Banking Notes September 19

III. Other Tax Matters
A. Applicable Taxes
1. Income Tax
2. DST
BIR RR 9-94, Section 8: If the loan agreement and security device are evidenced by 1 agreement (omnibus agreement), pay only the higher DST
e.g. 1 borrower entered into the ff transactions (I'm not sure if this is accurate…should find the applicable DST rates):
Transaction DST to be paid
*200M Loan agreement 300T
*100M Loan agreement 150T
*50M Loan Agreement 75T
*REM securing the 200M and 100M loan 600,010
*CM securing the 200M & 100M loan 600,010
*guarantee securing the 50M loan 0
*but if there's an omnibus agreement, pay P700,010 or P675,010

From Sir's lecture the other meeting:
If the bank lends money, the interest is subject to gross receipts tax (normally 5%) but the same amount is includable as part of the gross income of the bank, the net taxable portion of which is taxed by income tax (30% beginning 2009).
DST also imposed on certain bank transactions:
-loan agreements and PNs: .5% of the amount in the transaction
-pledges, mortgages, trust receipts: .2% of the amount involved in the transaction
-but if combine loan+security (omnibus agreement): .5% (higher between the two)
-if assignment: P15.00 (tax certificate)

3. Gross Receipts Tax

B. Taxation of FCDUs and OBUs
RA 9294
GR: All income derived from transactions with NONRESIDENTS are EXEMPT from all taxes
X: interest income from foreign currency loans with RESIDENTS: subject to 10% final tax rate

From Sir's lecture the other meeting:
FCDUs are taxed differently.
The income of FCDUs
from foreign currency transactions: 10% final witholding tax (should be with residence: include local KB, local branches of Foreign banks, other fcdus, obus)
It used to be that this onshore 10% tax is imposed in lieu of the other taxes. Now the law is not very clear because the "In lieu" of provision was deleted in the NLRC. Intent before was to encourage foreign banks to invest in the Philippines (thus mas konting tax imposed on them).

If FCDU derive income from non-foreign currency transaction: regular corporate income tax rate (10%)
-if the counterparty is a nonresident: income derived by that nonresident is not taxable here; similarly, the income by FCDU is not taxed.
SO favorite customer of a FCDU is a nonresident, as there is no tax!

C. Tax Minimizing Structures
1. Omnibus Agreement
*An omnibus loan agreement is a loan agreement with the mortgage agreement already included as one of the provisions
*should also include a waiver (if mortgage is REM) of the credit preferences in NCC as a loan agreement with pari passu provision requires that the loan agreement should not be notarized. However, REM is required to be notarized. To comply with the latter requirement, the creditor in the loan agreement should waive the preference of credit provision in the NCC and specify that the notarization is only for the purpose of the loan agreement
*An omnibus agreement is a tax minimizing structure because for executing transactions, DST is required to be paid for each transaction. However, as the omnibus agreement combines two transactions, only 1 DST is required to be paid (BIR RR 9-94, Section 8 requires the higher rate be paid)

Mondragon Leisure and Resorts Corp. v. CA
F: Mondragon International Philippines, Inc. (MIPI), Mondragon Securities Corporation (MSC) and Mondragon Leisure and Resorts Corporation (MLRC) entered a lease agreement with CLARK DEVELOPMENT CORPORATION (CDC) for the development of Mimosa Leisure Estate.
-Omnibus agreement in this case composed of:
*loan agreement for US$20M
*Pledge of US$20M worth of MIPI shares of stocks
*assignment, transfer and delivery of all rights, titles and interest in the pledged shares
*assignment of leasehold rights over the project and all the rights, title, interests and benefits to and under any and all agreements in connection with the project
***the case does not really show how an omnibus agreement is a tax minimizing scheme but gives an example of an omnibus agreement

2. "Originating bank" structure (a.k.a. "Fronting Strcuture")
(from Sharry's Notes)
This is otherwise known as fronting bank structure. It takes advantage of tax exemption status of foreign lenders. It is a form of tax avoidance.
In this structure, a foreign bank acts as creditor on record while domestic bank participates silently.

From Reviewer:
In this structure, a fronting entity/bank which enjoys TAX-EXEMPTION or a LOWER TAX RATE under prevailing tax laws "FRONTS" for what would otherwise be direct lenders to a borrower.

The fronting bank (F) lends dollars/money to borrower (B), a local company, w/o need of witholding taxes on interest payments because of the tax-exemption or tax treaty overrides (lower taxes).

F is actually a "FRONT", and thereby turns around and executes a participation agreement w/local banks FCDUs, in effect making these local bank FCDUs "silent participants".

Another variation involves the booking of the "front" (like IFC) of an "A" loan in its books, and another "B" loan, participated in by local banks for which the "front" acts as such.

From Sir's lecture last time:
Originating bank structure
=fronting bank structure
-idea is the borrower would look for a bank that is exempt from Philippine income tax
Either under
*tax treaty
*NIRC
- SEC 32: Financial institutions getting …from their government
(a)  Income Derived by Foreign Government. - Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by
(i) foreign governments,
(ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and
(iii) international or regional financial institutions established by foreign governments.

*Feeling ni Cha ganito un…
Bank doesn't want to pay tax when it lends money (interest income tax and other income taxes from its transactions). (Check TAX 1 FOR WHO ARE EXEMPT FROM PAYING INCOME TAXES!). So they would search for other banks who are EXEMPT from paying taxes.

IV. Project Financing
Reviewer on Project Financing:
Project Financing is the financing of an economic asset capable of generating enough revenues to cover operation costs and debt servicing for a duration of time longer than the life of such asset. It is most often undertaken in projects involving electricity and power generation, transportation infrastructures and the like.

What usually happens is that a sponsor undertakes to cover the initial financing of the project, lenders are resorted to cover the deficiency, a SPECIAL PROJECT VEHICLE (SPV) is established (which is usually a joint venture or limited partnership) to undertake the building of the infrastructure, the SPV enters into a loan agreement with the lenders backed by securities: mortgage over the assets of the SPV and pledge of equity of sponsors…. (hay, basta on page 10)

SIR in lecture
Relates to infrastructure projects you see around
e.g. MRT, power plants, skyway…

You have a project, its economic life more or less is more than 25 years (must exceed the term of the loan). It is anticipated by the lenders that the project would earn revenues because the lenders would look at the revenues…
-it is a without recourse transaction so the lenders usually need an offtaker
If the project does not earn revenues, the lenders would not get paid. So it is essential for the project to have an offtaker (entity that's going to buy the public project?)
e.g. in powerplant project
OFFTAKER: NPC (WON NPC uses the electricity generated by the power plant, NPC has to pay)
In MRT
Offtaker: DOTC (even if nobody rides the train, DOTC would still pay the periodic lease payments)

Sponsors of the project
-it would establish a special purpose company

SPONSORS >>>establish>>> SPECIAL PURPOSE COMPANY (SPV) >>> Sponsors would provide an EQUITY which would fund the project (but it's not sufficient) so there would be lenders that would put money in the company
LENDERS: mainly banks and multilateral development banks such as ADB, US EXIM Bank or Japan EXIM Bank…
>>>The project company would mortgage to the lenders (trustee designated by the lenders) the property/equipment/facilities
>>>there would be REM, CM, pledge of shares (pledged by the sponsors in favor of the lenders not because the shares are very valuable on the standpoint of the lenders…but for the lenders to be able to take over the project company just in case the sponsors would not be able to pay the loan
>>>to make sure that the revenues are all delivered and remitted to the lenders, there's the TRUST RETENTION ACCOUNT/AGREEMENT wherein all revenues from the project would be remitted
e.g. all payments from NPC are remitted to the trust account managed by the trustees of the lenders. If for instance there's a need to pay the employees of the project company, a request would be made to the trustee of the account to release (disburse) money from the account
(the diagram drawn by sir "looks like a waterfall" so it is called cash waterfall account)
>>>the issue is WON the company could be owned by foreigners (as usually, foreigners provide the funds)
-SC ruling said that (implicitly) yes, because the actual operation is nationalized, not the facilities - para ngang may ganito na pinabasa on MRT

Operation Maintenance Agreement
-usually lenders require technicians to run the facility to make sure that it would earn revenues
Inter-Creditor Agreement
-lenders agree among themselves how to synchronize their activities in case there's a default

OMNIBUS AGREEMENT
-contain all these agreements!!!


