When the Supreme Court of the Philippines acquitted Hubert Webb and six others on the Vizconde massacre, I cannot help but analyze on what can possibly happen to those witnesses who testified in court regarding the Vizconde Massacre and admitted to the Witness Protection Program under Republic Act 6981.
Should the legislative department subsequently compel the Witnesses involved to shed light on what they have testified to determine whether or not perjury has been committed? Scrutinizing Section 4 of Republic Act 6981 would reveal the powers of the Legislative Department in case of legislative investigations in aid of legislation. However, the specific provision only applies in cases where the Witness has not yet been admitted to the Witness Protection Program and a necessary recommendation by the legislative department shall be required for purposes of admission of the Witness under said Witness Protection Program.
Who has the authority to terminate protection of a Witness under the Witness Protection Program? Section 15 of RA 6981 states: "No Witness shall be exempt from prosecution for perjury or contempt committed while giving testimony or producing evidence under compulsion pursuant to this Act. x x x. The procedure prescribed under Rule 71 of the Rules of Court shall be followed in contempt proceedings but the penalty to be imposed shall not be less than one (1) month but not more than one (1) year imprisonment." Accordingly, witnesses covered under the Witness Protection Program must be convicted of perjury or contempt, of which our judicial courts have the authority to determine the same.
The Department of Justice has the power to implement and enforce RA 6981. Accordingly, substantial breach of the Memorandum Agreement by the Witness under the Witness Protection Program shall be a ground for termination of the protection. In other words, the Secretary of Justice has the authority to terminate the protection of Witnesses covered under the Witness Protection Program, provided that there is a finding of substantial breach of the Memorandum of Agreement covered under the Program.
Under Section 5 of RA 6981, before a person is provided protection under the Program, he shall first execute a memorandum of agreement which shall set forth his responsibilities including:
(a) to testify before and provide information to all appropriate law enforcement officials concerning all appropriate proceedings in connection with or arising from the activities involved in the offense charged;
(b) to avoid the commission of the crime;
(c) to take all necessary precautions to avoid detection by others of the facts concerning the protection provided him;
(d) to comply with legal obligations and civil judgments against him;
(e) to cooperate with respect to all reasonable requests of officers and employees of the Government who are providing protection; and
(f) to regularly inform the appropriate program official of his current activities and address.
Violation of the Memorandum of Agreement in conjunction with Section 5 of RA 6981 should be supported by substantial evidence to that effect.
Sunday, December 19, 2010
Philippine Insurance Law (Insurable Interest in Group Insurance)
Any person so related to another either by contract or commercial relation may lawfully procure insurance on the other’s life. Thus, an employer may insure the life of the employee and vice versa.
The primary aim of group insurance is to provide the employer with a means of procuring insurance protection for his employees and their families at the lowest possible cost, and in so doing, the employer creates goodwill with his employees, enables the employees to carry a larger amount of insurance, and helps to attract and hold a permanent class of employees.
A group insurance is essentially a single insurance contract that provides coverage for many individuals. It provides life or health insurance coverage for the employees of the employer. In order to validly claim benefits from the group insurance, employees must be actively at work and must have completed a specified period of continuous employment, otherwise, the insurable interest ceases. Generally, group insurance have non-forfeiture clauses, except for term insurance (provides protection for a limited period, i.e. 5, 10, 15 years). If an employee’s group insurance terminates because he leaves the employer, the employee has the privilege of converting the group insurance within one month following the termination of employment into any standard form of insurance, except for a term insurance.
Application of the Law
Case: On June 9, 2005, Mr. John Bartolome insured the life of his best friend Noel Lim under the group insurance of Mr. Bartolome’s travel agency called Lucky Charm Travel Agency, designating himself as the irrevocable beneficiary. Other than being his best friend, John Bartolome is not related to Noel Lim. On July 10, 2007, after the lapse of more than two years, Noel Lim dies. Is John Bartolome entitled to the proceeds of the policy, considering that all premiums have been paid and considering further that no misrepresentation or concealment material to the risk has been employed?
Legal Opinion: No, because the policy is void and unenforceable unless the person who procures it has an insurable interest in the life of the insured. An insurable interest must be present either in the person taking out the insurance or the beneficiary. Being best friends does not automatically create an insurable interest. There must be an actual expectation of pecuniary benefit to sustain an insurance (i.e. a corporation has an insurable interest in the life of a key man, such as an officer of the firm). In the instant case, John Bartolome has no insurable interest in the life of Noel Lim.
