personal information is ensured; or
SENSITIVE PERSONAL INFORMATION – PERSONAL INFORMATION:
a. About an individual’s race, ethnic origin, marital status, age, color, and
religious, philosophical or political affiliations;
b. 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;
c. 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
d. Specifically established by an executive order or an act of Congress to be
kept classified.
PRIVILEGED INFORMATION:
- any and all forms of data which under the Rules of Court and other pertinent laws
constitute privileged communication
CRITERIA FOR LAWFUL PROCESSING OF PERSONAL INFORMATION:
a. Not otherwise prohibited by law; and
b. When at least one of the following conditions exists:
• The data subject’s given consent;
• The processing is necessary and is related to the fulfillment of a contract with
the data subject or in order to take steps at the request of the data subject
prior to entering into a contract;
• The processing is necessary for compliance with a legal obligation to which
the personal information controller is subject;
• The processing is necessary to protect vitally important interests of the data
subject, including life and health;
• The processing is necessary in order to respond to national emergency, to
comply with the requirements of public order and safety, or to fulfill functions
of public authority which necessarily includes the processing of personal data
for the fulfillment of its mandate; or
• The processing is necessary for the purposes of the legitimate interests
pursued by the personal information controller or by a third party or parties to
whom the data is disclosed.
8.6.5 Security Measures for Protection of Personal Data
SECURITY OF PERSONAL INFORMATION
1. The Personal Information Controller must implement reasonable and appropriate
organizational, physical, and technical measures intended for the protection of personal
information against any accidental or unlawful destruction, alteration, and disclosure, as
well as against any other unlawful processing.
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2. The processing is necessary for purposes of
medical practitioner or a medical treatment
protection of personal information is ensured; or
3. The processing is necessary for purposes of
medical practitioner or a medical treatment
protection of personal information is ensured; or
medical treatment, is carried out by a
institution, and an adequate level of
●
medical treatment, is carried out by a
institution, and an adequate level of
●
Subject to guidelines as the Commission may issue from time to time, the measures
implemented must include:
➢ Safeguards to protect its computer network against accidental, unlawful or
unauthorized usage or interference with or hindering of their functioning or
availability;
➢ A security policy with respect to the processing of personal information;
➢ A process for identifying and accessing reasonably foreseeable vulnerabilities in its
computer networks, and for taking preventive, corrective and mitigating action
against security incidents that can lead to a security breach; and
➢ Regular monitoring for security breaches and a process for taking preventive,
corrective and mitigating action.
a. The processing is necessary for purposes of medical treatment, is carried out by
a medical practitioner or a medical treatment institution, and an adequate level of
protection of personal information is ensured; or
b. The processing is necessary for purposes of medical treatment, is carried out by
a medical practitioner or a medical treatment institution, and an adequate level of
protection of personal information is ensured; or
c. The employees, agents or representatives of a personal information controller
who are involved in the processing of personal information shall operate and hold
personal information under strict confidentiality if the personal information are not
intended for public disclosure. This obligation shall continue even after leaving
the public service, transfer to another position or upon termination of employment
or contractual relations.
d. The employees, agents or representatives of a personal information controller
who are involved in the processing of personal information shall operate and hold
personal information under strict confidentiality if the personal information are not
intended for public disclosure. This obligation shall continue even after leaving
the public service, transfer to another position or upon termination of employment
or contractual relations.
●
The Commission may exempt a personal information controller from
notification where, in its reasonable judgment, such notification would not
be in the public interest or in the interests of the affected data subjects.
The Commission may authorize postponement of notification where it
may hinder the progress of a criminal investigation related to a serious
breach.
Period to report: If there is likelihood of risk to individuals, the data processor must
report data breaches within 72 hours.
8.6.6 Rights of Data Subject
1. RIGHT TO INFORMED CONSENT: The data subject is entitled to;
a. Be informed whether personal information pertaining to him or her shall be, are
being or have been processed;
b. Be furnished with the following information before the entry of the personal
information into the processing system of the personal information controller, or at
the next practical opportunity:
➢ Description of the personal information to be entered into the system;
➢ Purposes for which they are being or are to be processed;
➢ Scope and method of the personal information processing;
➢ The recipients or classes of recipients to whom they are or may be disclosed;
➢ Methods utilized for automated access, if the same is allowed by the data
subject, and the extent to which such access is authorized;
➢ The identity and contact details of the personal information controller or its
representative;
➢ The period for which the information will be stored; and
➢ The existence of their rights (i.e., to access, correction, as well as the right to
lodge a complaint before the Commission).
2. RIGHT TO OBJECT
- The data subject shall have the right to object to the processing of his or her
personal data, including processing for direct marketing, automated processing or
profiling.
3. RIGHT TO WITHHOLD CONSENT
- The data subject shall be notified and given an opportunity to withhold consent to the
processing in case of changes or any amendment to the information supplied or
declared to the data subject in the preceding paragraph.
In evaluating if notification is unwarranted, the Commission may take into
account compliance by the personal information controller with this
section and existence of good faith in the acquisition of personal
information.
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6. RIGHT TO ERASURE OR BLOCKING
- The data subject shall have the right to suspend, withdraw or order the blocking,
removal or destruction of his or her personal information from the personal
information controller’s filing system. This right may be exercised upon discovery and
substantial proof of any of the following:
(i) The personal data is incomplete, outdated, false, or unlawfully obtained;
(ii) The personal data is being used for purpose not authorized by the data
subject;
(iii) The personal data is no longer necessary for the purposes for which they
were collected;
(iv) The data subject withdraws consent or objects to the processing, and there is
no other legal ground or overriding legitimate interest for the processing;
(v) The personal data concerns private information that is prejudicial to data
subject, unless justified by freedom of speech, of expression, or of the press or
otherwise authorized;
(vi) The processing is unlawful;
(vii) The personal information controller or personal information processor
violated the rights of the data subject.
General Rule: Any information supplied or declaration made to the data subject on
these matters shall not be amended without prior notification.
Exception: The notification shall not apply if the personal information is
needed pursuant to a subpoena or when the collection and processing are for
obvious purposes (e.g., when it is necessary for the performance of or in
relation to a contract or service or when necessary or desirable in the context
of an employer-employee relationship, between the collector and the data
subject) or when the information is being collected and processed as a result of
legal obligation.
4. RIGHT TO ACCESS
- The data subject has reasonable access to, upon demand, the following:
➢ Contents of his or her personal information that were processed;
➢ Sources from which personal information were obtained;
➢ Names and addresses of recipients of the personal information;
➢ Manner by which such data were processed;
➢ Reasons for the disclosure of the personal information to recipients;
➢ Information on automated processes where the data will or likely to be made
as the sole basis for any decision significantly affecting or will affect the data
subject;
➢ Date when his or her personal information concerning the data subject were
last accessed and modified; and
➢ The designation, or name or identity and address of the personal information
controller.
In this case, the personal information controller may notify third parties who have
previously received such processed personal information.
7. RIGHT TO DAMAGES
- The data subject shall be indemnified for any damages sustained due to such
inaccurate, incomplete, outdated, false, unlawfully obtained or unauthorized use of
personal information.
5. RIGHT TO RECTIFICATION
- The data subject shall have the right to dispute the inaccuracy or error in the
personal information and have the personal information controller correct it
immediately and accordingly, unless the request is vexatious or otherwise
unreasonable.
8. RIGHT TO DATA PORTABILITY
- The right of the data subject to obtain from the personal information controller a copy
of data, where personal information is processed:
a. By electronic means and
b. In a structured and commonly used format.
The Commission may specify the electronic format referred to above, as well as
the technical standards, modalities and procedures for their transfer. [Sec. 18]
Note: If the personal information have been corrected, the personal information
controller shall ensure the accessibility of both the new and the retracted information
and the simultaneous receipt of the new and the retracted information by recipients
thereof.
Provided, That the third parties who have previously received such processed
personal information shall be informed of its inaccuracy and its rectification
upon reasonable request of the data subject.
TRANSMISSIBILITY OF RIGHTS OF THE DATA SUBJECT
- The lawful heirs and assigns of the data subject may invoke the rights of the data
subject for which he or she is an heir or assignee.
When they may invoke:
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(1) At any time after the death of the data subject or when the data subject is
incapacitated; or
(2) When the data subject is incapable of exercising the rights as enumerated above.
[Sec. 17]
-
NON-APPLICABILITY OF RIGHTS: The above rights of a data subject are not applicable:
● If the processed personal information are used only for the needs of:
(i) Scientific and statistical research; and
(ii) On the basis of such, no activities are carried out and no decisions are taken
regarding the data subject
● Provided, That the personal information shall be:
(i) Held under strict confidentiality; and
(ii) Used only for the declared purpose.
● To processing of personal information gathered for the purpose of investigations in
relation to any criminal, administrative or tax liabilities of a data subject. [Sec. 19]
If the breach involves at least one hundred (100) data subjects
The disclosure of sensitive personal information will harm or adversely affect the
data subject.
In both instances, the Commission shall be notified within the 72-hour period based
on available information. The full report of the personal data breach must be
submitted within five (5) days, unless the personal information controller is granted
additional time by the Commission to comply.
CONTENT OF NOTIFICATION: The notification shall include, but not be limited to:
1. Nature of the Breach
a. description of how the breach occurred and the vulnerability of the data processing
system that allowed the breach;
b. a chronology of the events leading up to the loss of control over the personal data;
c. approximate number of data subjects or records involved;
d. description or nature of the personal data breach;
e. description of the likely consequences of the personal data breach; and
f. name and contact details of the data protection officer or any other accountable
persons.
8.6.7 Data Breach Notification
NOTIFICATION OF THE COMMISSION:
- The personal information controller shall notify the Commission of a personal data
breach subject to the following procedures.
2. Personal Data Possibly Involved
a. description of sensitive personal information involved; and
b. description of other information involved that may be used to enable identity fraud.
WHEN NOTIFICATION SHOULD BE DONE:
- The Commission shall be notified within seventy-two (72) hours upon knowledge of
or the reasonable belief by the personal information controller or personal
information processor that a personal data breach has occurred.
3. Measures Taken to Address the Breach
a. description of the measures taken or proposed to be taken to address the breach;
b. actions being taken to secure or recover the personal data that were
compromised;
c. actions performed or proposed to mitigate possible harm or negative
consequences, and limit the damage or
distress to those affected by the incident;
d. action being taken to inform the data subjects affected by the incident, or reasons
for any delay in the notification;
e. the measures being taken to prevent a recurrence of the incident
DELAY IN NOTIFICATION
- May only be delayed to the extent necessary to determine the scope of the breach,
to prevent further disclosures, or to restore reasonable integrity to the information
and communications system.