A. Mechanism
-without recourse financing
-There must be a guaranteed taker/purchaser of the output of the project
-e.g. MRT >>riding public
Power plant >> NPC
-lenders look to revenues of the project as the main soure of the payment (hence, it is important that the project is earning money)

B. BOT and similar arrangements
-there are several
Field List transfer: the arrangement in MRT
Rehabilititate-Operate-Transfer: rehabilitate
Rehabilitate-Own:

*Unsolicited Proposal
e.g. Megaworld Proposal
-develop hectares of land in Global City
e.g. Terminal 3

BOT Law

V. Derivative Transactions
A. Concept
Financial asset derived from another financial asset
i.e. option on treasury bill
CALL OPTION: option to buy
PUT OPTION: option to sell
-the option is called a derivative
*buyer: one who wants the option
seller/writer: one giving the option
*American Option: exercise option before the strike date (any time during the option period)
-more flexible but higher premium
*European Option: exercise option on the strike date (end of the option)
-stricter but lower premium
*Bermudan Option: Exercise option on any date

DERIVATIVE CONTRACT
-contract for the differences
-concerned with the differences between the price on strike date and price on trade date
i.e. forward foreign exchange contract
TRADE DATE: P57 = $1
After 3 months (strike date): P60 = $1
-the buyer is said to be "in the money" because ha has a gain of P3/$1

BUT IF DURING THE STRIKE DATE…
P56 = $1
-buyer is "out of money" because he loses P1/$1. Hence, he shall forego the option and will buy the dollars elsewhee.

*CURRENCY SWAP
-simultaneous purchase and sale of currency involving the same counter party

From reviewer:
DERIVATIVE
-a financial instrument, the value of which is dependent upon the price of one or more other assets, such as commodities, foreign currencies, etc.
-rephrase: they are financial assets which derive their value from other financial assets such as:
(1) equity, securities
(2) fixed-income securities
(3) foreign currency and
(4) commodities
-aka Contracts for differences: difference between agreed future price and actual price

DERIVATIVE TRANSACTION
-one that involves derivatives
-purpose: manage risks of exposure/investment to the underlying financial assets it represents
-it can either be OPTIONS OR FORWARDS
a. OPTIONS
*CALL OPTION: the buyer is given the right (not obligation) to purchase an asset at a specified price on or before a specified date
*PUT OPTION: the seller/rider is given the right (not the obligation) to sell an asset for a specified price on or before a specified date
b. FORWARD
-involves the OBLIGATION to either buy or sell an asset at a specified price on or before a specified date
Illustration:
Co. A will buy US$1M 6mths from now at PhP40=US$1
ForEx Rate in 6mths Situation
PhP50=US$1 In the money
PhP30=US$1 Out of the money; but in the market
PhP40=US$1 At the money; exercise forward given assured amount

common examples of Derivative Transactions:
*currency swap
*forward contract
*call option
*put option

From Sharry: This is a contract for differences. The income is derived from the difference between agreed settlement price and actual market price on the agreed settlement date.

On CURRENCY SWAP:
-It is the simultaneous buying and selling of currencies involving spot (near leg) and forward (far leg) rates.
 
***A bank cannot engage in derivative transactions without necessary BSP license.

Example ni sir from lecture
FORWARD: buy currency from the future
e.g. you're a borrower, you earn an interest rate every 6 months at $1. You want to lock the interest rate. Let's assume that the Exchange rate is $1=P50
-you enter into a forward contract, you buy $1 which is equivalent to P50.
…6 months from now:
Supposing exchange rate is
$1.00=P60 You made the right decision! In the money: you would exercise your option! (you anticipate a gain)
$1.00= P50 Out of the money: the market price 6 months from now is lower than the agreed price under the forward agreement - you would not exercise your option to buy (you would just lose the premium you paid). You would buy somewhere else not under forward contract
$1.00=P55 At the money

2 Derivatives In the Philippines
1. Equity related securities
2. Exchange for Debt Securities

All other transactions outside the exchange are called OTC (over the counter):

IN US
1. New York Future Exchange
2. New York Cotton Exchange
3. CSCE (Coffee Sugar and Cocoa Exchange)
-commodities Exchange

In Exchange: you have remedy: clearing agency makes sure that the buyer is able to pay and the seller is able to deliver

Exchange Traded Derivatives
-governed by agreements in prescribed forms
-OTC derivatives: there's an organization that took initiative to provide uniform documentation (International Swaps and Dealers Association -ISDA) - see below

CROSS-CURRENCY SWAP
(refer to diagram on page 48 of the reviewer)

A. BSP Licensing Requirements
Section X602 (BSP Circular)
-the license will enable the licensee to engage in currency forwards and currency swap

2 Types of License:
a. Regular Derivative license: any bank, NBQB, affiliate
b. Expanded Derivative License: only Commercial and universal banks can apply

BSP Circ. No. 102-95
Section 2. General Authority
-any
*BANK
*NBQB
*And or its subsidiaries/affiliates
…may engage in financial derivatives activities upon prior approval of the BSP
-a bank may engage in derivative activities BOTH in its RBU and FCDU/expanded FCDU

BSP Circ. No 297-01
a. for expanded derivatives authority
SCOPE: ONLY UBs and KBs
-what may be done after acquiring license: may
*trade
*Sell
*deal
*take positions in currency swap
*forward of any tenor as well as all other derivatives for their own account or on behalf of customers
b. For regular derivatives authority
SCOPE: other Financial institutions (Fis) supervised by the BSP pede
-what may be done after acquiring license: may
*sell derivative products to its customers PROVIDED
>FI shall hedge such derivatives
>the risk being hedged is already existing with the FI itself
c. No license derivatives
SCOPE: UB and KB w/ no license
-what may be done:
*trade
*sell
*deal
*take positions for their own account or in behalf of customers in currency swaps and
*forwards w/ tenor of one year or less
*sell other derivative products of licensed entities to its customers PROVIDED
>customer currently has a risk w/ the bank it wishes to hedge
d. For engaging in derivative transactions as end-users
SCOPE: Banks, NBQB, Other BSP supervised FI
-no license needed as they are purely end-users

BSP Circ 594
-latest Circular on derivative transactions

*if banks does hedging, no need for license but other than that, needs special license
*corporates (corporations): not governed by BSP, it would depend on the articles of incorporations on WON they could enter into derivative transactions (or else, transaction is ultra vires)
---in other jurisdictions, corporates does not do ultra vires transactions: they could do anything! But sir thinks it's better to regulate the activities of the corporates…because it sounds good…ultra vires…:) )


B. ISDA Master Agreements
1992 ISDA MASTER AGREEMENT
(international swap dealer's association)
-standardize documentation
-cannot modify terms of agreement
-have to use schedule to change the agreement
-one of the most carefully drafted agreement
-has 7 pages long of lists of Derivative Agreements

Cross-out netting
-you have a master agreement which you want to amend: you can't just cross it out. The master agreement stays as is, you have to make a schedule to the master agreement whch reflect the amendment