References:
The Law on Insurance by Hector de Leon, 1994 Edition.
Pineda et al. vs. Hon. Court of Appeals et al., G.R. No. 105562, September 27, 1993.
New Insurance Reviewer, by Cesario P. Tiopianco, 1986 Edition.
The primary aim of group insurance is to provide the employer with a means of procuring insurance protection for his employees and their families at the lowest possible cost, and in so doing, the employer creates goodwill with his employees, enables the employees to carry a larger amount of insurance, and helps to attract and hold a permanent class of employees.
A group insurance is essentially a single insurance contract that provides coverage for many individuals. It provides life or health insurance coverage for the employees of the employer. In order to validly claim benefits from the group insurance, employees must be actively at work and must have completed a specified period of continuous employment, otherwise, the insurable interest ceases. Generally, group insurance have non-forfeiture clauses, except for term insurance (provides protection for a limited period, i.e. 5, 10, 15 years). If an employee’s group insurance terminates because he leaves the employer, the employee has the privilege of converting the group insurance within one month following the termination of employment into any standard form of insurance, except for a term insurance.
Application of the Law
Case: On June 9, 2005, Mr. John Bartolome insured the life of his best friend Noel Lim under the group insurance of Mr. Bartolome’s travel agency called Lucky Charm Travel Agency, designating himself as the irrevocable beneficiary. Other than being his best friend, John Bartolome is not related to Noel Lim. On July 10, 2007, after the lapse of more than two years, Noel Lim dies. Is John Bartolome entitled to the proceeds of the policy, considering that all premiums have been paid and considering further that no misrepresentation or concealment material to the risk has been employed?
Legal Opinion: No, because the policy is void and unenforceable unless the person who procures it has an insurable interest in the life of the insured. An insurable interest must be present either in the person taking out the insurance or the beneficiary. Being best friends does not automatically create an insurable interest. There must be an actual expectation of pecuniary benefit to sustain an insurance (i.e. a corporation has an insurable interest in the life of a key man, such as an officer of the firm). In the instant case, John Bartolome has no insurable interest in the life of Noel Lim.
References:
The Law on Insurance by Hector de Leon, 1994 Edition.
Pineda et al. vs. Hon. Court of Appeals et al., G.R. No. 105562, September 27, 1993.
New Insurance Reviewer, by Cesario P. Tiopianco, 1986 Edition.
Philippine Insurance Law
The Law
A “Contract of Insurance” is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.
Discussion of the Law
The essential elements of an insurance contract are:
(a) Insurable interest;
(b) Existence of risk;
(c) Assumption of such risk by the insurer;
(d) Said assumption being part of a general scheme to distribute actual losses among those bearing similar risks;
(e) Payment of premium.
Application of the Law
Case: American-Fortune Life and General Insurance Co., Inc. (Am-Fortune) issued Fire Insurance Policy No. 136171 in favor of Mr. John Michael Roxas on his five-star hotel building in Makati City, together with all its effects therein. The insurance was for P8M covering the period from 23 January 2008 to 23 January 2009. On 23 January 2008, of the total premium of P10,000 Mr. Roxas only paid P5,000.00 thus leaving a considerable balance unpaid.
On 8 March 2008, the insured building was completely destroyed by fire. On March 10, 2008 Mr. Roxas paid the balance of the premium. On the same day, Mr. Roxas filed with Am-Fortune a claim on the fire insurance policy.
Am-Fortune denied the claim of Mr. Roxas, for the premium has not yet been fully paid in violation of Policy Condition No. 2 of the Contract which states:
1. ‘This policy of insurance witnesseth, that only after payment to the Company in accordance with Policy Condition No. 2 of the total premiums by the insured as stipulated above for the period aforementioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the Property herein described x x x
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company official, shall be deemed invalid and of no effect.’
Is Mr. Roxas entitled to claim under the fire insurance policy?
Legal Opinion:
No, Mr. Roxas is not entitled to claim under the fire insurance policy. This is fully supported by Section 77 of the Insurance Code which provides –
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
The rule that contracts of insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the insured. In addition, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the whole payment.