- The personal information controller need not be absolutely certain of the scope of the
breach prior to notification
- Its inability to immediately secure or restore integrity to the information and
communications system shall not be a ground for any delay in notification, if such
delay would be prejudicial to the rights of the data subjects.
- Delay in notification shall not be excused if it is used to perpetuate fraud or to
conceal the personal data breach.
Form: Notification shall be in the form of a report, whether written or electronic,
containing the required contents of notification:
• Provided, that the report shall also include the name and contact details of
the data protection officer and a designated representative of the personal
information controller.
WHEN DELAY IS PROHIBITED/ NO DELAY:
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•
b. The contract or other legal act shall stipulate that the personal
information processor shall:
➢ Process the personal data only upon the documented instructions of the
personal information controller, including transfers of personal data to another
country or an international organization, unless such transfer is authorized by
law;
➢ Ensure that an obligation of confidentiality is imposed on persons authorized
to process the personal data;
➢ Implement appropriate security measures and comply with the Act, these
Rules, and other issuances of the Commission;
➢ Not engage another processor without prior instruction from the personal
information controller: Provided, that any such arrangement shall ensure that
the same obligations for data protection under the contract or legal act are
implemented, taking into account the nature of the processing;
➢ Assist the personal information controller, by appropriate technical and
organizational measures and to the extent possible, fulfill the obligation to
respond to requests by data subjects relative to the exercise of their rights;
➢ Assist the personal information controller in ensuring compliance with the
Act, these Rules, other relevant laws, and other issuances of the
Commission, taking into account the nature of processing and the information
available to the personal information processor;
➢ At the choice of the personal information controller, delete or return all
personal data to the personal information controller after the end of the
provision of services relating to the processing: Provided, that this includes
deleting existing copies unless storage is authorized by the Act or another
law;
➢ Make available to the personal information controller all information
necessary to demonstrate compliance with the obligations laid down in the
Act, and allow for and contribute to audits, including inspections, conducted
by the personal information controller or another auditor mandated by the
latter;
➢ Immediately inform the personal information controller if, in its opinion, an
instruction infringes the Act, these Rules, or any other issuance of the
Commission.
Provided further, that, where applicable, the manner of notification of the
data subjects shall also be included in the report.
8.6.8 Outsourcing and Subcontracting Agreements
PERSONAL INFORMATION CONTROLLER
- Refers to a person or organization who controls the collection, holding, processing or
use of personal information.
Includes:
➢ A person or organization who instructs another person or organization to
collect, hold, process, use, transfer or disclose personal information on his or
her behalf.
Excludes:
➢ A person or organization who performs such functions as instructed by
another person or organization; and
➢ An individual who collects, holds, processes, or uses personal information in
connection with the individual’s personal, family or household affairs. [Sec.
3(h)]
SUBCONTRACTING OF PERSONAL DATA
- A personal information controller may subcontract or outsource the processing of
personal information, provided, that the personal information controller shall use
contractual or other reasonable means to ensure that proper safeguards are in place:
➢ To ensure the confidentiality, integrity and availability of the personal data
processed;
➢ To prevent its use for unauthorized purposes; and
➢ To comply with the requirements of the Act, these Rules, other applicable
laws for processing of personal data, and other issuances of the Commission.
AGREEMENTS FOR OUTSOURCING
- Processing by a personal information processor shall be governed by a contract or
other legal act that binds the personal information processor to the personal
information controller.
a. The contract or legal act shall set out the subject-matter and duration of
the processing, the nature and purpose of the processing, the type of
personal data and categories of data subjects, the obligations and
rights of the personal information controller, and the geographic
location of the processing under the subcontracting agreement.
The Personal Information Processor shall comply with the requirements of the
Act, these Rules, other applicable laws, and other issuances of the Commission, in
addition to obligations provided in a contract, or other legal act with a personal
information controller.
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➢
8.6.9 Registration and Compliance Requirements
Procedure: The procedure for registration shall be in accordance with these Rules
and other issuances of the Commission.
ENFORCEMENT OF THE DATA PRIVACY ACT:
- Pursuant to the mandate of the Commission to administer and implement the Act,
and to ensure the compliance of personal information controllers with its obligations
under the law, the Commission requires the following:
➢ Registration of personal data processing systems operating in the country
that involves accessing or requiring sensitive personal information of at least
one thousand (1,000) individuals, including the personal data processing
system of contractors, and their personnel, entering into contracts with
government agencies;
➢ Notification of automated processing operations where the processing
becomes the sole basis of making decisions that would significantly affect the
data subject;
➢ Annual report of the summary of documented security incidents and personal
data breaches;
➢ Compliance with other requirements that may be provided in other issuances
of the Commission.
-
Name and contact details of the compliance or data protection officer, which shall
immediately be updated in case of changes.
NOTIFICATION OF AUTOMATED PROCESSING OPERATIONS
- The personal information controller carrying out any wholly or partly automated
processing operations or set of such operations intended to serve a single purpose
or several related purposes shall notify the Commission when the automated
processing becomes the sole basis for making decisions about a data subject, and
when the decision would significantly affect the data subject.
A. The notification shall include the following information:
➢ Purpose of processing;
➢ Categories of personal data to undergo processing;
➢ Category or categories of data subject;
➢ Consent forms or manner of obtaining consent;
➢ The recipients or categories of recipients to whom the data are to be
disclosed;
➢ The length of time the data are to be stored;
➢ Methods and logic utilized for automated processing;
➢ Decisions relating to the data subject that would be made on the basis of
processed data or that would significantly affect the rights and freedoms of
data subject; and
➢ Names and contact details of the compliance or data protection officer.
The personal information controller or personal information processor that employs
fewer than two hundred fifty (250) persons shall not be required to register unless the
processing it carries out is likely to pose a risk to the rights and freedoms of data
subjects, the processing is not occasional, or the processing includes sensitive
personal information of at least one thousand (1,000) individuals.
Contents: The contents of registration shall include:
➢ The name and address of the personal information controller or personal information
processor, and of its representative, if any, including their contact details;
➢ The purpose or purposes of the processing, and whether processing is being done
under an outsourcing or subcontracting agreement;
➢ A description of the category or categories of data subjects, and of the data or
categories of data relating to them;
➢ The recipients or categories of recipients to whom the data might be disclosed;
➢ Proposed transfers of personal data outside the Philippines;
➢ A general description of privacy and security measures for data protection;
➢ Brief description of the data processing system;
➢ Copy of all policies relating to data governance, data privacy, and information
security;
➢ Attestation to all certifications attained that are related to information and
communications processing; and
B. No decision with legal effects concerning a data subject shall be made solely
on the basis of automated processing without the consent of the data subject.
REVIEW BY THE COMMISSION:
- The following are subject to the review of the Commission, upon its own initiative or
upon the filing of a complaint by a data subject:
a. Compliance by a personal information controller or personal information
processor with the Act, these Rules, and other issuances of the Commission;
b. Compliance by a personal information controller or personal information
processor with the requirement of establishing adequate safeguards for data
privacy and security;
c. Any data sharing agreement, outsourcing contract, and similar contracts
involving the processing of personal data, and its implementation;
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d. Any off-site or online access to sensitive personal data in government
allowed by a head of agency;
e. Processing of personal data for research purposes, public functions, or
commercial activities;
f. Any reported violation of the rights and freedoms of data subjects;
g. Other matters necessary to ensure the effective implementation and
administration of the Act, these Rules, and other issuances of the
Commission.
PRINCIPLES FOR ELECTRONIC COMMERCE PROMOTION
Role of Government
When required, it shall promote a stable legal environment, allow a fair allocation of scarce
resources and protect public interest. It shall also be clear, transparent, objective,
non-discriminatory, proportional, flexible, and technologically neutral. Mechanisms for private
sector input and involvement in policy making shall be promoted and widely used.
Role of the Private Sector
The development of electronic commerce shall be led primarily by the private sector in
response to market forces. Participation in electronic commerce shall be pursued through an
open and fair competitive market.
E-COMMERCE ACT
(R.A. No. 8792)
8.7.1 Principle
Electronic Commerce - is the buying and selling of goods and services, or the transmitting
of funds or data, over an electronic network, primarily the internet.
International Coordination and Harmonization
Government policies that affect electronic commerce will be internationally coordinated and
compatible and will facilitate interoperability within an international, voluntary and
consensus-based environment for standards setting.
8.7.2 Application
●
Objective of the Law:
Neutral Tax Treatment
Transactions conducted using electronic commerce should receive neutral tax treatment in
comparison to transactions using non-electronic means and taxation of electronic commerce
shall be administered in the least burdensome manner.
1. to facilitate domestic and international dealings, transactions, arrangements,
agreements, contracts and exchanges and storage of information through the
utilization of electronic, optical and similar medium, mode, instrumentality and
technology,
Protection of Users
The protection of users, in particular with regard to privacy, confidentiality, anonymity, and
content control shall be pursued through policies driven by choice, individual empowerment,
and industry-led solutions. It shall be in accordance with applicable laws. Subject to such
laws, businesses should make available to consumers and, where appropriate, business
users the means to exercise choice with respect to privacy, confidentiality, content control
and anonymity.
2. to recognize the authenticity and reliability of electronic data messages or
electronic documents related to such activities and
3. to promote the universal use of electronic transactions in the government and
by the general public.
●
Sphere of Application:
Electronic Commerce Awareness
The Government and Private Sector will inform society (individual consumers and
businesses) about the potentials of electronic commerce and its impact on social and
economic structures.
This Act shall apply to any kind of data message and electronic document used
in the context of commercial and non-commercial activities to include domestic and
international dealings, transactions, arrangements, agreements contracts and exchanges
and storage of information.
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Small and Medium-Sized Enterprises
Government will provide SMEs with information and education relevant to opportunities
provided by global electronic commerce. Government will create an environment that is
conducive to private sector investment in information technologies and encourage capital
access for SMEs.
Skills Development
Government shall enable workers to share in the new and different employment generated
by electronic commerce. In this regard, the Government shall continue to promote both
formal and non-formal skills-development programs.
Addressee
refers to a person who is intended by the originator to receive the
electronic data message or electronic document. The term does not
include a person acting as an intermediary.
Computer
refers to any device is capable of receiving, recording, transmitting,
storing, processing, retrieving, or producing information, data,
figures, symbols.
Electronic
Message
Data refers to information generated, sent, received or stored by
electronic, optical or similar means.
Information and a system intended for and capable of generating, sending,
Communications receiving, storing, or otherwise processing electronic data
System
messages or electronic documents and includes the computer
system or other similar device by or in which data is recorded or
stored and any procedures related to the recording or storage of
electronic data message or electronic document.