SCHEDULE
-contains the terms agreed upon by the parties
-actual transactions evidenced by confirmation
-contains a serial agreement clause (any and all transactions are considered as one agreement)
>>>gross out netting provision satisfies the delivery requirement to render a future contract valid

If there's a default on the part of 1 party, all of these transactions are netted such that only 1 number emerges.
Single agreement: all the agreements treated as a single transaction
(then sir discusses cherry picking) - See below

Onapal Philippines Commodities, Inc. v. CA
F: Onapal is a registered and licensed commodity futures broker.
Susan Chua was invited by Diaz, Account Exec. Of Onapal, to invest in the commodity futures trading by depositing P500k
Chua signed a Tradig Contract and other documents w/o being aware of the risks involved
Chua was asked to deposit again P300k. She wanted to withdraw her money but DIAZ wouldn't allow her
Chua instituted the present action to recover her money

I: WON the TRADING CONTRACT is VALID
HELD: VALID IN ITSELF BUT TRANSATION CARRIED OUT TO IMPLEMETN IT VOID

Commodity Fixtures Contract
-specie of securities
-agreement to buy or sell a specified quantity and grade of a commodity at a future sale at a price established at the floor of exchange

Terms of Contract signed by Chua
-Onapal will act as broker and will directly transmit the order of customers (includes Chua) to its principal Frankwell Enterprises in HK. The later will then place the order to Tokyo Exchange.
-however, in this case, there was no evidence that the orders and the money were transmitted to Frankwell.

*the trading contract IS VALID IN ITSELF because it complies with the RULE AND REGULATIONS ON COMMODITY FUTURES TRADING
*BUT the transaction which was carried out to implement the contract DEVIATED from the true import of the agreement
>no actual delivery to Frankwell
>final settlement is made by payment of the differences of prices

-the dealings became mere speculative contracts in which parties merely GAMBLE in the rise and fall of prices WHICH IS ILLEGAL
As such, the trading contract became in the nature of a GAMBLING CONTRACT WHICH IS NULL AND VOID.

Onapal v. CA: In ISDA, there is netting off of agreements which may give rise to gambling issues. In case there is but pretended delivery of goods involved in the transactions, the Civil Code provision prohibiting gambling is violated.

SIR: There's a section that pending the issuance of SEC of rules of trading of securities of futures, trading is suspended. However, in the document called HISTORY OF BACKGROUND of SEC, what is suspended is public trading of commodity future transactions
Onapal happened when commodities trading was still allowed. The problem in this case is that even if the contract was valid, its implementation was such that there was no delivery of the commodity, in violation of ART 2018, NCC
The issue now is WON cross-currency swapping after this, or contracts about currencies, is comprehended in ART 2018. In other words, is ForEx securities? Share of stocks? NO, NO…But is it goods?
Look at A1636: Goods defined. It excludes money and legal tender in the Philippines. It is implied to include foreign exchange. If that is the case, then is Forex supposed to be contemplated under Art 2018? SIR says no, because introductory paragraph of A1636 states that the definition of goods undr that article is for the title of sales, not under the title of aleatory contracts. SO A2018 does not contemplate forex.


First Philippine International Bank v. CA
F: First Philippine International Bank went insolvent
H: Cherry picking (liquidator picks out the contracts not favorable to the insolvent bank) is not allowed. The conservator is not allowed to disregard contracts unfavorable to the insolvent bank.
-power of conservator is not unilateral...

SECTION 70, insolvency law
-prohibits the sale, transfer, etc. of the assets of the insolvent 1 month prior to filing for insolvency
-does not apply to banks and insurance companies because they have their own set of insolvency rules

FPIC v. CA: Cherry picking is not allowed in Philippine jurisdiction. The powers granted to the conservator, enormous and extensive as they are, cannot extend to the post facto repudiation of perfected transactions. Otherwise, they would infringe upon non-impairment of contracts clause in Constitution.

SIR:
-because of the single transactions clause, there's no cherry picking because there would only be one cherry to pick
+page 177 of sir's book



VI. Securitization
A. Concept
-means by which the seller/originator discounts receivables to the buyer on a true sale basis
-absolute transfer: creditors of the seller cannot reach the assets
-without recourse transaction
-buyer must be a Special Purpose Entity (special purpose corporation or special purpose trust)
>>the SPE repackages the receivables in the asset pool and issues a security known as ABS (Asset Bracket Security)
(See part B)
-receivables transformed into securities

DIFFERENTIATED FROM AN SPV:
SPV: involves bad debts
Securitization: performing receivables (credit card receivables, PLDT)

B. Asset-backed securities
>>ABS is sold to investors who look to revenues collected from the asset pool
>>there is overcollateralization in this situation

BSP Circ. 185
-Originating bank cannot use its own trust department to issue ABS, has to do it through another bank


C. Securitization Act of 2004 (RA 9267)
SECTION 3. Definition of Terms. - For purpose of this Act, the term:
(a) "Securitization" means the process by which assets are sold on a without recourse basis by the Seller to a Special Purpose Entity (SPE) and the issuance of asset-backed securities (ABS) by the SPE which depend, for their payment, on the cash flow from the assets so sold and in accordance with the Plan.
(b) Asset-backed securities (ABS)" refer to the certificates issued by an SPE, the repayment of which shall be derived from the cash flow of the assets in accordance with the Plan.
(c) "Assets", whether used alone or in the term "Asset-backed securities," refer to loans or receivables or other similar financial assets with an expected cash payment stream. The term "Assets" shall include, but shall not be limited to, receivables, mortgage loans and other debt instruments: Provided, That receivables that are to arise in the future and other receivables of similar nature shall be subject to approval by the Securities and Exchange Commission (SEC) or the Bangko Sentral ng Pilipinas (BSP), as the case may be: Provided, further, That the term "Assets" shall exclude receivables from future expectation of revenues by government, national or local, arising from royalties, fees or imposts.
(d) "Asset Pool" means the group of identified, homogeneous assets underlying the ABS.
(e) "Commission" refers to the Securities and Exchange Commission (SEC).
(f) "Credit Enhancement" means any legally enforceable scheme intended to improve the marketability of the ABS and increase the probability that the holders of the ABS receive payment of amounts due them under the ABS in accordance with the Plan.
(g) "Originator" means the person or entity which was the original obligee of the Assets, such as financial institution that grants a loan or a corporation in the books of which the Assets were created in accordance with the Plan.
(h) "Plan" means the plan for securitizations as approved by the Commission
(i) "Secondary Mortgage Institution (SMI)" means an entity created for the purpose of enhancing a secondary market for residential mortgages and housing-related ABS.
(j) "Seller" means the person or entity which conveys to the SPE the Assets forming the Asset Pool in accordance with the Plan. In most instances, the Seller may itself be the Originator.
(k) "Servicer" refers to the entity designated by the SPE to collect and record payments received on the assets, to remit such collections to the SPE, and perform such other services as may be specifically required by the SPE, excluding asset management or administration.
(l) "Special Purpose Entity (SPE)" means either a Special Purpose Corporation (SPC) or a Special Purpose Trust (SPT).
(m) "Special Purpose Corporation (SPC)" refers to a juridical person created in accordance with the Corporation Code of the Philippine solely for the purpose of securitization and to which the Seller makes a true and absolute sale of assets.
(n) "Special Purpose Trust (SPT)" means a trust administered by an entity duly licensed to perform trust functions under the General Banking Law, and created solely for the purpose of securities and to which the Seller makes a true and absolute sale of assets