References:
P.D. 1460, Insurance Code
3 Basic Commercial Laws with Introductory Features by Jose N. Nolledo, 1995 Edition.
Sps. Tibay et al. vs. Court of Appeals et al., G.R. No. 119655, May 24, 1996.
A “Contract of Insurance” is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.
Discussion of the Law
The essential elements of an insurance contract are:
(a) Insurable interest;
(b) Existence of risk;
(c) Assumption of such risk by the insurer;
(d) Said assumption being part of a general scheme to distribute actual losses among those bearing similar risks;
(e) Payment of premium.
Application of the Law
Case: American-Fortune Life and General Insurance Co., Inc. (Am-Fortune) issued Fire Insurance Policy No. 136171 in favor of Mr. John Michael Roxas on his five-star hotel building in Makati City, together with all its effects therein. The insurance was for P8M covering the period from 23 January 2008 to 23 January 2009. On 23 January 2008, of the total premium of P10,000 Mr. Roxas only paid P5,000.00 thus leaving a considerable balance unpaid.
On 8 March 2008, the insured building was completely destroyed by fire. On March 10, 2008 Mr. Roxas paid the balance of the premium. On the same day, Mr. Roxas filed with Am-Fortune a claim on the fire insurance policy.
Am-Fortune denied the claim of Mr. Roxas, for the premium has not yet been fully paid in violation of Policy Condition No. 2 of the Contract which states:
1. ‘This policy of insurance witnesseth, that only after payment to the Company in accordance with Policy Condition No. 2 of the total premiums by the insured as stipulated above for the period aforementioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the Property herein described x x x
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company official, shall be deemed invalid and of no effect.’
Is Mr. Roxas entitled to claim under the fire insurance policy?
Legal Opinion:
No, Mr. Roxas is not entitled to claim under the fire insurance policy. This is fully supported by Section 77 of the Insurance Code which provides –
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
The rule that contracts of insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the insured. In addition, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the whole payment.
References:
P.D. 1460, Insurance Code
3 Basic Commercial Laws with Introductory Features by Jose N. Nolledo, 1995 Edition.
Sps. Tibay et al. vs. Court of Appeals et al., G.R. No. 119655, May 24, 1996.
The Barangay Micro Business Enterprise Law, Philippines
Micro business enterprises and start-up companies in the Philippines might find the BMBE Law useful. If your start up company has total assets not exceeding 3 million pesos, registration under the BMBE Law may prove to be a helpful incentive for your company to be exempted from the minimum wage law and payment of income tax. All you need is to pay a registration fee of only P1,000.00 to the proper local government unit where you intend to put up your start-up company.
The Law
The Barangay Micro Business Enterprises (BMBEs) Act of 2002 (R.A. 9178, July 22, 2002) was enacted to hasten the country’s economic development by encouraging the formation and growth of barangay micro business enterprises which effectively serve as seedbeds of Filipino entrepreneurial talents, and integrating those in the informal sector with the mainstream economy, through the rationalization of bureaucratic restrictions, the active intervention of the government specially in the local level, and the granting of incentives and benefits to generate much-needed employment and alleviate poverty.
“Barangay Micro Business Enterprise," hereinafter referred to as BMBE, refers to any business entity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services, whose total assets including those arising from loans but exclusive of the land on which the particular business entity's office, plant and equipment are situated, shall not be more than Three Million Pesos (P3,000,000).
Any person, natural or juridical, or cooperative, or association, having the qualifications of a Barangay Micro Business Enterprise as defined may apply for registration as BMBE.
Procedure for Registration
The following are the procedures when applying for registration as BMBE:
a. an applicant for BMBE shall go to the Office of the Municipal or City Treasurer where the business is located;
b. the applicant shall accomplish BMBE Form 01 in triplicate and submit to the Office of the Municipal or City Treasurer;
c. the Municipal or City Treasurer evaluates the application. Application shall be processed within fifteen (15) working days upon submission of complete documents. Otherwise, the BMBEs shall be deemed registered; and
d. a registered BMBE shall be issued a Certificate of Authority (CA) as proof of registration, which will be effective for a period of two (2) years, renewable for a period of two (2) years for every renewal.
All BMBEs shall be exempted from income tax for income arising from the operation of the enterprise. The Local Government Units (LGUs) are encouraged either to reduce the amount of local taxes, fees and charges imposed or to exempt the BMBE from local taxes, fees and charges.