Government as a Model User
Government shall utilize new electronic means to deliver core public services in order to
demonstrate the benefits derived therefrom and to promote the use of such means.
Convergence
Convergence of technologies is crucial to electronic commerce and will be supported by
appropriate government policies. Government will work closely with business in preparing
for and reacting to changes caused by convergence.
Electronic
Signature
refers to any distinctive mark, characteristic and/or sound in
electronic form, representing the identity of a person and attached
to or logically associated with the electronic data message or
electronic document or any methodology or procedures employed
or adopted by a person and executed or adopted by such person
with the intention of authenticating or approving an electronic data
message or electronic document.
Electronic
Document
refers to information or the representation of information, data,
figures, symbols or other modes of written expression, described or
however represented, by which a right is established or an
obligation extinguished, or by which a fact may be proved and
affirmed, which is received, recorded, transmitted, stored,
processed, retrieved or produced electronically.
Domain Name System
The Government supports initiatives to ensure the Internet users will have a sufficient voice
in the governance of the domain name system.
Access to Public Records
Government shall provide equal and transparent access to public domain information.
Dispute Mechanisms
Government encourages the use of self-regulatory extra-judicial dispute settlement
mechanisms such as arbitration and mediation as an effective way of resolving electronic
commerce disputes.
DEFINITION OF TERMS
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Electronic Key
refers to a secret code which secures and defends sensitive
information that cross over public channels into a form decipherable
only with a matching electronic key.
Intermediary
refers to a person who in behalf of another person and with respect
to a particular electronic document sends, receives and/or stores
and provides other services in respect of that electronic data
message or electronic document.
Originator
refers to a person by whom, or on whose behalf, the electronic
document purports to have been created, generated and/or sent.
The term does not include a person acting as an intermediary with
respect to that electronic document.
Service provider
refers to a provider of:
i. On-line services or network access or the operator of facilities
ii. The necessary technical means
a.) The electronic signature is the signature of the person to whom it correlates; and
b.) The electronic signature was affixed by that person with the intention of signing or
approving the electronic document.
Original Documents: Where the law requires information to be presented or retained in its
original form, that requirement is met by an electronic data message or electronic document
if:
(a) the integrity of the information from the time when it was first generated in its final form,
as an electronic data message or electronic document is shown by evidence aliunde or
otherwise; and
(b) where it is required that information be presented, that the information is capable of
being displayed to the person to whom it is to be presented.
Authentication of Electronic Data Messages and Electronic Documents - Until the
Supreme Court by appropriate rules shall have so provided, electronic documents,
electronic data messages and electronic signatures, shall be authenticated by
demonstrating, substantiating and validating a claimed identity of a user, device, or another
entity in an information or communication system.
LEGAL RECOGNITION OF ELECTRONIC WRITING OR DOCUMENT AND DATA
MESSAGES
Burden of Proof: The person seeking to introduce an electronic data message and
electronic document in any legal proceeding has the burden of proving its authenticity by
evidence capable of supporting a finding that the electronic data message and electronic
document is what the person claims it to be.
Legal Recognition of Data Messages - Information shall not be denied legal effect,
validity or enforceability solely on the grounds that it is in the data message purporting to
give rise to such legal effect, or that it is merely referred to in that electronic data message.
In the absence of evidence to the contrary, the integrity of the information and
communication system in which an electronic data message or electronic document is
recorded or stored may be established in any legal proceeding a.) By evidence that at all material times the information and communication system or other
similar device was operating in a manner that did not affect the integrity of the electronic
data message and/or electronic document
b.) By showing that the electronic data message and/or electronic document was recorded
or stored by a party to the proceedings who is adverse in interest to the party using it; or
c.) By showing that the electronic data message and/or electronic document was recorded
or stored in the usual and ordinary course of business by a person who is not a party to the
proceedings and who did not act under the control of the party using the record.
Legal Recognition of Electronic Documents - Electronic documents shall have the legal
effect, validity or enforceability as any other document or legal writing.
Legal Recognition of Electronic Signatures - An electronic signature on the electronic
document shall be equivalent to the signature of a person on a written document if:
a.) the signature is an electronic signature and
b.) proved by showing that a prescribed procedure, not alterable by the parties interested in
the electronic document, existed
Presumption Relating to Electronic Signatures - - In any proceeding involving an
electronic signature, it shall be presumed that 198
Admissibility and Evidential Weight of Electronic Data Message and Electronic
Documents - nothing in the application of the rules on evidence shall deny the admissibility
of an electronic data message or electronic document in evidence a.) On the sole ground that it is in electronic form; or
b.) On the ground that it is not in the standard written form and electronic data message or
electronic document meeting and in compliance with Sections 6 and 7 hereof.
Formation of Validity of Electronic Contracts:
- contracts may be expressed in, demonstrated and proved by means of electronic
data messages or electronic documents except as otherwise agreed by the
parties.
Requisites:
● An offer
● The acceptance of an offer
● Such other elements required under existing laws
Retention of Electronic Data Message and Electronic Document
(a) The requirement in any provision of law that certain documents be retained in their
original form is satisfied by retaining them in the form of an electronic data message or
electronic document which i. Remains accessible so as to be usable for subsequent reference;
ii. Is retained in the format in which it was generated, sent or received, or in a format
which can be demonstrated to accurately represent the electronic data message or
electronic document generated, sent or received;
iii. Enables the identification of its originator and addressee, as well as the
determination of the date and the time it was sent or received.
(b) The requirement referred to in paragraph (a) is satisfied by using the services of a third
party, provided that the conditions set forth in subparagraphs (i), (ii) and (iii) of paragraph (a)
are met.
Recognition by Parties of Electronic Data Message or Electronic document:
- As between the originator and the addressee of an electronic data message or
electronic document.
- a declaration of will or other statement shall not be denied legal effect, validity or
enforceability solely on the ground that it is in the form of an electronic data message
or electronic document.
Attribution of Electronic Data Message:
Error on Electronic Data Message or Electronic Document:
- addressee is entitled to regard document or message as that which the
originator intended to send unless addressee knew or should have known that:
a. That the transmission resulted in any error therein or in the electronic data message
or electronic document enters the designated information system
b. That electronic data message or electronic document is sent to an information
system which is not so designated by the addressee for the purposes.
Proof By Affidavit - The matters referred on admissibility and on the presumption of
integrity, may be presumed to have been established by an affidavit given to the best of
the deponent's knowledge subject to the rights of parties in interest as defined in the
following section.
Cross-Examination (1) A deponent of an affidavit referred to above that has been introduced in evidence may be
cross-examined as of right by a party to the proceedings who is adverse in interest to the
party who has introduced the affidavit or has caused the affidavit to be introduced.
(2) Any party to the proceedings has the right to cross-examine a person who is not a party
to the proceedings and who did not act under the control of the party using the record
proving that the electronic data message or electronic document was recorded and stored in
the usual and ordinary course of business.
Acknowledgement of Receipt of Electronic Data Message or Electronic Document:
-The Electronic Data Message or Electronic Document is that of the originator:
a. If it was sent by the originator himself.
b. Sent by:
I. by a person who had the authority to act on behalf of the originator
II. by an information system programmed by, or on behalf of the originator
COMMUNICATION OF ELECTRONIC DATA MESSAGE OR ELECTRONIC DOCUMENT
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-
An addressee is entitled to regard an electronic data message or electronic
document as being that of the originator, and to act on that assumption, if:
a. the addressee applied a procedure previously agreed to by the originator
for the purpose of ascertaining if it came from the originator.
b. Document received by the addressee resulted from the actions of a
person whose relationship with the originator enabled that person to
gain access to a method used by the originator to identify electronic data
message or electronic documents as his own.
b. Upon retrieval by the addressee:
i. There is a designated information system, but the originator and the
addressee are both participants in the designated information system;
ii. The electronic message or electronic document enters an information
system of the address that is not the designated information system;
c. Upon entry in the information system of the addressee - The parties did not
designate an information system.
General Rule: No acknowledgment of receipt is necessary
Exceptions:
1. If the parties agree to it
2. Originator requested in the EDM/ED
Modes of acknowledgement when required:
1. Agreement as to particular method – to be followed
2. No agreement as to particular method:
a. Any communication by the addressee
b. Any conduct of the addressee sufficient to indicate the receipt to the
originator
Instances when the originator can regard non-receipt since there was no acknowledgment:
1. When the originator stated the effect or significance of acknowledgment or the ED is
CONDITIONAL upon receipt.
2. No statement as to effect/significance – originator gave notice stating that no
acknowledgement has been received and specifying a reasonable time by which
acknowledgement is to be received, and no acknowledgement is received within
such reasonable time.
Place of Dispatch and Receipt of Electronic Data Messages or Electronic Documents:
1. dispatched at the place where the originator has its place of business and
2. received at the place where the addressee has its place of business.
- Unless otherwise agreed on
Choice of Security Methods: Subject to applicable laws and /or rules and guidelines
promulgated by the DTI with other appropriate government agencies, parties to any
electronic transaction shall be free to:
1. Determine the type of level of electronic data message or electronic document
security needed, and
2. To select and use or implement appropriate technological methods that suit
their need.
ELECTRONIC COMMERCE IN CARRIAGE OF GOODS
Actions related to Contracts of Carriage of Goods: applies to any action in connection
with, or in pursuance of, a contract of carriage of goods, including but not limited to:
a. (i) Furnishing the marks, number, quantity or weight of goods;
(ii) Stating or declaring the nature or value of goods;
(iii) Issuing a receipt for goods;
(iv) Confirming that goods have been loaded;
b. (i) Notifying a person of terms and conditions of the contract;
(ii) Giving instructions to a carrier;
c. (i) Claiming delivery of goods;
(ii) Authorizing release of goods;
(iii) Giving notice of loss of, or damage to goods
Time of Dispatch of Electronic Data Messages or Electronic Documents:
- occurs when it enters an information system outside the control of the originator
except when otherwise agreed upon.
Time of Receipt of Electronic Data Messages or Electronic Documents:
a.
Upon entry in the designated information system – if the parties have
designated an information system for the purpose of receiving electronic data
messages or electronic documents.
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d. Giving any other notice or statement in connection with the performance of the
contract;
e. Undertaking to deliver goods to a named person or a person authorized to claim the
delivery;
f. Granting, acquiring, renouncing, surrendering, transferring or negotiating rights in
goods;
g. Acquiring or transferring rights and obligations under the contract.
The replacement of electronic data messages or electronic documents by paper
documents shall not affect the rights or obligations of the parties involved.
4. If a rule of law is compulsorily applicable to a contract of carriage of goods which
is in, or is evidenced by, a paper document, that rule shall not be inapplicable to
such a contract of carriage of goods which is evidenced by one or more electronic
data messages or electronic documents by reason of the fact that the contract is
evidenced by such electronic data message or electronic documents instead of by a
paper document.