SIR: even if securitization act passed 2004, not much securitization transaction under the act
-quite recently, because of the subPrime prices, securitization acquired bad reputation
-SP Entity (SPE), which can be an SPC or SP trust, will be the one to issue the asset-backed securities (ABS)
ABS: receivables that were acquired by the SPE
--it's source or repayment would come from the obligors of the receivables
--the holders of ABS are looking to the payments from the obligors, in a sense, it's a limited recourse
HOW DONE: Collateralization
e.g. Issue is P1M, the pool of receivables supporting it is 1%,

SELLER of the receivables = originator = Globe, Smart, PLDT…
Servicer = can also be the originator
SPT: trust department can act as one. A mere account w/n trust department (there can be several SPTs in one trust department)
SPC: corporation that is formed and established for the purpose of that single securitization transaction
--more cumbersome: should have board of directors, meet reporting requirements of SEC…etc.
----HOWEVER, if you use an SPT, it would be easier than SPC!
-but why is it that there's not much securitization transactions: a bank that want to enter a securitization transaction CANNOT USE ITS OWN TRUST DEPARTMENT! The SPT must be independent from the ORIGINATOR!
-sir says this should be reversed as the trust department of a bank is separate and distinct from the bank's operations!
-what entity in the Philippines expect lots of receivables? BANKS!!!
WON a bank can purchase ABS? BSP issued Circ 468 that states that bank can acquire ABS (to that effect, there's underlying securities mentioned but sir said that it's the same as ABS)
e.g. share of LGUs on the tobacco taxes were securitized (but there's a provision in the new act which prohibits securitization of tax revenues. Sir says the example is not covered by the prohibition because it is not revenue flow, it is not liquid yet…)


VII. Due Diligence
Due diligence team in a lawfirm: examines an entity…

2 types:
1. Prospectus
Due Diligence
-derived from securities act where there's astatement to the effect that securities to be sold to the public must be registered with SEC and there must be a prospectus accompanying statement and the facts mentioned therein must be accurate in all material respect, no omissions which would make any statement in it misleading. In that act, it was a defense on the part of the issuer that it has exercised DUE DILIGENCE in making the RS in the prospectus. That defense is supported by the issuer's employing a DUE DILIGENCE TEAM.
~so balik sa DUE DILIGENCE TEAM: inspects the documents of the company, transactions, etc. to make sure that all material information about the company is correct…

Under SRC, due diligence is no longer a defense. The KNOWLEDGE DEFENSE is the only defense left: the issuer or underwriter might escape liability if proves that purchaser had knowledge of the fact incorrectly stated. DUE DILIGENCE may be mitigating circumstance in admin case before SEC but not defense.
2. Acquisition Due Diligence
e.g. Philamlife is being sold by AIG, there are several lawyers and underwriters…Nyek, moot because transaction was aborted



I. Certain Financial Products/Exoteric Structures (not EXOTIC!!!)
A. Trade Account/Brokering
e.g.
SMC has several dealers…SMC delivers products to SMC, Dealers would not pay all at once
SMC could mandate a bank to look for investors that would buy the receivables
-bank acting for several investors, investors would enter agreement with the bank to look for investments
When SMC sells receivables to a bank representing several investors, the bank merely gives PARTICIPATION PARTICIPATES/CONFIRMATION SALE to the investors, this way the bank receives commission (Manila Type of Trade Brokering)

B. Credit-Linked Notes/Deposits
E.g. Foreign bank buys RP bonds? For $1M
-but foreign bank worries about credit-worthiness of RP (no-election news…) so it wants to get rid of the transaction with RP. SO bank issues CLN to a local bank, local bank gives $1M to foreign bank in exchange of CLN. The agreement is that the CLN would carry a higher interest than the credit rate… then I'm lost…
Cash settlement: foreign bank would sell its holdings of RP bonds to market (and probably for a lesser price). The proceeds of the sale would then be paid to the local bank
Physical settlement: the RP bond is delivered to the local bank; this is better because the RP bond is the most prime (nonrisk item) in the Philippines. If worse comes to worst, the local bank would still be paid in Pesos.

IX. Certain Other Matters
A. Anti-Money Laundering Act
Financial Action Task Force (FATF): a task force organized by developed countries which identified noncooperative countries (Philippines was formerly included in it, together with Nauru and Russia)
-if the Philippines did not comply with it w/n the deadline, there's a sanction! (money - remittances to the Philippines would be cross checked, meaning delay in the receipt of remittances in the Philippines)
-however, 1st AMLA was not compliant in certain aspects.
AMLC: authorized to freeze assets but this power taken out from it, should petition CA for freezing of assets (but this is problematic because a mole in the SC could easily inform the money-launderer of the attempt to freeze the latter's assets, and thus the account would be w/drawn) - The 2nd AMLA was inferior from the 1st one but it became compliant because the one who checked it wined and dined with Congressmen!
On cases when there's no need for freezing order from CA:
*Hi-jacking
*Drug trafficking
(as if the first thing that the violators would do is to deposit the proceeds of their illegal acts in the banks!)
-there's also suggestion that lawyers be whistle-blowers: BUT THIS WOULD NOT DO BECAUSE OF THE CONFIDENTIALITY AGREEMENT BETWEEN LAWYERS AND CLIENTS
-there are many recommendations of the FATF: but only few are taken
-among the recommendation is to amend the bank secrecy law…
-threshhold amount lowered…if you transact with covered institutions and the amount of the transaction is above the threshold, the bank is obligated to file a CTR…but even if lower than the threshold and the bank would be suspicious, the bank could still file a "suspicious transaction report" (CHA: I don't know why it's CTR when it stands for suspicious transactions report…)

B. Securities Regulation Code
-statute in Securities law, among which are:
*Truth in lending act
*GBL provs: truth in borrowing act
*SRC: truth in securities act
-persons who want to sell securities need to comply with the requirements of registration by SEC
Exceptions:
1. Exempt securities: when sold to the public, no need to register it (example, gov't securities issued to the public…)
2. Securities sold in transactions classified as exempt in SEC: e.g. Private placement
---just file with SEC a notice/form of exception w/n 10d from date of sale
3. Offshore offering: not covered by SEC because SEC would not have jurisdiction over sale of securities outside the Philippines
*SEC could come up with a list of exempt securities and transactions
*some of the list are discussed in Sir's book…which is unfortunately out of stock… hehe.

-Any public offering of securities is prohibited unless the securities are registered w/ SEC and SEC has declared effective the Registration Statement
PRIVATE PLACEMENT: sale to not more than 19 nonqualified buyers (qualified buyers are the banks, financial institutions)
PUBLIC OFFERING: random or indiscriminate offering to the public (any member of qualified buyers)
Qualified buyers: they can fend for themselves

***To avoid regulation by the SEC:
OFFSHORE OFFERING: a contract is signed abroad and payments are made through FCDU

INSIDER TRADING: when you are in possession of information not known to the public, you're not supposed to trade with that shares until the public was made aware of the information (only after disclosure can an insider trade)
-insider trading rules meant to remedy the asymmetry in information to make the insider and non-insider pari passu in terms of information
-INSIDER: given, you have access to non-public information from an insider (insider becomes the Tipper, you become a Tippee)
-insiders mandated to disgorge "short-swing profit" (if you were able to detect transactions in which the insider has made money, then the net gain must be disgorged by the insider) - turnover the profit to the company

Tender-offer
-if you intend to acquire at least 35% of the outstanding capital stock of a public company, e.g. listed company, whether alone or in concert with other persons, you need to make a tender-offer to the remaining shareholders who might be left out (because 67% is control).
In a case, the SC has ruled that the 35% can be direct or indirect shareholding

Continuing disclosure requirements
-for corporations

FINALS: Oct 17
-from security devices til end (focus on the principles, not on ready-made answers!)