The BMBEs shall be exempt from the coverage of the Minimum Wage Law: Provided, That all employees covered under the Act shall be entitled to the same benefits given to any regular employee such as social security and healthcare benefits.
Application of the Law
Case: Mrs. Nenita Naidas wishes to put up a resort in the City of Muntinlupa under the name “Nitz Garden and Swimming Pool.” She has a capital of P2.5M for the construction of the swimming pool and other improvements therein. She wants to legally put up her business without going through expensive registration fees and subsequent expenses for labor benefits. Does her business qualify for the BMBE Law?
Legal Opinion: Yes, it is definitely advisable for Mrs. Naidas to register as a Barangay Micro Business Enterprise (BMBE). Under the Barangay Micro Business Enterprises (BMBEs) Act of 2002 (R.A. 9178, July 22, 2002), a registered BMBE shall be exempted from income tax for income arising from the operation of the enterprise. In addition, a registered BMBE shall also be exempted from the coverage of the Minimum Wage Law. In this regard, registration shall be valid for and renewable every two years. A registration fee not exceeding P1,000.00 shall be paid to the local government unit concerned.
Reference:
Department Administrative Order No. 01, Series of 2003, Implementing Rules and Regulations of R.A. 9178, Otherwise Known as the “Barangay Micro Business Enterprises (BMBEs) Act of 2002.”
The Law
The Barangay Micro Business Enterprises (BMBEs) Act of 2002 (R.A. 9178, July 22, 2002) was enacted to hasten the country’s economic development by encouraging the formation and growth of barangay micro business enterprises which effectively serve as seedbeds of Filipino entrepreneurial talents, and integrating those in the informal sector with the mainstream economy, through the rationalization of bureaucratic restrictions, the active intervention of the government specially in the local level, and the granting of incentives and benefits to generate much-needed employment and alleviate poverty.
“Barangay Micro Business Enterprise," hereinafter referred to as BMBE, refers to any business entity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services, whose total assets including those arising from loans but exclusive of the land on which the particular business entity's office, plant and equipment are situated, shall not be more than Three Million Pesos (P3,000,000).
Any person, natural or juridical, or cooperative, or association, having the qualifications of a Barangay Micro Business Enterprise as defined may apply for registration as BMBE.
Procedure for Registration
The following are the procedures when applying for registration as BMBE:
a. an applicant for BMBE shall go to the Office of the Municipal or City Treasurer where the business is located;
b. the applicant shall accomplish BMBE Form 01 in triplicate and submit to the Office of the Municipal or City Treasurer;
c. the Municipal or City Treasurer evaluates the application. Application shall be processed within fifteen (15) working days upon submission of complete documents. Otherwise, the BMBEs shall be deemed registered; and
d. a registered BMBE shall be issued a Certificate of Authority (CA) as proof of registration, which will be effective for a period of two (2) years, renewable for a period of two (2) years for every renewal.
All BMBEs shall be exempted from income tax for income arising from the operation of the enterprise. The Local Government Units (LGUs) are encouraged either to reduce the amount of local taxes, fees and charges imposed or to exempt the BMBE from local taxes, fees and charges.
The BMBEs shall be exempt from the coverage of the Minimum Wage Law: Provided, That all employees covered under the Act shall be entitled to the same benefits given to any regular employee such as social security and healthcare benefits.
Application of the Law
Case: Mrs. Nenita Naidas wishes to put up a resort in the City of Muntinlupa under the name “Nitz Garden and Swimming Pool.” She has a capital of P2.5M for the construction of the swimming pool and other improvements therein. She wants to legally put up her business without going through expensive registration fees and subsequent expenses for labor benefits. Does her business qualify for the BMBE Law?
Legal Opinion: Yes, it is definitely advisable for Mrs. Naidas to register as a Barangay Micro Business Enterprise (BMBE). Under the Barangay Micro Business Enterprises (BMBEs) Act of 2002 (R.A. 9178, July 22, 2002), a registered BMBE shall be exempted from income tax for income arising from the operation of the enterprise. In addition, a registered BMBE shall also be exempted from the coverage of the Minimum Wage Law. In this regard, registration shall be valid for and renewable every two years. A registration fee not exceeding P1,000.00 shall be paid to the local government unit concerned.