Transport Documents:
1. Where the law requires that any action referred to a contract of carriage of goods be
carried out in writing or by using a paper document, that requirement is met if action
is carried out by using one or more electronic data messages or electronic
documents.
ELECTRONIC TRANSACTIONS IN GOVERNMENT
Notwithstanding any law to the contrary, within two years from the date of the effectivity of
this Act (or before June 19,2002), all departments, bureaus, offices and agencies of the
government, as well as all government-owned and-controlled corporations, that pursuant to
law require or accept the filing of documents, require that documents be created, or retained
and/or submitted, issue permits, licenses or certificates of registration or approval, or provide
for the method and manner of payment or settlement of fees and other obligations to the
government, shall a. accept the creation, filing or retention of such documents in the form of electronic
data messages or electronic documents;
b. issue permits, licenses, or approval in the form of electronic data messages or
electronic documents;
c. require and/or accept payments, and issue receipts acknowledging such
payments, through systems using electronic data messages or electronic
documents; or
d. transact the government business and/or perform governmental functions
using electronic data messages or electronic documents, and for the purpose, are
authorized to adopt and promulgate, after appropriate public hearing and with due
publication in newspapers of general circulation, the appropriate rules, regulations, or
guidelines
The above applies whether the requirement there is in the form of an obligation or
whether the law simply provides consequences for failing either to carry out the
action in writing or to use a paper document.
2. If (a) a right is to be granted to, or (b) an obligation is to be acquired by, one
person and no other person, and if the law requires that, in order to effect this, the
right or obligation must be conveyed to that person by the transfer, or use of, a
paper document, that requirement is met if the right or obligation is conveyed by
using one or more electronic data messages or electronic documents: Provided, That
a reliable method is used to render such electronic data messages or electronic
documents unique.
For the purposes of above, the standard of reliability required shall be assessed in
the light of the purpose for which the right or obligation was conveyed and in the light
of all the circumstances, including any relevant agreement.
3. Where one or more electronic data messages or electronic documents are used to
effect any action in subparagraphs (f) and (g) of the above (Actions Related to
Contracts of carriage of goods), no paper document used to effect any such action is
valid unless the use of electronic data message or electronic document has been
terminated and replaced by the use of paper documents. A paper document
issued in these circumstances shall contain a statement of such termination.
OBLIGATIONS UNDER THE E-COMMERCE ACT
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Extent of Liability of a Service Provider:
GENERAL RULE: No person or party shall be subject to any civil or criminal liability in
respect to the electronic data message or electronic document for which the person or party
acting as a service provider, merely provides access if such liability is founded on a. The obligations and liabilities of the parties under the electronic data message or
electronic document;
b. The making, publication, dissemination or distribution of such material or any
statement made in such material, including possible infringement of any right
subsisting in or in relation to such material: Provided, that the service provider:
I.
does not have actual knowledge, or is not aware of the facts or
circumstances that the making, publication, dissemination or distribution of
each material is unlawful or infringes any right.
II.
does not knowingly receive a financial benefit directly attributable to the
unlawful or infringing activity.
III.
does not directly commit and does not cause another person or party
and/or does not benefit financially from the infringing activity or unlawful
act.
Provided, further, that nothing in this Section shall affect any obligations and/or
liability:
1. Founded on contract
2. Under licensing or other regulatory regime
3. Imposed under any written law
4. Forms the basis for injunctive relief
pursuant to any powers conferred under this Act, shall not convey to or share
the same with any other person.
Unlawful Acts and Penalties
1. Hacking or Crackling
Fine:
Min - P100,000
Max - Damage incurred
Imprisonment: 6 months to 3 years
2. Piracy
Fine:
Imprisonment:
Min - P100,000
Max - Damage incurred
6 months to 3 years
3. Violations of the Consumer Act and other relevant or pertinent laws through
transactions covered by or using electronic data messages or electronic
documents
Penalty: as provided in those laws
4. Other Violations
Fine:
Max - P1,000,000
Imprisonment: Max - 6 years
Lawful Access
- Access shall only be authorized and enforced in favor of the individual or entity
having legal right to the possession or the use of plaintext, e-signature or file or
solely for the authorized purpose.
- The electronic key for identity or integrity shall not be made available to any
person or party without the consent of the individual or entity in lawful
possession of that electronic key.
8.8 Ease of Doing Business and Efficient Delivery of Government Service Delivery Act
8.8.1 Policy, construction and interpretation
8.8.2 Definition of terms
8.8.3 Coverage and scope
8.8.4 Reengineering of systems and procedures
8.8.5 Citizen’s charter
8.8.6 Accessing government services
8.8.7 Streamlined procedures for the issuances of permits and licenses
8.8.8 Violations, jurisdiction, penalties, and immunity
Obligation of Confidentiality
- Any person who obtained access to any electronic key, electronic data message, or
electronic document, book, register, correspondence, information, or other material
EASE OF DOING BUSINESS ACT (RA No. 11032)
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1. DECLARATION OF POLICY
It is hereby declared the policy of the State to promote integrity, accountability, proper
management of public affairs and public property as well as to establish effective practices,
aimed at efficient turnaround of the delivery of government services and the prevention of
graft and corruption in government. Toward this end, the State shall maintain honesty and
responsibility among its public officials and employees, and shall take appropriate,
measures to promote transparency in each agency with regard to the manner of transacting
with the public, which shall encompass a program for the adoption of simplified requirements
and procedures that will reduce red tape and expedite business and nonbusiness related
transactions in government.
license, clearance, permit or authorization, concession, of for any modification, renewal or
extension of the enumerated applications or requests which are acted upon in the ordinary
course of business of the agency of office concerned.
Highly technical application -an application which requires the use of technical
knowledge, specialized skills and/or training in the processing and/or evaluation thereof
Nonbusiness transactions - all other government transactions not falling under Section 4
(c) of this Act
Officer or employee - a person employed in a government office or agency required to
perform specific duties and responsibilities related to the application or request submitted by
an applicant or requesting party for processing.
Processing time - the time consumed by an LGU or national government agency (NGA)
from the receipt of an application or request with compete requirements, accompanying
documents and payments of fees to the issuance of certificate of such similar documents
approving or disapproving an application or request
Red tape - any regulation, rule, or administrative procedure or system that is ineffective or
detrimental in achieving its intended objectives and, as a result, produces slow, suboptimal,
and undesirable social outcomes
Regulation - any legal instrument that gives effect to a government policy intervention and
includes licensing, imposing information obligation, compliance to standards or payment of
any form of fee, levy, charge or any other statutory and regulatory requirements necessary
to carry out activity
Simple transactions - applications or requests submitted by applicants or requesting
parties of a government office or agency which only require ministerial actions on the part of
the public officer or employee, or that which present only inconsequential issues for the
resolution by an officer or employee of said government.
2. DEFINITION OF TERMS
Action - refers to the write approval or disapproval made by the government office or
agency on the application or request submitted by an applicant or requesting party for
processing.
Business One Stop Shop (BOSS) - a single common site or location, or a single online
website or portal designated for the Business Permit and Licensing System (BPLS) of an
LGU to receive and process applications, receive payments, and issue approved licenses,
clearances, permits, or authorizations.
Business-related transactions - a set of regulatory requirements that a business entity
must comply with to engage, operate or continue to operate a business, such as, but not
limited to, collection or preparation of a number of documents, submission to national and
local government authorities, approval of application submitted, and receipts of a formal
certificate or certificates, permits, licenses which include primary and secondary, clearances
and such similar authorization or documents which confer eligibility to operate or continue to
operate as a legitimate business.
Complex transaction - applications or requests submitted by applicants or requesting
parties of a government office which necessitate evaluation in the resolution of complicated
issues by an officer or employee of said government office, such transactions to be
determined by the office concerned.
Fixer - any individual whether or not officially involved in the operation of a government
office or agency who has access to people working therein, and whether or not in collusion
with them, facilitates speedy completion of transactions for pecuniary gain or any other
advantage or consideration.
Government service - the processor transaction between applicants or requesting parties
and government offices or agencies involving applications for any privilege, right, reward,
3. COVERAGE AND SCOPE
All government offices and agencies including LGUs GOCCs and other government
instrumentalities, whether located in the Philippines or abroad, that provide services
covering business and nonbusiness related transactions.
4. REENGINEERING OF SYSTEMS AND PROCEDURES
All offices and agencies which provide government services are hereby mandated to
regularly undertake cost compliance analysis, time and motion studies, undergo evaluation
and improvement of their transaction systems and procedures and reengineer the same if
deemed necessary to reduce bureaucratic red tape and processing time.
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The Anti-Red Tape Authority shall coordinate with all government offices covered under this
Act in the review of existing laws, executive issuances and local ordinances, and
recommend the repeal of the same if deemed outdated, redundant, and adds undue
regulatory burden to the transacting public.
ACCEPTANCE OF APPLICATIONS OR REQUESTS
1. All officers or employees shall accept written applications, requests, and/or
documents being submitted by applicants or requesting parties of the offices or
agencies.
2. The receiving officer or employee shall perform a preliminary assessment of the
application or request submitted with its supporting documents to ensure a more
expeditious action on the application or request. The receiving officer or employee
shall immediately inform the applicant or requesting party of any deficiency in the
accompanying requirements, which shall be limited to those enumerated in the
Citizen's Charter.
3. The receiving officer or employee shall assign a unique identification number to an
application or request, which shall be the identifying number for all subsequent
transactions between the government and the applicant or requesting party
regarding such specific application or request.
4. The receiving officer or employee shall issue an acknowledgement receipt containing
the seal of the agency, the name of the responsible officer or employee, his/her unit
and designation, and the date and time of receipt of such application or request.
All proposed regulations of government agencies shall undergo regulatory impact
assessment to establish if the proposed regulations does not add undue regulatory burden
and cost to these agencies and the applicants or requesting parties: Provided, That when
necessary,any proposed regulation may undergo pilot implementation to assess regulatory
impact.
All LGUs and NGAs are directed to initiate review of existing policies and operations and
commence with the reengineering of their systems and procedures in compliance with the
provisions of this Act, pending the approval of the implementing rules and regulations (IRR)
thereof.
5. CITIZEN’S CHARTER
All government agencies including departments, bureaus, offices,instrumentalities, or
government-owned and/or–controlled corporations, or LGUs shall set up their respective
most current and updated service standards to be known as the Citizen’s Charter in the form
of information billboards which shall be posted at the main entrance of offices or at the most
conspicuous place, in their respective websites ans in the form of published materials written
either in English, Filipino, or in the local dialect, that detail:
a. A comprehensive and uniform checklist of requirements for ach type of application or
request;
b. The procedure to obtain a particular service;
c. The person/s responsible for each step;
d. The maximum time to conclude the process;
e. The document/s to be presented by the applicant or requesting party, if necessary;
f. The amount of fees, if necessary; and
g. The procedure for filing complaints.