CommArb Lecture September 18, 2009

Sa new rules: AM no. 07-11-08-SC

Guidelines for the resolution of issues related to arbitration of loans secured by collateral (with the new rules of the Supreme Court on ADR)

*the arbitration clause in the main contract extends to the accessory contract

e.g. You have a loan with a bank, you execute a promissory note as proof of payment for the loan (example, for a housing loan). As a security, the bank would require you to execute a mortgage. This means that the Torrens title is annotated with the mortgage. When you default on the payment of your loan, the bank is entitled to foreclose.

If the promissory note would contain an arbitration clause, and the mortgage agreement does not, ACCORDING TO THE SPECIAL RULES, the arbitration clause in the promissory note extends to the mortgage contract which is an accessory contract.

What if it's a 3p mortgage (where the security does not belong to the borrower-mortgagor)?

It would also become part of the arbitration clause in the main loan contract/PN.

Ff up. Paano na appointment of arbitrators nito? 2 debtor and 1 creditor?

Special rules provide that 1 each for the creditors and the debtors.

Ff up 2: isn't this legislation on the part of the supreme court?

Mejo. Not just procedure but substantial law. But just wait for a case to assail this.

*Special Rules pa ulit:

e.g. Arbitral Award in $10M. For enforcement, the filing fees should not be based on the $10M! In the special rules, there's an express provision providing the filing fee corresponding to the award, the highest that could be assess is P50k ONLY.

*there are now some orders of the court which are not subject to MR, appeal, and certiorari (makes it summary proceeding)

*you can go on certiorari because of GADALEJ, ONLY have INEXTENDIBLE 15 day period (vs. 60d in ROC!)

*no injunction in arbitration proceedings

Attendance: who's absent

Ms. Corije

Ms. Gabriel

Ms. Santamaria

Ms. Latosa

EPCIB v. RCBC

-ICC is not the arbitral tribunal but an ADR Provider, the Arbitration Institution

*there's a case, Feliciano ang ponente, where the CIAC is not a nominal party but the arbitrators!

*on special rules ulit: if there's an arbitrable dispute between the lender, borrower, and third-party mortgagor…borrower and third-party mortgagor are only entitled to 1 arbitrator (based on Magellan Case)

*there's another provision based on the High Precision Steel Center v. Lim Kim Steel Builder (CIAC CASE): Questions of fact cannot be raised in the SC unless the findings of fact of the arbitral tribunal committed an error so aggrievous (?) that it amounted to grave abuse of discretion.

National Union vs. Stoltson…

-similar to Puromines case

NY Convention: What are the obligations of the Contracting State under it?

1. To recognize and enforce foreign arbitral awards
2. Not to enforce more onerous conditions than those imposed on domestic awards
3. To recognize the arbitration agreements in contracts

Transfield vs. Luzon Hydro

-Standby Letter of credit executed by TPI in favor of LHC. There's a pending arbitration proceedings between TPI and LHC. LHC was to claim the standby l/c in its favor so TPI wanted to enjoin them. TPI claimed that the court action filed by LHC is premature because there's no arbitration award yet.

H: Difference between arbitration and the current action

NY Convention

-redress: petition to set aside an arbitral award or petition to refuse recognition

Grounds to set aside an arbitral award:

-similar to UNCITRAL MODEL LAW (which are stated in Section 24(2) - here contained in Article V

(grounds for petition to refuse recognition)

(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity #, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, undep the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.

Sir handled a case where the venue of arbitration is in Singapore. A partial award was rendered in favor of the other party. Normally, to enforce the partial award, you should come in the Philippines and file the petition of enforcement of the partial award. However, the adverse party filed instead in Singapore! (It entertained the thought that if they file a petition for enforcement of the arbitral award here, they would lose)

Petition to enforce	PETITION TO REFUSE RECOGNITION
Stated in Section 24 (2)	NY Convention - Article V (which is similar to the grounds in Section 24(2)

*in UNCITRAL , Article 1(2), UNCITRAL Model Law would only apply if the place of the arbitration is in the territory of the State EXCEPT IN ARTICLES…

-Articles 36: Provides that a petition to set aside the FAA is allowed

EO 1008: Construction Arbitration

What is Construction Arbitration?
-Under Jurisdiction (Section 4): EOJ

disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines,

whether the disputes arises before or after the completion of the contract, or after the abandonment or

breach thereof. These disputes may involve government or private contracts.

-The jurisdiction of the CIAC may include but is not limited to:

*violation of specifications for materials and workmanship;

*violation of the terms of agreement;

*interpretation and/or application of contractual provisions;

*amount of damages and penalties; commencement time and delays;

*maintenance and defects;

*payment default of employer or contractor and changes in contract cost

X: EER dispute

***NOTE: there must be an arbitration clause in the construction agreement for CIAC to exercise EO Jurisdiciton

China Chiang … Case

H: even if the venue for arbitration is outside the Philippines, if the agreement provided that there be an arbitration agreement and the agreement involves construction, CIAC still could exercise jurisdiction over the dispute

--parties not precluded from agreeing to submit disputes in another arbitral body, but even if merong ganun, CIAC does not lose jurisdiction over the dispute

Commercial dispute vs. Construction dispute:

F: parties have a contract which contains an arbitration clause. There's a dispute that arose. The dispute is arbitrable. However, one of the parties went to court right away for the resolution of the dispute...

Commercial Arbitration	Construction dispute
Court would order the STAY of the action	Court shall DISMISS the action. Dapat CIAC. (Section 39)

[revised] SEC. 39. Court to Dismiss Case Involving a Construction Dispute. - A regional trial court [before] which a construction dispute is filed shall, upon becoming aware, not later than the pretrial conference, that the parties had entered into an arbitration [agreement, dismiss the case and refer the parties to arbitration] to be conducted by the CIAC, unless both parties, assisted by their respective counsel, shall submit to the regional trial court a written agreement exclusive for the Court, rather than the CIAC, to resolve the dispute.

***

Another correction: on the special rules: On Online Dispute Resolution

-here, communications are all through e-mail and web. Payment of filing fees all through paypal, etc.

Section 25.1: Applicability of the Special ADR Rules to Online Dispute Resolution - Whenever applicable and appropriate, the Special ADR Rules shall govern the procedure for matters brought before the court involving Online Dispute Resolution.

Section 25.2: Scope of Online Dispute Resolution - Online Dispute Resolution shall refer to all electronic forms of ADR including the use of the internet and other web or compute[r] based technologies for facilitating ADR.

***

As to foreign arbitrator in CIAC under RA 9285:

SIR: CIAC has a list of accredited arbitrator wherein the parties could choose an arbitrator.

But under RA 9285, a foreign arbitrator WHO IS NOT ACCREDITED BY CIAC could become an arbitrator [Section 37]:

1. One of the parties is a foreigner
2. Foreign arbitrator agrees to abide by the rules of CIAC
3. Foreign arbitrator is merely a coarbitrator (not chairman) unless selected by 2 coarbitrator
4. Not same nationality with the international party

WHY Important to agree with Rules of CIAC?

-a foreign arbitrator charge high! Dapat same charge as those received by the other arbitrators…

*RICKY: pano if the other party is a Filipino and the other a foreigner? The Filipino, if the arbitration would undergo CIAC proceedings, a Filipino would be appointed. However, the foreigner would not be allowed to appoint another foreign arbitrator of the same nationality

Can a Philippine Party have a foreign counsel as a representative?

Yes. But can't appear before domestic courts

PHILROCK vs. CIAC

F: Cid spouses filed complaint for damages vs. Philrock. They agreed to submit the dispute to CIAC so RTC dismissed the proceedings.