Reference:
Department Administrative Order No. 01, Series of 2003, Implementing Rules and Regulations of R.A. 9178, Otherwise Known as the “Barangay Micro Business Enterprises (BMBEs) Act of 2002.”
Friday, November 5, 2010
Loan agreements and stipulations for commercial documents
The following will highlight important stipulations of different commercial documents mentioned. These stipulations will give the reader an overview on how financing institutions (such as banks) shape our developing economy by providing loan accommodation to applicants in need of financial assistance.
I. Promissory Note:
1. Principal amount of the loan. However, except as the Monetary Board may otherwise prescribe for reasons of national interest, the total amount of loans, credit accommodations and guarantees as may be defined by the Monetary Board that may be extended by a bank to a corporation shall at no time exceed twenty percent (20%) of the net worth of such bank.
2. Amount of interest. The amount of the interest that will be charged will be based on the transfer pool rate after considering the cost of money and interest expenses, giving both the lender and the borrower a win-win situation. Based on the current banking practice, the amount of interest would range from 9% to 13% depending on the inflation rates, transfer pool rates and cost of money as determined by the Treasury Department.
3. Authority given to the bank (lender) to set-off from the borrower’s account any existing deposits which he may have in the bank (lender), in order to pay the principal loan in case of default.
4. Amount of attorney’s fees and penalty charges in case the borrower defaults in payment of the principal obligation. This stipulation is intended to protect the interest of the bank (lender) against defaulting corporations.
II. Credit Line Agreement:
1. A voluntary undertaking that the borrower is desirous to obtain credit accommodation from the lender, freely accepting the terms and conditions set forth in the agreement; and that the lender is willing to extend such credit accommodation.
2. Principal amount of the credit line agreement;
3. The kind of credit line that would fit the needs of the borrower. Under the LC/TR Line (Letter of Credit/Trust Receipt) Line, a bank extends to a borrower a loan covered by the letter of credit, with the trust receipt as security of the loan. A trust receipt is a “security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. This is a requirement in case the need of the borrower involves importation of goods. However, this credit line may also be utilized in the export of goods. Of course, the bank gets minimal commission for opening a credit line from the bank and additional commission on the remittances (in case the credit line involves importation of goods). A trust receipt is a requirement in the importation of goods. In the export of goods, the bank may agree on a simple loan agreement with a letter of credit.
4. Collaterals, which may involve bank deposits, chattels or real property;
5. An authority given by the borrower/client to the bank to debit all notes unpaid at maturity from the client’s current account with the bank;
6. The term of the credit line and the interest to be charged for opening a credit line;
7. An authority in favor of the bank to sell properties which were utilized as collaterals, to apply the proceeds thereof to the due and demandable principal loan amount, interest and charges;
8. List of subsidiaries and affiliates of the client which will benefit from the credit line, with an additional stipulation that all the subsidiaries and affiliates will also be solidarily liable with the client;
9. Effectivity of service of correspondences to the client/borrower;
10. A stipulation that the books of the bank concerning the principal amount and computation of the interest shall be conclusive;
11. Attorney’s fees, penalty charges and costs of the suit, in case the bank is compelled to hire the services of counsel to litigate the collection of the principal amount; and
12. Venue in case of litigation.
III. Real Estate Mortgage:
1. The parties in the real estate mortgage;
2. Principal amount of the credit accommodation;
3. Description and list of the real properties subject of the mortgage;
4. A stipulation that the mortgage will also bind the successors in interest of the mortgagor/borrower;
5. A voluntary undertaking that the real property would stand as a security to pay the principal amount of the loan;
6. Payment of expenses in connection with the mortgage, such as the documentary stamp tax, cancellation of the mortgage, notarial fee and taxes assessed on the real property;
7. While the property is in the possession of the mortgagor, an undertaking that all expenses in the repair of the improvements shall be borne by the mortgagor;
8. In case of insolvency by the mortgagor/borrower, an automatic appointment of the bank as receiver to take charge of the property subject of the mortgage;
9. In case of breach of any of the conditions of the mortgage, an automatic appointment of the bank as Attorney-in-Fact to do acts of administration and acts of strict dominion over the mortgaged property;
10. An authority given by the borrower/client to the bank to debit all notes unpaid at maturity from the client’s current account with the bank;
11. Penalty interests, attorney’s fees, and other expenses relative to the foreclosure of the real property;
12. A prohibition that the mortgaged property will not be encumbered, leased and mortgaged without the written consent of the mortgagor;