7. STREAMLINED PROCEDURES FOR THE ISSUANCE OF PERMITS AND
LICENSES
The LGUs are mandated to implement the following guidelines in the issuance of business
licenses, clearances, permits, certifications or authorizations:
a.
6. ACCESSING GOVERNMENT SERVICES
A single or unified business application form shall be used in processing new
applications for business permits and business renewals which consolidates all the
information of the applicant or requesting party by various local government
departments, such as, but not limited to, the local taxes and clearances, building
clearance, sanitary permit, zoning clearance, and other specific LGU requirements,a
s the case may be, including the fire clearance from the BFP.
The unified form shall be made available online using technology-neutral platforms.
Hard copies of the unified forms shall likewise be made available at all times in
designated areas of the concerned office and/or agency.
RULES IN ACCESSING GOVERNMENT SERVICES
204
time of this Act: Provided, that the share in the collections shall be remitted to the
respective barangays. The pertinent provisions of R.A. No. 7160, otherwise known
as “THe Local Government Code of 1991”, specifically Article IV, SEction 152(c) is
hereby amended accordingly.
b. A one-stop business facilitation services, herein referred to as the Business One
Stop Shop (BOSS), for the city/municipality’s business permitting and licensing
system to receive and process manual and/or electronic submission of application for
license, clearance, permit, certification or authorization shall be established within
the cities/municipalities/ Negosyo Center as provided for under R.A. No. 10644 Go
Negosyo Act.
8. VIOLATIONS, JURISDICTION, PENALTIES, AND IMMUNITY
VIOLATIONS AND PERSONS LIABLE:
Any person who performs or cause the performance of the following acts shall be:
A. Refusal to accept application or request with complete requirements being submitted
by an applicant or requesting party without due cause;
B. Imposition of additional requirements other than those listed in the Citizen's Charter;
C. Imposition of additional costs not reflected in the Citizen's Charter;
D. Failure to give the applicant or requesting party a written notice on the disapproval of
an application or request;
E. Failure to render government services within the prescribed processing time on any
application or request without due cause;
F. Failure to attend to applicants or requesting parties who are within the premises of
the office or agency concerned prior to the end of official working hours and during
lunch break;
G. Failure or refusal to issue official receipts; and
H. Fixing and/or collusion with fixers in consideration of economic and/or other gain or
advantage.
There shall be queuing mechanisms in the BOSS to better manage the flow of
applications among the LGU/s department receiving and processing applications.
LGUs shall implement colocation of the offices of the treasury, business permits and
licensing office, zoning office, including the BFP, and other relevant city/municipality
offices, departament, among others, engaged in starting a business, dealing with
construction permits.
c. Cities/Municipalities are mandated to automate their business permitting and
licensing system or set up an electronic BOSS within a period of tree (3) years upon
the effectivity of the Act for a more efficient business registration processes.
Cities/Municipalities with electronic BOSS shall develop electronic versions of
licenses, clearances, permits, certifications or authorizations with the same level of
authority, which may be printed by businesses in the convenience of their offices.
THe DICT, DTI, and DILG shall provide technical assistance in the planning and
implementation of a computerized or software-enabled business permitting and
licensing system.
PENALTIES AND LIABILITIES:
Any violations of the above will warrant the following penalties and liabilities
d. To lessen the translation requirements, other local clearance such as, but not limited
to, sanitary permits, environment and agriculture clearances shall be issued together
with the business permit.
First Offense: Administrative liability with 6 months suspension: Provided, however, That in
the case of fixing and/or collusion with fixers, the penalty below shall apply.
e. Business permits shall be valid for a period of one (1) year. The city/municipality may
have the option to renew business permits within the first month of the year or on the
anniversary date of the issuance of the business permit.
f.
Second Offense: Administrative liability and criminal liability of dismissal from the service,
perpetual disqualification from holding public office and forfeiture of retirement benefits and
imprisonment of 1 to 6 years with a fine of not less than P500,000:00, but not more than
P2,000,000.00.
Barangay clearances and permits related to doing business shall be applied, issued,
and collected at the city/municipality in accordance with the prescribed processing
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Criminal liability shall also be incurred through the commission of bribery, extortion,
or when the violation was done deliberately and maliciously to solicit favor in cash or in kind.
In such cases, the pertinent provisions of the Revised Penal Code and other special laws
shall apply.
Declaration of Policy – It is the policy of the State to establish, develop, promote and
perfect a sound and viable tax-exempt social security system suitable to the needs of the
people throughout the Philippines which shall promote social justice through savings, and
ensure meaningful social security protection to members and their beneficiaries against the
hazards of disability, sickness, maternity, old age, death, and other contingencies resulting in
loss of income or financial burden.
Group 8 - Group ni Annsel
8.9 Labor Law
8.9.1 Labor Standards
8.9.1.1 Basic pay
8.9.1.2 Overtime premium
8.9.1.3 Night shift differential
8.9.1.4 Holiday premium
8.9.1.5 13th month pay
8.9.1.6 Leaves
8.9.1.7 Service incentive leave
8.9.1.8 Maternity leave
8.9.1.9 Paternity leave
8.9.1.10 Parental leave for solo parent
Definitions:
(a) SSS – The Social Security System created by this Act.
(b) Commission – The Social Security Commission as herein created.
(c) Employer – Any person, natural or juridical, domestic or foreign, who carries on in the
Philippines any trade, business, industry, undertaking, or activity of any kind and uses the
services of another person who is under his orders as regards the employment, except the
Government and any of its political subdivisions, branches or instrumentalities, including
corporations owned or controlled by the Government: Provided, That a self-employed
person shall be both employee and employer at the same time.
(d) Employee – Any person who performs services for an employer in which either or both
mental and physical efforts are used and who receives compensation for such services,
where there in an employer-employee relationship: Provided, that a self-employed person
shall be both employee and employer at the same time.
8.10 Social Security Law
8.10.1 Definitions
8.10.2 Scope and Coverage
8.10.3 Pension, Retirement and other benefits
8.10.4 Exemptions from tax, legal process and lien
8.10.5 Employee’s and employer’s contributions
8.10.6 Contributions from self-employed member
8.10.7 Remittance of contributions
8.10.8 Method of collection and payment
8.10.9 Employment records and reports
(e) Dependents – The dependents shall be the following: (1) The legal spouse entitled by
law to receive support from the member; (2) The legitimate, legitimated or legally adopted,
and illegitimate child who is unmarried, not gainfully employed, and has not reached
twenty-one (21) years of age, or if over twenty-one (21) years of age, he is congenitally or
while still a minor has been permanently incapacitated and incapable of self-support,
physically or mentally; and (3) The parent who is receiving regular support from the member.
(f) Compensation – All actual remuneration for employment, including the mandated
cost-of-living allowance, as well as the cash value of any remuneration paid in any medium
other than cash except that part of the remuneration received during the month in excess of
the maximum salary credit as provided in this Act.
8.10.10 Penal Clauses
(g) Monthly salary credit – The compensation base for contributions and benefits as
indicated in this Act: Provided, that in the computation of benefits, the maximum monthly
salary credit to be considered shall be Twenty thousand pesos (P20,000.00), until adjusted
as provided in Section 4(a)(9).
SOCIAL SECURITY LAW
SSS LAW
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(h) Monthly – The period from one end of the last payroll period of the preceding month to
the end of the last payroll period of the current month if compensation is on hourly, daily, or
weekly basis; if on any other basis, ‘monthly’ shall mean a period of one (1) month.
(60), or the result obtained by dividing the sum of all the monthly salary credits paid prior to
the semester of contingency by the number of monthly contributions paid in the same
period, whichever is greater: Provided, That the injury or sickness which caused the
disability shall be deemed as the permanent disability for the purpose of computing the
average monthly salary credit
(i) Contribution – The amount paid to the SSS by and on behalf of the members in
accordance with the schedule provided in this Act.
(n) Average daily salary credit – The result obtained by dividing the sum of the six (6)
highest monthly salary credits in the twelve-month period immediately preceding the
semester of contingency by one hundred eighty (180).
(j) Employment – Any service performed by an employee for his employer except: (1)
Services where there is no employer-employee relationship in accordance with existing
labor laws, rules, regulations and jurisprudence; (2) Service performed in the employ of the
Philippine Government or instrumentality or agency thereof; 13 (3) Service performed in the
employ of a foreign government or international organization, or their wholly-owned
instrumentality: Provided, however, That this exemption notwithstanding, any foreign
government, international organization or their wholly-owned instrumentality employing
workers in the Philippines or employing Filipinos outside of the Philippines, may enter into
an agreement with the Philippine Government for the inclusion of such employees in the
SSS except those already covered by their respective civil service retirement systems:
Provided, further, That the terms of such agreement shall conform with the provisions of this
Act on coverage and amount of payment of contributions and benefits: Provided, finally, That
the provisions of this Act shall be supplementary to any such agreement; and (4) Such other
services performed by temporary and other employees which may be excluded by regulation
of the Commission. Employees of bona fide independent contractors shall not be deemed
employees of the employer engaging the service of said contractors.
(o) Semester – A period of two (2) consecutive quarters ending in the quarter of
contingency.
(p) Quarter – A period of three (3) consecutive calendar months ending on the last day of
March, June, September, and December.
(q) Credited years of service – For a member covered prior to January nineteen hundred
and eighty-five (1985) minus the calendar year for coverage plus the number of calendar
years in which six (6) or more contributions have been paid from January nineteen hundred
and eightyfive (1985) up to the calendar year containing the semester prior to the
contingency. For a member covered in or after January nineteen hundred and eighty-five
(1985), the number of calendar years in which six (6) or more contributions have been paid
from the year of coverage up to the calendar year containing the semester prior to the
contingency: Provided, That the Commission may provide for a different number of
contributions in a calendar year for it to be considered as a credited year of service.
(r) Member – The worker who is covered under Section 9, Section 9-A and Section 9-B of
this Act.
(k) Beneficiaries – The dependent spouse until he or she remarries, the dependent
legitimate, legitimated or legally adopted, and illegitimate children, who shall be the primary
beneficiaries of the member: Provided, That the dependent illegitimate children shall be
entitled to fifty percent (50%) of the share of the legitimate, legitimated or legally adopted
children: Provided, further, That in the absence of the dependent legitimate, legitimated or
legally adopted children of the member, his/her dependent illegitimate children shall be
entitled to one hundred percent (100%) of the benefits. In their absence, the dependent
parents who shall be the secondary beneficiaries of the member. In the absence of all the
foregoing, any other person designated by the member as his/her secondary beneficiary.