-however, the arbitration proceedings became magulo…the parties were not able to agree so the parties wanted RTC to acquire jurisdiction

-RTC refused to exercise jurisdiction as it was already divested with such. Remand to CIAC

-MR by the parties… CIAC denied the MR.

H: CIAC has jurisdiction over the dispute

(1) the spouses did not include the officers of Philrock anymore

(2)

(3) CIAC's monetary award may still be appealed provided there's GADALEJ

-When parties agree to settle their disputes arising from or connected with construction contracts, the Construction Industry Arbitration Commission (CIAC) acquires primary jurisdiction. It may resolve not only the merits of such controversies; when appropriate, it may also award damages, interests, attorney’s fees and expenses of litigation.

METRO CONSTRUCTION

WON under existing law and rules the Court of Appeals can also review findings of facts of the Construction Industry Arbitration Commission (CIAC)?

Yes. Questions of law and mixed questions of facts and law can be reviewed, including money claims…

based on the record, no dispute on the liquidated damages due to MCI…?

GAMMON vs. MRT

*special rules ulit: Verification required from the lawyers, not the parties. In regular civil actions, lawyers need SPA to be able to sign the verification

TESCO vs. VERA

F: TESCO and LAROSA entered into a sub-contract agreement w/ TESCO as contractor and LAROSA as sub-contractor, for the execution of the Civil Works under PLDT…

-however, TESCO alleged that LAROSA delayed in the performance of the terms of the contract so TESCO wanted an early termination of the case. LAROSA alleged that the delay, if any, is due to TESCO's fault

-TESCO sent letter-request for early termination, which LAROSA opposed.

-LAROSA filed a petition for injunction w/ prayer for issuance of writ of preliminary injunction and TRO w/ RTC

RTC: TRO granted

-TESCO filed w/ SC petition for Certiorari: RTC had no jurisdiction because CIAC has jurisdiction

-RTC proceeded with hearing the writ of preliminary injunction filed by LAROSA

H: CIAC did not acquire jurisdiction

-the Arbitration proceeding does not provide that CIAC has jurisdiction, and that the RTC was divested with jurisdiction

-EO 1008 requires:

(1) the parties agree to submit the dispute to voluntary arbitration (Section 4)

(2) the parties submit to CIAC Secretariat its request for Arbitration (Section 1)

-though the parties agreed to have arbitration (in the contract), nowhere was it stated that the parties submitted a copy of their request to CIAC

-the dispute being incapable of pecuniary estimation, RTC correctly had jurisdiciton

*TESCO was mentioned in China Chang Case

NIA vs. CA

F: Hydro resources entered with NIA contract for the construction of MAGAT DAM. The contract provided terms for payment, 1st part in PESO, 2nd part in DOLLAR.

-Hydro claimed from NIA in DOLLARS…NIA did not pay so they underwent arbitration

-NIA filed MTD: CIAC was not yet constituted when the contract was entered by the parties

H: The date when the contract was entered into or completed is not the date of reckoning for CIAC to acquire jurisdiction.

-CIAC has jurisdiction regardless of the date when the contract was entered. What is important is that the case is submitted to CIAC's jurisdiction and that the dispute concerns a construction dispute.

Evidence September 17 Session

Manalo vs. Robles

F: Taxi hit a boy. 2 writs of execution issued on the driver who was found liable, sheriff was not able to enforce the writ of execution because of the insolvency of the driver. Went after Manalo, the owner of the taxi and employer of the driver who was subsidiarily liable.

-presented the writs of execution and the return of the sheriff.

*relevance of the sheriff's return: the subsidiary liability of the employer would arise only if the judgment would not be satisfied on the person primarily liable

What does the sheriff do? Sheriff would look for the properties of the convicted/liable property - here, the sheriff found no such property!

RETURN: Is that a public document/ official record?

YES. Issued by a public officer of the Philippines in the performance of his duty.

VAA: This is actually Rule 132.19

Issue on hearsay: Did not present the sheriff, just presented the contents of the sheriff's return

H: Section 44 applies, admissible under the exception

-entry in an official record

-made by a publc officer of the Philippines

-in the performance of his duties

(2nd part: prima facie - refers to weight)

Wallem Maritime Services vs. NLRC

F: Wallem dismissed two Filipino sea man for allegedly assaulting a crew member (who was just an "intern"). The said altercation was recorded in the Tanker's Logbook.

-the alleged Logbook was presented before the court in a typewritten excerpt (not the whole logbook)

H:

-The typewritten excerpt not a copy: a copy should be executed at or about the same time with identical contents

Issues in this case (possible objections):

1. hearsay: did not present the captain himself but the excerpts of the logbook
2. BER? Are the contents of the logbook in issue?

WALLEM vs. NLRC

UF: WON dismissal is illegal - question of law or fact

-how to prove? Support evidence?

INTERIM FP: Altercation (question of fact)

-basis: evidence

FP: excerpts from the logbook

---basta ung excerpts sa logbook is based on the logbook which contains the personal knowledge of the captain

Why the contents of the logbook in issue?

Because the logbook contains the account of the alleged altercation

---BER applies but it is under the exception of the BER: Lost, destroyed, or cannot be produced in court: The logbook of the ship cannot be taken out of the ship!

-NOT A COPY: if a copy, should contain all the contents of the logbook

-RECITAL IN SOME AUTHENTIC DOCUMENT: not the same: it was made during the litigation - NOT AUTHENTIC BECAUSE IT WAS NOT MADE ANTE LITE MOTAM

e.g. of a recital in some authentic document: records in a maritime disaster case, records of the employee (presented for promotion case)

Back on Hearsay:

What if present an affidavit containing the said altercation? Would it be an exception to hearsay?

Not under R130.43?

Elements:

1. The person who made the entry must be dead or unable to testify
2. The entries were made at or near the time of the transaction to which they refer
3. The entrant was in a position to know the facts stated in the entries
4. The entries were made in his professional capacity or in the performance of a duty, whether legal, contractual, moral or religious
5. The entries were made in the ordinary or regular course of business or duty

Were the elements complied with?

-the affidavit is NOT AN ENTRY in the course of business!

WHY?

-the maritime proceeding is not an entry in the regular course of maritime business

e.g. of entries in the regular course of a maritime business

>logbook!

Will it fall under R130.44? PEDE

-Ms. Rios: 2nd paragraph: Private individual specially enjoined by law to perform a duty!

*Section 44: not required that the declarant should have personal knowledge

-Under the Code of Commerce: Captain of the Ship enjoined to record the events happening in the ship

*the Logbook (entries of the captain): however, the captain (sabi ni ma'am) had no personal knowledge of the events which happened - VAA: The statement in the facts of the case was taken from the excerpts!

VAA: pede ba un? BER tapos may hearsay?

Example of Private persons specially enjoined by law to perform a duty?

PRIEST: enjoined by law to record the fact of marriage then submit the records to the civil registrar

VAA: the hearsay which falls under R130.44 (1st part) is the copy in the civil registrar. If the copy with the priest is to be presented, it falls under R130.44 (2nd part)

Air France vs. Carrascoso

-relevant: notebook of the purser

-entry in the course of business? NO

>personal note of the purser

>official course of business? No, it was not the duty of the purser

-RES GESTAE?

>the startling occurrence is the altercation between Carrascoso and the racist flight attendant

People vs. Tampus

-res gestae? Sabi ng court oo but sabi ni Ma'am, not startling because the accused/declarants would not have been surprised.

People vs. Tulagan

-res gestae? Court said there was none (1.5 hours between the "startling" occurrence and the statement)

Comment: is it really res gestae?