13. Possibility of changes in the interest rates and bank charges with advance notice to the mortgagor/borrower;
14. A stipulation of the mortgagor’s waiver under Article 13 of Rule 39 of the Rules of Court;
15. A stipulation that the mortgaged property is clean from all prior liens and encumbrances;
16. Signature of the parties and their respective witnesses to the mortgaged contract;
17. The mortgage must be notarized and annotated in the Registry where the real property is located.
III. Chattel Mortgage:
1. Same Stipulations as in the real estate mortgage
2. Affidavit of Good faith - It is an oath wherein the parties “severally 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 just and valid obligation and one not entered into for the purpose of fraud.”
IV. Surety Agreement:
It is customary in the banking institution that at least 51% of the stockholders acquiring a controlling interest in the corporation must sign the surety agreement. In the surety agreement, the signatories will be solidarily liable with the corporation with respect to the credit line granted in favor of the corporation. It is a common banking practice to require the JSS (“Joint and Solidary Signature”) of a major stockholder or corporate officer, as an additional security for loans granted to corporations. There are at least two reasons for this: (1) In case of default, the creditor’s recourse, which is normally limited to the corporate properties under the veil of separate corporate personality, would extend to the personal assets of the surety; (2) Such surety would be compelled to ensure that the loan would be used for the purpose agreed upon, and that it would be paid by the corporation.
Some banks will grant a continuing suretyship agreement with Corporations whom the bank considers as a valued client. The criteria for the grant of the continuing suretyship agreement will be based on the following:
1. Number of years in the business
2. Status in the industry
3. Satisfactory credit.
The continuing surety agreement credit line program will allow corporations to avail of the credit line even before the 6-month waiting period.
V. Trust Receipt:
1. The description of the merchandise with reference to the bill of lading
2. The term of the trust receipt
3. An undertaking of the entrustee that he merely holds the merchandise subject of the trust receipt in trust from the entrustor (bank) and that the entrustee is authorized to sell the goods and apply the proceeds for the full payment of his liability with the bank.
VI. Letter of Credit:
1. A notice that the bank has granted a credit line in favor of the corporation/borrower.
2. Percentage commission for opening a credit line plus commission for the remittances, if any. In the banking sector, this is called the compensating business with the client.
I. Promissory Note:
1. Principal amount of the loan. However, except as the Monetary Board may otherwise prescribe for reasons of national interest, the total amount of loans, credit accommodations and guarantees as may be defined by the Monetary Board that may be extended by a bank to a corporation shall at no time exceed twenty percent (20%) of the net worth of such bank.
2. Amount of interest. The amount of the interest that will be charged will be based on the transfer pool rate after considering the cost of money and interest expenses, giving both the lender and the borrower a win-win situation. Based on the current banking practice, the amount of interest would range from 9% to 13% depending on the inflation rates, transfer pool rates and cost of money as determined by the Treasury Department.
3. Authority given to the bank (lender) to set-off from the borrower’s account any existing deposits which he may have in the bank (lender), in order to pay the principal loan in case of default.
4. Amount of attorney’s fees and penalty charges in case the borrower defaults in payment of the principal obligation. This stipulation is intended to protect the interest of the bank (lender) against defaulting corporations.
II. Credit Line Agreement:
1. A voluntary undertaking that the borrower is desirous to obtain credit accommodation from the lender, freely accepting the terms and conditions set forth in the agreement; and that the lender is willing to extend such credit accommodation.
2. Principal amount of the credit line agreement;
3. The kind of credit line that would fit the needs of the borrower. Under the LC/TR Line (Letter of Credit/Trust Receipt) Line, a bank extends to a borrower a loan covered by the letter of credit, with the trust receipt as security of the loan. A trust receipt is a “security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. This is a requirement in case the need of the borrower involves importation of goods. However, this credit line may also be utilized in the export of goods. Of course, the bank gets minimal commission for opening a credit line from the bank and additional commission on the remittances (in case the credit line involves importation of goods). A trust receipt is a requirement in the importation of goods. In the export of goods, the bank may agree on a simple loan agreement with a letter of credit.