(s) Self-employed – Any person whose income is not derived from employment, as defined
under this Act, as well as those workers enumerated in Section 9-A hereof.
(t) Net earnings – Net income before income taxes plus non-cash charges such as
depreciation and depletion appearing in the regular financial statement of the issuing or
assuming institution.
(u) Fixed charges – Recurring expense such as amortization of debt discount and rentals
for leased properties, including interest on funded and unfunded debt.
(l) Contingency – The retirement, death, disability, injury or sickness and maternity of the
member.
(m) Average monthly salary credit – The result obtained by dividing the sum of the last
sixty (60) monthly salary credits immediately preceding the semester of contingency by sixty
Scope and Coverage:
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Coverage. – (a) Coverage in the SSS shall be compulsory upon all employees including
kasambahays or domestic workers not over sixty (60) years of age and their employers:
(d) Professional athletes, coaches, trainers, and jockeys; and
(e) Individual farmers and fishermen. Unless otherwise specified herein, all provisions of this
Act applicable to covered employees shall also be applicable to the covered self-employed
persons.
Provided, that any benefit already earned by the employees under private benefit plans
existing at the time of the approval of this Act shall not be discontinued, reduced, or
otherwise impaired:
Provided, further, That private plans which are existing and in force at the time of
compulsory coverage shall be integrated with the plan of the SSS in such a way where the
employer’s contribution to his private plan is more than that required of him in this Act, he
shall pay to the SSS only the contribution required of him and he shall continue his
contribution to such private plan less his contribution to the SSS so that the employer’s total
contribution to his benefit plan and to the SSS shall be the same as his contribution to his
private benefit plan before the compulsory coverage:
Compulsory Coverage of Overseas Filipino Workers (OFWs). –
(a) Coverage in the SSS shall be compulsory upon all sea-based and land-based OFWs as
defined under Republic Act No. 8042, otherwise known as the Migrant Workers and
Overseas Filipinos Act of 1995, as amended by Republic Act No. 10022: Provided, that they
are not over sixty (60) years of age. All benefit provisions under this Act shall apply to all
covered OFWs. The benefits include, among others, retirement, death, disability, funeral,
sickness, and maternity.
Provided, further, That any changes, adjustments, modifications, eliminations or
improvements in the benefits to be available under the remaining private plan, which may be
necessary to adopt by reason of the reduced contributions thereto as a result of the
integration, shall be subject to agreements between the employers and employees
concerned:
(b) Manning agencies are agents of their principals and are considered as employers of sea
based OFWs. For purposes of the implementation of this Act, any law to the contrary
notwithstanding manning agencies are jointly and severally or solidarily liable with their
principals with respect to the civil liabilities incurred for any violation of this Act. The persons
having direct control, management or direction of the manning agencies shall be held
criminally liable for any act or omission penalized under this Act notwithstanding Section
28(f) hereof.
Provided, further, That the private benefit plan which the employer shall continue for his
employees shall remain under the employer’s management and control unless there is an
existing agreement to the contrary:
(c) Land-based OFWs are compulsory members of the SSS and considered in the same
manner as self-employed persons under such rules and regulations that the Commission
shall prescribe.
Provided, finally, that nothing in this Act shall be construed as a limitation on the right of
employers and employees to agree on and adopt benefits which are over and above those
provided under this Act. (b) Spouses who devote full time to managing the household and
family affairs, unless they are also engaged in other vocation or employment which is
subject to mandatory coverage, may be covered by the SSS on a voluntary basis
(d) The Department of Foreign Affairs (DFA), the Department of Labor and Employment
(DOLE) and all its agencies involved in deploying OFWs for employment abroad are
mandated to negotiate bilateral labor agreements with the OFWs’ host countries to ensure
that the employers of land-based OFWs, similar to the principals of sea-based OFWs, pay
the required SSS contributions, in which case these land-based OFWs shall no longer be
considered in the same manner as self-employed persons in this Act. Instead, they shall be
considered as compulsorily covered employees with employer and employee shares in
contributions that shall be provided for in the bilateral labor agreements and their
implementing administrative 17 agreements: Provided, That in countries which already
extend social security coverage to OFWs, the DFA through the Philippine embassies and
the DOLE shall negotiate further agreements to serve the best interests of the OFWs.
Compulsory Coverage of the Self-Employed. – Coverage in the SSS shall also be
compulsory upon such self-employed persons as may be determined by the Commission
under such rules and regulations as it may prescribe, including but not limited to the
following:
(a) All self-employed professionals;
(b) Partners and single proprietors of businesses;
(c) Actors and actresses, directors, scriptwriters and news correspondents who do not fall
within the definition of the term “employee” in Section 8 (d) of this Act;
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(e) The DFA, the DOLE and the SSS shall ensure compulsory coverage of OFWs through
bilateral social security and labor agreements and other measures for enforcement.
Secretary dated February 22, 2017, shall be subject to the requirement of fund viability and
sustainability as determined by the Commission based on the recommendations of the
Office of the Chief Actuary guaranteeing the actuarial soundness of the grant of such
allowance.
(f) Upon the termination of their employment overseas, OFWs may continue to pay
contributions on a voluntary basis to maintain their rights to full benefits.
Dependents’ Pension. – Where monthly pension is payable on account of death,
permanent total disability or retirement, dependents’ pension equivalent to ten percent
(10%) of the monthly pension or Two hundred fifty pesos (P250.00), whichever is higher,
shall also be paid for each dependent child conceived on or before the date of the
contingency but 19 not exceeding five (5), beginning with the youngest and without
substitution: Provided, That where there are legitimate and illegitimate children, the former
shall be preferred.
(g) Filipino permanent migrants, including Filipino immigrants, permanent residents and
naturalized citizens of their host countries may be covered by the SSS on a voluntary basis
Effective Date of Coverage. – Compulsory coverage of the employer shall take effect on
the first day of his operation and that of the employee on the day of his employment:
Provided, that the compulsory coverage of the self-employed person shall take effect upon
his registration with the SSS
Retirement Benefits. – (a) A member who has paid at least one hundred twenty (120)
monthly contributions prior to the semester of retirement and who: (1) has reached the age
of sixty (60) years and is already separated from employment or has ceased to be
self-employed; or (2) has reached the age of sixty-five (65) years, shall be entitled for as
long as he lives to the monthly pension:
Pension, Retirement, and other benefits:
Monthly Pension. – (a) The monthly pension shall be the highest of the following amounts:
(1) The sum of the following: (i) Three hundred pesos (P300.00); plus (ii) Twenty percent
(20%) of the average monthly salary credit; plus (iii) Two percent (2%) of the average
monthly salary credit for each credited year of service in excess of ten (10) years; or
Provided, that he shall have the option to receive his first eighteen (18) monthly pensions in
lump sum discounted at a preferential rate of interest to be determined by the SSS. (b) A
covered member who is sixty (60) years old at retirement and who does not qualify for
pension benefits under paragraph (a) above, shall be entitled to a lump sum benefit equal to
the total contributions paid by him and on his behalf:
(2) Forty percent (40%) of the average monthly salary credit; or
(3) One thousand pesos (P1,000.00):
Provided, That the monthly pension shall in no case be paid for an aggregate amount of less
than sixty (60) months. (b) Notwithstanding the preceding paragraph, the minimum pension
shall be One thousand two hundred pesos (P1,200.00) for members with at least ten (10)
credited years of service and two thousand four hundred pesos (P2,400.00) for those with
twenty (20) credited years of service:
Provided, that he is separated from employment and is not continuing payment of
contributions to the SSS on his own. (c) The monthly pension shall be suspended upon the
reemployment or resumption of self-employment of a retired member who is less than
sixty-five (65) years old. He shall again be subject to Section eighteen and his employer to
Section Nineteen of this Act. (d) Upon the death of the retired member, his primary
beneficiaries as of the date of his retirement shall be entitled to receive the monthly pension:
Provided, That the Commission, upon determination of actuarial soundness, may provide
pension increase than the amounts specified herein. (c) Additional Benefit Allowance.
Pursuant to Memorandum from the Executive Secretary dated 22 February 2017, by
authority of the President of the Republic of the Philippines, an additional monthly benefit
allowance amounting to One thousand pesos (P1,000.00) shall be given to all retirement,
death, and disability pensioners receiving monthly pensions in or after January two thousand
seventeen (2017). The Commission may determine the grant of additional benefit allowance:
Provided, that if he has no primary beneficiaries and he dies within sixty (60) months from
the start of his monthly pension, his secondary beneficiaries shall be entitled to a lump sum
benefit equivalent to the total monthly pensions corresponding to the balance of the five-year
guaranteed period, excluding the dependents’ pension. (e) The monthly pension of a
member who retires after reaching age sixty (60) shall be the higher of either: (1) the
monthly pension computed at the earliest time he could have retired had he been separated
from employment or ceased to be self-employed plus all adjustments thereto; or (2) the
monthly pension computed at the time when he actually retires.
Provided, That the actuarial soundness of the reserve fund shall be guaranteed. All other
additional allowances to monthly pension subsequent to the Memorandum of the Executive
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Death Benefits. – Upon the death of a member who has paid at least thirty-six (36) monthly
contributions prior to the semester of death, his primary beneficiaries shall be entitled to the
monthly pension: Provided, that if he has no primary beneficiaries, his secondary
beneficiaries shall be entitled to a lump sum benefit equivalent to thirty-six (36) times the
monthly pension. If he has not paid the required thirty-six (36) monthly contributions, his
primary or secondary beneficiaries shall be entitled to a lump sum benefit equivalent to the
monthly pension times the number of monthly contributions paid to the SSS or twelve (12)
times the monthly pension, whichever is higher.
(f) If the disability is permanent partial and such disability occurs after thirty-six (36) monthly
contributions have been paid prior to the semester of disability, the benefit shall be the
monthly pension for permanent total disability payable not longer than the period designated
in the schedule.
(g) The percentage degree of disability which is equivalent to the ratio that the designated
number of months of compensability bears to seventy-five (75), rounded to the next higher
integer, shall not be additive for distinct, separate and unrelated permanent partial
disabilities, but shall be additive for deteriorating and related permanent partial disabilities, to
a maximum of one hundred percent (100%), in which case, the member shall be deemed as
permanently totally disabled.