ANTON: Time should not be the sole basis of res gestae

MS Salazar: Demeanor of the declarant - being calm, etc… - should not be also basis

VAA: but does it really fall under 1st part of the Res Gestae rule

-VAA: as to the time part, this is a correct rule

-VAA: there is no res gestae here, they planned it! (obvious naman…)

e.g. ng res gestae, even if premeditated

A, B and C planned to hog-tie D. C deviated from the plan, killed D. Afterwards, A exclaimed, "Bakit mo naman pinatay?" - res gestae

Not A, B and C planned to kill D, magugulat ba sila pag sinabi, "Bakit ka naman sumunod sa plano natin, nagulat naman ako"

Aballe vs. People

-Tulagan not applied: here, a night already passed after the STARTLING occurrence?

VAA: startling occurrence: nung nahimasmasan na sha, nagulat sya na nakapatay na sha!

"Don't forget the gulat factor!"

Borromeo vs. CA

F: Aznar allegedly lent Rallos money, who allegedly mortgaged the property, but document allegedly show that it was a sale. Borromeo (administrator of Rallos' estate) wanted to reform the documents.

-Notes were made by Borromeo (4 daw na exhibits) allegedly containing the excerpts

TC: sale, no reformation

CA1: Sale, no reformation

CA2: Equitable mortgage

-testimony of Crispina + notes: notes she made were res gestae

SC: NO RES GESTAE
-not explained…

…why she was there

..why she took notes

…WON she was authorized to take down notes

NOTES not hearsay so can't be res gestae: it was a memorandum!


Class discussion (sorry, was not able to follow…)

-2nd part of res gestae?

Elements:

1. Res gestae or principal act be characterized as equivocal

2. Such act must be material to the issue

3. Statements must accompany the equivocal act

4. Statements give a legal significance to the equivocal act

-but was there any equivocal act???

VAA: If the alleged equivocal act is the transaction, the deed of sale which evidenced the alleged transaction is clear on its face SO THERE IS NO EQUIVOCAL ACT HERE! NO RES GESTAE!!!!

Canque vs. CA

Africa vs. Caltex

-Police report + Fire Department Report

…the persons who made report had no personal knowledge of the facts stated in the report

H: but allowed under res ipsa + responsibility of gas station - dangerous

-Not under R130.44: even if public officer, the public officer has no

1. Personal knowledge
2. Official information

[Moran, Comments on the ROC]

-sabi ng court: "To qualify their statements as "official information" acquired by the officers who prepared the reports, the persons who made the statements not only must have personal knowledge of the facts stated but must have the duty to give such statements for record."

…so PERSONAL KNOWLEDGE + DUTY TO DO SO

VAA: this is what makes it confusing: it is already enough that it be from one with personal knowledge, but here, you must also have a duty to do so…Di sinabi why court gave this parameters… too strict criterion

-but court considered Leandro Flores' statement before a police investigator later: Flores had personal knowledge but no duty to do so! So pano un, point ni Odena, the court did not use its own strict criterion!

Salmon Dexter vs. Wijangco

-Certificate of Director of bureau of agriculture on the average crop of palay produced in 1920-21 in Magalang, Pampanga presented by the defense to show that it was not the fault of the machine why the output of palay was lower than what they claimed the machine could produce. The palay harvest was low! So lower palay harvested, the lower palay threshed!

UF: WON Salmon Dexter breached their warranty

Immediate F: WON the thresing capacity was not reached because of the fault of Salmon Dexter

H: Under R130.44, admissible? YES

Under what part?

Evidence September 15 lesson

yesssss...may evidence na. asenso???

On current events:

Super Ferry Case

4am

Captain: winds were strong

But passengers: no wind, waters were calm

They didn't want to jump because it was 4am but it's too dark.

If there were others that would testify that they heard many said that there was no wind, would it be admissible? Granting there were already two passengers already who have said that paalis pa lang ng pier, the ferry was listing (leaning?) already…

VAA: the ship would probably lean to a single direction because of negligent arrangement of cargo.

ADMISSIBLE?

Aida: YES. Under Section 42.

E.g. Ultra Incident "WOWowee"

e.g. What if the people there were shouting stuff…

"Hoy, yung bata naapakan!"

"Wag magtulakan!"

"Hoy, may naapakan na!"

If a person is presented in court to testify on the sights and sounds during the incident, and the person was there, ADMISSIBLE?

Claimant: the parent of a boy who died in the incident

Prove: death of the boy + negligence/lack of foresight of the organizers of the event

*don't say ADMISSIBLE because it was derived from his personal experience: by saying this, you're saying that it is admissible as evidence of IRS

*ADMISSIBLE UNDER RES GESTAE: elements:

1. Startling occurrence: Stampede

HEARSAY: yes, the witness (parent of the boy who died) heard someone (out of court declarant) shout "Hoy, yung bata naapakan!"

2. Statements made during, immediately prior or subsequent

-statements (out of court statement) was made during

3. Statements made were about the circumstances of the startling occurrence

-not "Ang gwapo ni Piolo!" - which is irrelevant to the startling occurrence

4. Made before the declarant had opportunity to contrive

-the out of court declarant, who said statement DURING OCCURRENCE, would not have time to contrive a falsity

WHY RES GESTAE ADMISSIBLE?

Human nature that when there's a startling occurrence…the statements made during or immediately prior or subsequent thereto are true!

-people tend to echo the statements, by its very nature, when there's a startling occurrence, it may be echoed when there's many people.

(by very nature, multiple hearsay because many people would probably have heard the statements and then may have heard it from someone else)

Vs. Pedigree

(single hearsay): declarant (who's making statement regarding the pedigree of a relative) would make an act or declaration to the witness.

Vs. Family Tradition

(multiple hearsay)

-tradition: passed on from one generation to another…

e.g. Engraving in the ring, e.g. name of the original owner, then it was passed on from generation to generation…the last tagapagmana wouldn't have personal knowledge of who the owner is but there's a family tradition that there was such a family member in the

ON AGE: it's hearsay!

-you don’t have personal knowledge when you were born because when you were born, you were unable to perceive what happened.

Vs. Common reputation

(multiple hearsay)

-there's a consensus + not really controverted

Pag current events, not common reputation (since it is controverted)

VAA:…"unless when you're talking about corruption"

-it refers to moral character

-monuments and inscriptions in public places

e.g. there's a marker in somewhere stating that an event happened in that place. You don't have personal knowledge that the said event happened but it is admissible

So in the Super Ferry Case, even if you don't personally know WON the ship is indeed sinking, when you hear it from panicking people, you'll probably jump! (you'll never know if the person from whom you've heard it knows it personally also!)

REVIEW on common reputation

VAA: why require 30 years for facts of public or general knowledge then when it comes to marriage or moral character, no need for 30 years?

AIDA: the latter two would spark more interest to people in the community

VAA: when morals, you don't only refer to the bible

Section 42 (part 2) - verbal acts

"So, also, statements accompanying an equivocal act, material to the issue, and giving it a legal significance, may be received as part of the res gestae."

-Single or multiple hearsay?

On par1: it's the event talking through the declarant, not the declarant only

On par2: admissible,

e.g. If A gave the property to B

(mere act of giving the property to B) - equivocal, unclear, could have many interpretations

But if A says, "B sa'yo na!", the statement gives it legal significance, i.e. ownership

WHY Admissible:

E.g. If a train is about to collide with another train, there are persons who already exlaimed, "Babangga!", ADMISSIBLE AS PART OF RES GESTAE?

SPONTANEOUS. Part of res gestae. Under the influence of the startling event.