Permanent Disability Benefits. – (a) Upon the permanent total disability of a member who
has paid at least thirty-six (36) monthly contributions prior to the semester of disability, he
shall be entitled to the monthly pension: Provided, that if he has not paid the required
thirty-six (36) monthly contributions, he shall be entitled to a lump sum benefit equivalent to
the monthly pension times the number of monthly contributions paid to the SSS or twelve
(12) times the monthly pension, whichever is higher. A member who (1) has received a lump
sum benefit; and (2) is reemployed or has resumed self-employment not earlier than one (1)
year from the date of his disability shall again be subject to compulsory coverage and shall
be considered a new member.
(h) In case of permanent partial disability, the monthly pension benefit shall be given in lump
sum if it is payable for less than twelve (12) months.
(i) For the purpose of adjudicating retirement, death and permanent total disability pension
benefits, contributions shall be deemed paid for 22 the months during which the member
received partial disability pension: Provided, that such contributions shall be based on his
last contribution prior to his disability.
(b) The monthly pension and dependents’ pension shall be suspended upon the
reemployment or resumption of self-employment or the recovery of the disabled member
from his permanent total disability or his failure to present himself for examination at least
once a year upon notice by the SSS.
(j) Should a member who is on partial disability pension retire or die, his disability pension
shall cease upon his retirement or death.
Funeral Benefit. – A funeral grant equivalent to Twelve thousand pesos (P12,000.00) shall
be paid, in cash or in kind, to help defray the cost of funeral expenses upon the death of a
member, including permanently totally disabled member or retiree
(c) Upon the death of the permanent total disability pensioner, his primary beneficiaries as of
the date of disability shall be entitled to receive the monthly pension: Provided, that if he has
no primary beneficiaries and he dies within sixty (60) months from the start of his monthly
pension, his secondary beneficiaries shall be entitled to a lump sum benefit equivalent to the
total monthly pensions corresponding to the balance of the five-year guaranteed period
excluding the dependents’ pension.
Sickness Benefit. – (a) A member who has paid at least three (3) monthly contributions in
the twelve- month period immediately preceding the semester of sickness or injury and is
confined therefor for more than three (3) days in a hospital or elsewhere with the approval of
the SSS, shall, for each day of compensable confinement or a fraction thereof, be paid by
his employer, or the SSS, if such person is unemployed or self-employed, a daily sickness
benefit equivalent to ninety percent (90%) of his average daily salary credit, subject to the
following conditions:
(d) The following disabilities shall be deemed permanent total: (1) Complete loss of sight of
both eyes; (2) Loss of two limbs at or above the ankle or wrists; (3) Permanent complete
paralysis of two limbs; (4) Brain injury resulting to incurable imbecility or insanity; and (5)
Such cases as determined and approved by the SSS. 21
(1) In no case shall the daily sickness benefit be paid longer than one hundred twenty
(120) days in one calendar year, nor shall any unused portion of the one hundred
twenty (120) days of sickness benefit granted under this section be carried forward
and added to the total number of compensable days allowable in the subsequent
year; (2) The daily sickness benefit shall not be paid for more than two hundred forty
(240) days on account of the same confinement; and (3) The employee member
(e) If the disability is permanent partial, and such disability occurs before thirty-six (36)
monthly contributions have been paid prior to the semester of disability, the benefit shall be
such percentage of the lump sum benefit described in the preceding paragraph with due
regard to the degree of disability as the Commission may determine.
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shall notify his employer of the fact of his sickness or injury within five (5) calendar
days after the start of his confinement unless such confinement is in a hospital or the
employee became sick or was injured while working or within the premises of the
employer in which case, notification to the employer is not necessary:
(e) The claim of reimbursement shall be adjudicated by the SSS within a period of two (2)
months from receipt thereof: Provided, that should no payment be received by the employer
within one (1) month after the period prescribed herein for adjudication, the reimbursement
shall thereafter earn simple interest of one percent (1%) per month until paid. (f) The
provisions regarding the notification required of the member and the employer as well as the
period within which the claim for benefit or reimbursement may be filed shall apply to all
claims filed with the SSS.
Provided, That if the member is unemployed or self-employed, he shall directly notify
the SSS of his confinement within five (5) calendar days after the start thereof unless
such confinement is in a hospital in which case notification is also not necessary:
Provided, further, That in cases where notification is necessary, the confinement
shall be deemed to have started not earlier than the fifth day immediately preceding
the date of notification. 23
Maternity Leave Benefit. – A female member who has paid at least three (3) monthly
contributions in the twelve-month period immediately preceding the semester of her
childbirth or miscarriage shall be paid a daily maternity benefit equivalent to one hundred
percent (100%) of her average daily salary credit for sixty (60) days or seventy-eight (78)
days in case of caesarian delivery, subject to the following conditions: (a) That the employee
shall have notified her employer of her pregnancy and the probable date of her childbirth,
which notice shall be transmitted to the SSS in accordance with the rules and regulations it
may provide;
(b) The compensable confinement shall begin on the first day of sickness, and the payment
of such allowances shall be promptly made by the employer every regular payday or on the
fifteenth and last day of each month, and similarly in the case of direct payment by the SSS,
for as long as such allowances are due and payable: Provided, that such allowance shall
begin only after all sick leaves of absence with full pay to the credit of the employee member
shall have been exhausted.
(b) The full payment shall be advanced by the employer within thirty (30) days from the filing
of the maternity leave application;
(c) One hundred percent (100%) of the daily benefits provided in the preceding paragraph
shall be reimbursed by the SSS to said employer upon receipt of satisfactory proof of such
payment and legality thereof: Provided, That the employer has notified the SSS of the
confinement within five (5) calendar days after receipt of the notification from the employee
member:
(c) That payment of daily maternity benefits shall be a bar to the recovery of sickness
benefits provided by this Act for the same period for which daily maternity benefits have
been received;
Provided, further, That if the notification to the SSS is made by the employer beyond
five (5) calendar days after receipt of the notification from the employee member, said
employer shall be reimbursed only for each day of confinement starting from the tenth
calendar day immediately preceding the date of notification to the SSS: Provided, finally,
That the SSS shall reimburse the employer or pay the unemployed member only for
confinement within the one-year period immediately preceding the date the claim for benefit
or reimbursement is received by the SSS, except confinement in a hospital in which case
the claim for benefit or reimbursement must be filed within one (1) year from the last day of
confinement.
(d) That the maternity benefits provided under this section shall be paid only for the first four
(4) deliveries or miscarriages;
(e) That the SSS shall immediately reimburse the employer of one hundred percent (100%)
of the amount of maternity benefits advanced to the employee by the employer upon receipt
of satisfactory proof of such payment and legality thereof; and
(f) That if an employee member should give birth or suffer miscarriage without the required
contributions having been remitted for her by her employer to the SSS, or without the latter
having been previously notified by the employer of the time of the pregnancy, the employer
shall pay to the SSS damages equivalent to the benefits which said employee member
would otherwise have been entitled to.
(d) Where the employee member has given the required notification but the employer fails to
notify the SSS of the confinement or to file the claim for reimbursement within the period
prescribed in this section resulting in the reduction of the benefit or denial of the claim, such
employer shall have no right to recover the corresponding daily allowance he advanced to
the employee member as required in this section.
Unemployment Insurance or Involuntary Separation Benefits. – A member who is not
over sixty (60) years of age who has paid at least thirty-six (36) months contributions twelve
211
(12) months of which should be in the eighteen-month period immediately preceding the
involuntary unemployment or separation shall be paid benefits in the form of monthly cash
payments equivalent to fifty percent (50%) of the average monthly salary credit for a
maximum of two (2) months: Provided, that an employee who is involuntarily unemployed
can only claim unemployment benefits once every three (3) years: Provided, further, 25 That
in case of concurrence of two or more compensable contingencies, only the highest benefit
shall be paid, subject to the rules and regulations that the Commission may prescribe.
compensation of his employees covered by the SSS or otherwise recover from them the
employer’s contributions with respect to such employees.
(b) The remittance of such contributions by the employer shall be supported by a quarterly
collection list to be submitted to the SSS at the end of each calendar quarter indicating the
correct ID number of the employer, the correct names and the SSS numbers of the
employees and the total contributions paid for their account during the quarter.
Contributions of the Self-Employed Member. – The contributions to the SSS of the
self-employed member shall be determined in accordance with the schedule provided in this
Act: Provided, That the monthly earnings declared by the self-employed member at the time
of his registration with the SSS shall be considered as his monthly compensation and he
shall pay both the employer and the employee contributions: Provided, further, That the
contributions of self-employed persons earning One thousand pesos (P1,000.00) monthly or
below may be reduced by the Commission. The monthly earnings declared by the
self-employed member at the time of his registration shall remain the basis of his monthly
salary credit, unless he makes another declaration of his monthly earnings, in which case
such latest declaration becomes the new basis of his monthly salary credit.
Exemptions from tax, legal process, and lien:
Exemption from Tax, Legal Process and Lien. – All laws to the contrary notwithstanding,
the SSS and all its assets and properties, all contributions collected and all accruals thereto
and income or investment earnings therefrom as well as all supplies, equipment, papers or
documents shall be exempt from any tax, assessment, fee, charge, or customs or import
duty; and all benefit payments made by the SSS shall likewise be exempt from all kinds of
taxes, fees or charges, and shall not be liable to attachments, garnishments, levy or seizure
by or under any legal or 26 equitable process whatsoever, either before or after receipt by
the person or persons entitled thereto, except to pay any debt of the member to the SSS. No
tax measure of whatever nature enacted shall apply to the SSS, unless it expressly revokes
the declared policy of the State in Section 2 hereof granting tax-exemption to the SSS. Any
tax assessment imposed against the SSS shall be null and void.
Remittance of contributions:
(a) The contribution imposed in the preceding section shall be remitted to the SSS within the
first ten (10) days of each calendar month following the month for which they are applicable
or within such time as the Commission may prescribe. Every employer required to deduct
and to remit such contributions shall be liable for their payment and if any contribution is not
paid to the SSS as herein prescribed, the delinquent employer shall pay besides the
contribution a penalty thereon of two percent (2%) per month from the date the contribution
falls due until paid. If deemed expedient and advisable by the Commission, the collection
and remittance of contributions shall be made quarterly or semi-annually in advance, the
contributions payable by the employees to be advanced by their respective employers:
Provided, that upon separation of an employee, any contribution so paid in advance but not
due shall be credited or refunded to his employer.
Employee’s Contributions. – Beginning on the last day of the calendar month when an
employee’s compulsory coverage takes effect and every month thereafter during his
employment, the employer shall deduct and withhold from such employee’s monthly salary,
wage, compensation or earnings, the employee’s contribution in an amount corresponding
to his salary, wage, compensation or earnings during the month in accordance with the
monthly salary credits, the schedule and the rate of contributions as may be determined and
fixed by the Commission, subject to the provisions of Section 4 (a) (9) of this Act. The
monthly salary credits, the schedule and the rate of contributions shall also apply to
self-employed, voluntary, and other members.
Employer’s Contributions. – (a) Beginning on the last day of the month when an
employee’s compulsory coverage takes effect and every month thereafter during his
employment, his employer shall pay, with respect to such covered employee, the employer’s
contribution in accordance with the schedule provided in this Act. Notwithstanding any
contract to the contrary, an employer shall not deduct, directly or indirectly, from the
(b) The contributions payable under this Act in cases where an employer refuses or
neglects to pay the same shall be collected by the SSS in the same manner as taxes are
made collectible under the National Internal Revenue Code, as amended. Failure or refusal
of the employer to pay or remit the contributions herein prescribed shall not prejudice the
right of the covered employee to the benefits of the coverage. The right to institute the
necessary action against the employer may be commenced within twenty (20) years from
212
the time the delinquency is known, or the assessment is made by the SSS, or from the time
the benefit accrues, as the case may be.
due as of the date of settlement of the claim or to the five (5) years’ pension, whichever is
higher, including dependents’ pension:
(c) Should any person, natural or juridical, defaults in any payment of contributions, the
Commission may also collect the same in either of the following ways: (1) By an action in
court, which shall hear and dispose of the case in preference to any other civil action; or (2)
By issuing a warrant to the Sheriff of any province or city commanding him to levy upon and
sell any real and personal property of the debtor. The Sheriff’s sale by virtue of said warrant
shall be governed by the same procedure prescribed for executions against property upon
judgments by a court of record. 29
Provided, further, that if the contingency occurs within thirty (30) days from the date of
employment, the employer shall be relieved of his liability for damages: 30
Provided, further, that any person or entity engaging the services of an independent
contractor shall be subsidiarity liable with such contractor for any civil liability incurred by the
latter under this Act:
Provided, finally, that the same person or entity engaging the services of an independent
contractor shall require such contractor to post a surety bond to guarantee the payment of
the worker’s benefits.
(d) The last complete record of monthly contributions paid by the employer or the average of
the monthly contributions paid during the past three (3) years as of the date of filing of the
action for collection shall be presumed to be the monthly contributions payable by and due
from the employer to the SSS for each of the unpaid month, unless contradicted and
overcome by other evidence: Provided, That the SSS shall not be barred from determining
and collecting the true and correct contributions due the SSS even after full payment
pursuant to this paragraph, nor shall the employer be relieved of his liability under Section
Twenty-eight of this Act
(b) Should the employer misrepresent the true date of employment of the employee member
or remit to the SSS contributions which are less than those required in this Act or fail to remit
any contribution due prior to the date of contingency, resulting in a reduction of benefits,
such employer shall pay to the SSS damages equivalent to the difference between the
amount of benefit to which the employee member or his beneficiary is entitled had the
proper contributions been remitted to the SSS and the amount payable on the basis of
contributions actually remitted:
Remittance of Contributions of Self-Employed Member. – Self-employed members shall
remit their monthly contributions quarterly on such dates and schedules as the Commission
may specify through rules and regulations: Provided, that no retroactive payment of
contributions shall be allowed, except as provided in this Section.
Provided, that if the employee member or his beneficiary is entitled to pension benefits, the
damages shall be equivalent to the accumulated pension due as of the date of settlement of
the claim or to the five (5) years’ pension, whichever is higher, including dependents’
pension. In addition to the liability mentioned in the preceding paragraphs (a) and (b) hereof,
the employer shall also be liable for the payment of the corresponding unremitted
contributions and penalties thereon.
Method of Collection and Payment. – The SSS shall require a complete and proper
collection and payment of contributions and proper identification of the employer and the
employee. Payment may be made in cash, checks, stamps, coupons, tickets, or other
reasonable devices that the Commission may adopt.
(c) The records and reports duly accomplished and submitted to the SSS by the employer or
the member, as the case may be, shall be kept confidential by the SSS except in compliance
with a subpoena duces tecum issued by the courts, shall not be divulged without the
consent of the SSS President or any official of the SSS duly authorized by him, shall be
presumed correct as to the data and other matters stated therein, unless the necessary
corrections to such records and reports have been properly made by the parties concerned
before the right to the benefit being claimed accrues, and shall be made the basis for the
adjudication of the claim. If as a result of such adjudication the SSS in good faith pays a
monthly pension to a beneficiary who is inferior in right to another beneficiary or with whom
another beneficiary is entitled to share, such payments shall discharge the SSS from liability
unless and until such other beneficiary notifies the SSS of his claim prior to the payments.
Employment Records and Reports. – (a) Each employer shall immediately report to the
SSS the names, ages, civil status, occupations, salaries, and dependents of all his
employees who are subject to compulsory coverage: Provided, That if an employee subject
to compulsory coverage should die or become sick or disabled or reach the age of sixty (60)
without the SSS having previously received any report or written communication about him
from his employer, the said employer shall pay to the SSS damages equivalent to the
benefits to which said employee member would have been entitled had his name been
reported on time by the employer to the SSS, except that in case of pension benefits, the
employer shall be liable to pay the SSS damages equivalent to the accumulated pension
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(d) Every employer shall keep true and accurate work records for such period and
containing such information as the Commission may prescribe, 31 in addition to an “Annual
Register of New and Separated Employees” which shall be secured from the SSS wherein
the employer shall enter on the first day of employment or on the effective date of
separation, the names of the persons employed or separated from employment, their SSS
numbers, and such other data that the Commission may require and said annual register
shall be submitted to the SSS in the month of January of each year. Such records shall be
open for inspection by the SSS or its authorized representatives quarterly or as often as the
SSS may require. The SSS may also require each employer to submit, with respect to the
persons in his employ, reports needed for the effective administration of this Act.
(b) Whoever shall obtain or receive any money or check under this Act or any agreement
thereunder, without being entitled thereto with intent to defraud any member, employer or
the SSS, shall be fined not less than Five thousand pesos (P5,000.00) nor more than
Twenty thousand pesos (P20,000.00) and imprisoned for not less than six (6) years and one
(1) day nor more than twelve (12) years. 38
(c) Whoever buys, sells, offers for sale, uses, transfers or takes or gives in exchange, or
pledges or gives in pledge, except as authorized in this Act or in regulations made pursuant
thereto, any stamp, coupon, ticket, book or other device, prescribed pursuant to Section
Twenty-three hereof by the Commission for the collection or payment of contributions
required herein, shall be fined not less than Five thousand pesos (P5,000.00) nor more than
Twenty thousand pesos (P20,000.00), or imprisoned for not less than six (6) years and one
(1) day nor more than twelve (12) years, or both, at the discretion of the court.
(e) Each employer shall require, as a condition to employment, the presentation of a
registration number secured by the prospective employee from the SSS in accordance with
such procedure as the SSS may adopt: Provided, That in case of employees who have
earlier been assigned registration numbers by virtue of a previous employment, such
numbers originally assigned to them should be used for purposes of this Section: Provided,
further, That the issuance of such registration numbers by the SSS shall not exempt the
employer from complying with the provisions of paragraph (a) of this Section.
(d) Whoever, with intent to defraud, alters, forges, makes or counterfeits any stamp, coupon,
ticket, book or other device prescribed by the Commission for the collection or payment of
any contribution required herein, or uses, sells, lends, or has in his possession any such
altered, forged or counterfeited materials, or makes, uses, sells or has in his possession any
such altered, forged, material in imitation of the material used in the manufacture of such
stamp, coupon, ticket, book or other device, shall be fined not less than Five thousand
pesos (P5,000.00) nor more than Twenty thousand pesos (P20,000.00) or imprisoned for
not less than six years (6) and one (1) day nor more than twelve (12) years, or both, at the
discretion of the court.
(f) Notwithstanding any law to the contrary, microfilm, or nonerasable optical disk and other
similar archival media copies of original SSS records and reports, or copies of such records
and reports duly certified by the official custodian thereof, shall have the same evidentiary
value as the originals and be admissible as evidence in all legal proceedings.
(g) Notwithstanding any law to the contrary, local government units shall, prior to issuing any
annual business license or permit, require submission of certificate of SSS coverage and
compliance with the provisions of this Act: Provided, That the certification or clearance shall
be issued by the SSS within five (5) working days from receipt of the request.
(e) Whoever fails or refuses to comply with the provisions of this Act or with the rules and
regulations promulgated by the Commission, shall be punished by a fine of not less than
Five thousand pesos (P5,000.00) nor more than Twenty thousand pesos (P20,000.00), or
imprisonment for not less than six (6) years and one (1) day nor more than twelve (12)
years, or both, at the discretion of the court: Provided, That where the violation consists in
failure or refusal to register employees or himself, in case of the covered self-employed or to
deduct contributions from the employees’ compensation and remit the same to the SSS, the
penalty shall be a fine of not less Five thousand pesos (P5,000.00) nor more than Twenty
thousand pesos (P20,000.00) and imprisonment for not less than six (6) years and one (1)
day nor more than twelve (12) years.
Penal Clause. – (a) Whoever, for the purpose of causing any payment to be made under
this Act, or under an agreement thereunder, where none is authorized to be paid, shall make
or cause to be made false statement or representation as to any compensation paid or
received or whoever makes or causes to be made any false statement of a material fact in
any claim for any benefit payable under this Act, or application for loan with the SSS, or
whoever makes or causes to be made any false statement, representation, affidavit or
document in connection with such claim or loan, shall suffer the penalties provided for in
Article One hundred seventy-two of the Revised Penal Code.
(f) If the act or omission penalized by this Act be committed by an association, partnership,
corporation or any other institution, its managing head, directors, or partners shall be liable
for the penalties provided in this Act for the offense.
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(g) Any employee of the SSS who receives or keeps funds or property belonging, payable or
deliverable to the SSS and who shall appropriate the same, or shall take or misappropriate,
or shall consent, or through abandonment or negligence, shall permit any other person to
take such property or funds, 39 wholly or partially, or shall otherwise be guilty of
misappropriation of such funds or property, shall suffer the penalties provided in Article Two
hundred seventeen of the Revised Penal Code.
(h) Any employer who, after deducting the monthly contributions or loan amortizations from
his employee’s compensation, fails to remit the said deduction to the SSS within thirty (30)
days from the date they became due, shall be presumed to have misappropriated such
contributions or loan amortizations and shall suffer the penalties provided in Article Three
hundred fifteen of the Revised Penal Code.
(i) Criminal action arising from a violation of the provisions of this Act may be commenced by
the SSS or the employee concerned either under this Act or in appropriate cases under the
Revised Penal Code: Provided, That such criminal action may be filed by the SSS in the city
or municipality where the SSS office is located, if the violation was committed within its
territorial jurisdiction or in Metro Manila, at the option of the SSS
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