People vs. Tampus

H: The spontaneous statement made by the 2 prisoners right after they got out of the bathroom where the crime happened was held to be RES GESTAE

Do you agree with the ruling? Ma'am disagrees!

3 statements:

1. Right after the crime
2. Right before the crime
3. During the PI?

But only concerned on the statement right after the crime was committed:

*NOT RES GESTAE: It was premeditated!

Why premeditated:

1. There was a gang war between the gangs of the victim and accused
2. They knew where the victim was
3. They brought a knife with them
4. When they saw the policeman, they said the statement and handed the knife (with blood!), and it is not startling to see a prison guard inside a prisoner.

-and they were willing to surrender!

Aida: "When there's a gang war, it's not a pretty sight."

R130.42: Res Gestae = the things done + statements made

1st par	2nd par
Immediately before, during, or after	During
Kelangan magulat!	Di kelangan magulat

e.g. there's a rape. The law enforcers went inside the house in hot pursuit w/o search warrant. A kid, hiding covered with a curtain, heard someone say, while pointing to a spot on the house with bejeweled finger, "Dali, dun mo ilagay!"

Owner charged with possession. The owner counter-sued. Kid presented in court. ADMISSIBLE?
UF: WON there was illegality?

ADMISSIBLE under paragraph 2

Equivocal act: pointing

Statement: "Dali, dun mo ilagay!"

ISSUE: WON there was illegality

Section 43 – ENTRIES IN THE COURSE OF BUSINESS

Entries made at, or near the time of the transactions to which they refer, by a person deceased, or unable to testify, who was in a position to know the facts therein stated, may be received as prima facie evidence, if such person made the entries in his professional capacity or in the performance of a duty and in the ordinary or regular course of business or duty.

5. Requisites:
1. The person who made the entry must be dead or unable to testify
2. The entries were made at or near the time of the transaction to which they refer
3. The entrant was in a position to know the facts stated in the entries
4. The entries were made in his professional capacity or in the performance of a duty, whether legal, contractual, moral or religious
5. The entries were made in the ordinary or regular course of business or duty

Verbal or written?

Written: Entries eh! Business documents!

Documents [R130.2]: evidence offered as proof of their contents

One who made: ENTRANT

One presented in court: WITNESS
EVIDENCE: out of court entry

OUT OF COURT: yes. Dead or unable to testify nga eh!

*Dapat, at the time he wrote it, he knew personally what it contains = COMPETENT! Kahit anong exception sa hearsay rule, dapat competent!

IS THE DECLARANT=ENTRANT? Yes. Just written.

SO hearsay does not apply only to testimony.

Canque vs. CA

F: Entries in the Book of Collectible Accounts were made by the bookkeeper but had no personal knowledge because it was the engineer who made the receipts.

H: Not admissible under R130.43

-entrant still alive

-entrant had no personal knowledge

*BUT other evidences presented sufficiently showed that CANQUE previously paid SOCCOR w/o contesting billings made

VAA: But wasn't it made in the ordinary or regular course of business?

Still,

1. Engineer, who had personal knowledge, was not the one who made the entry
2. The book keeper, who had NO personal knowledge, i.e. INCOMPETENT, was the one who made it
3. The entrant, book keeper is still alive!

Cf: Rules on Electronic evidence

*in here, it is single hearsay

"In the ordinary or regular course of business or duty"

VAA: Commercial business dapat?

Regalado:

Legal

Contractual

moral

Religious

4. Basta may formal duty! Para maging regular and ordinary …duty

e.g. business: the cashier would make entries on the receipts whenever someone would buy from the store. If the owner of the store would present such receipt in court, admissible?

YES, under R130.43, provided ALL THE ELEMENTS WERE COMPLIED WITH

e.g. one who makes inventories

security guards

"at or near the time of transaction"

-the regularity and the promptness of the act makes it trustworthy!

-so if receipt was made 5 days after the purchase, it is irregular and doubtful…

e.g. Is employment relation required? What if Anton borrows a book from the library and entered into his library card that he rented this book on this date and he died. Library wanted to claim damages for the lost book, and presented the library card as evidence.

UF: Anton stole it!
IF: that Anton was the last person who borrowed it

*it is documentary evidence: it is presented as proof of its contents

---presented the original borrower's card of Anton

BUT IS IT HEARSAY?

No, the library card is not hearsay. The document per se would be shown to prove the fact in issue, i.e. WON Anton borrowed the book, no more need for showing another person to testify on the library card as the library card is already in the court and itself is a good evidence

Section 44 – ENTRIES IN OFFICIAL RECORDS

Entries in official records made in the performance of his duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated

5. Merely prima facie evidence of the facts therein stated
6. Requisites:
1. Entries were made by a public officer in the performance of his duties or by a person in the performance of a duty specially enjoined by law
2. The entrant had personal knowledge of the facts stated by him or such facts were acquired by him from reports made by persons under a legal duty to submit the same
3. Such entries were duly entered in a regular manner in the official records

There are duties which are not enjoined by law

e.g. entries in religious documents: enjoined by the Church

-but would only show who attended, but not the relationship (would not be evidence of the truth of the contents)

-If government kasi, there's probative value.

e.g. of official documents

1. Records of birth in NSO
2. Transcript of records in UP
3. All government documents filled up and executed (duly processed).

R132, Section 23: on prima facie but same!

R130, Section 24: dapat on admissibility lang! So don't be confused!

*admissibility: because official records:

*probative value: prima facie

-pero dito, pinaghalo!

*prima facie evidence of the facts stated therein: burden of proof is on the other party to disprove it…(putol)

e.g. Birth Certificate:

-person born

-has a name

-date of birth

-name of parents…

*These are entries in an official record

*these entries are evidence that these entries are TRUE, unless rebutted

BUT ADMISSIBILITY DIFFERENT: Even if not prima facie evidence, may be admissible. Admissibility is based on reliability and trust worthiness.

Lao vs. Standard

F: Lao owns two trucks, one of the trucks hit another truck which was insured. Lao claims that the insured truck was driven by a qualified driver, as shown by the MOTOR VEHICLE ACCIDENT REPORT (made 3 days after the incident). The police blotter, however says that the driver of the bumped truck was driven by an unqualified driver so the insurance company refused to give the proceeds.

H: For Standard Insurance

*blotter vs. Motor vehicle accident report

-but the MVAR was made 3 days after!!!!

e.g. there was a 2 year-old child beated by the persons who took care of her. Everytime she was tortured, she made sumbong to the neighbor. Neighbor presented neighbor to prove identity of assailant. [P v Cariquez] ADMISSIBLE?

Hearsay. But under Res Gestae so admissible

-immediately after the startling occurrence

e.g. What if the grandfather who sexually molested a 2 1/2 year old child. The child made sumbong to her mom. ADMISSIBLE.

Yes. Pv Velasquez

e.g. Street in San Juan not very wide. There's a Jeep who belongs to a policeman, then a Fierra owned by a priest, they were neighbors. There was an altercation, policeman killed. Neighbors said, "Ay si father pinatay nung police!" then the policemen arrived later, the witnesses-neighbors were interviewed and said that the policeman shot the priest. Naturally, the neighbors won't want to testify (kilala sila ni policeman eh), so the investigators would

Admissible under Res Gestae [P v. Dela cruz]

But what about

DBP vs. CA?

Not a res gestae evidence: there was time between time when statements made and the time when the statement was given to the police. No spontaneity.

VAA: plus the identification had no factual basis! Can't surely say that the ones who burned the station were NPA's. But in P vs. Dela Cruz, they were sure of the identity of the assailant.

Plus focus on SPONTANEITY: no gap between the hours when startling occurrence

On deck at the end of the meeting:

Aida

Odena

Simon

(Ms. Salazar)