4. Collaterals, which may involve bank deposits, chattels or real property;
5. An authority given by the borrower/client to the bank to debit all notes unpaid at maturity from the client’s current account with the bank;
6. The term of the credit line and the interest to be charged for opening a credit line;
7. An authority in favor of the bank to sell properties which were utilized as collaterals, to apply the proceeds thereof to the due and demandable principal loan amount, interest and charges;
8. List of subsidiaries and affiliates of the client which will benefit from the credit line, with an additional stipulation that all the subsidiaries and affiliates will also be solidarily liable with the client;
9. Effectivity of service of correspondences to the client/borrower;
10. A stipulation that the books of the bank concerning the principal amount and computation of the interest shall be conclusive;
11. Attorney’s fees, penalty charges and costs of the suit, in case the bank is compelled to hire the services of counsel to litigate the collection of the principal amount; and
12. Venue in case of litigation.
III. Real Estate Mortgage:
1. The parties in the real estate mortgage;
2. Principal amount of the credit accommodation;
3. Description and list of the real properties subject of the mortgage;
4. A stipulation that the mortgage will also bind the successors in interest of the mortgagor/borrower;
5. A voluntary undertaking that the real property would stand as a security to pay the principal amount of the loan;
6. Payment of expenses in connection with the mortgage, such as the documentary stamp tax, cancellation of the mortgage, notarial fee and taxes assessed on the real property;
7. While the property is in the possession of the mortgagor, an undertaking that all expenses in the repair of the improvements shall be borne by the mortgagor;
8. In case of insolvency by the mortgagor/borrower, an automatic appointment of the bank as receiver to take charge of the property subject of the mortgage;
9. In case of breach of any of the conditions of the mortgage, an automatic appointment of the bank as Attorney-in-Fact to do acts of administration and acts of strict dominion over the mortgaged property;
10. An authority given by the borrower/client to the bank to debit all notes unpaid at maturity from the client’s current account with the bank;
11. Penalty interests, attorney’s fees, and other expenses relative to the foreclosure of the real property;
12. A prohibition that the mortgaged property will not be encumbered, leased and mortgaged without the written consent of the mortgagor;
13. Possibility of changes in the interest rates and bank charges with advance notice to the mortgagor/borrower;
14. A stipulation of the mortgagor’s waiver under Article 13 of Rule 39 of the Rules of Court;
15. A stipulation that the mortgaged property is clean from all prior liens and encumbrances;
16. Signature of the parties and their respective witnesses to the mortgaged contract;
17. The mortgage must be notarized and annotated in the Registry where the real property is located.
III. Chattel Mortgage:
1. Same Stipulations as in the real estate mortgage
2. Affidavit of Good faith - It is an oath wherein the parties “severally 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 just and valid obligation and one not entered into for the purpose of fraud.”
IV. Surety Agreement:
It is customary in the banking institution that at least 51% of the stockholders acquiring a controlling interest in the corporation must sign the surety agreement. In the surety agreement, the signatories will be solidarily liable with the corporation with respect to the credit line granted in favor of the corporation. It is a common banking practice to require the JSS (“Joint and Solidary Signature”) of a major stockholder or corporate officer, as an additional security for loans granted to corporations. There are at least two reasons for this: (1) In case of default, the creditor’s recourse, which is normally limited to the corporate properties under the veil of separate corporate personality, would extend to the personal assets of the surety; (2) Such surety would be compelled to ensure that the loan would be used for the purpose agreed upon, and that it would be paid by the corporation.
Some banks will grant a continuing suretyship agreement with Corporations whom the bank considers as a valued client. The criteria for the grant of the continuing suretyship agreement will be based on the following:
1. Number of years in the business
2. Status in the industry
3. Satisfactory credit.
The continuing surety agreement credit line program will allow corporations to avail of the credit line even before the 6-month waiting period.
V. Trust Receipt:
1. The description of the merchandise with reference to the bill of lading
2. The term of the trust receipt
3. An undertaking of the entrustee that he merely holds the merchandise subject of the trust receipt in trust from the entrustor (bank) and that the entrustee is authorized to sell the goods and apply the proceeds for the full payment of his liability with the bank.
VI. Letter of Credit:
1. A notice that the bank has granted a credit line in favor of the corporation/borrower.
2. Percentage commission for opening a credit line plus commission for the remittances, if any. In the banking sector, this is called the compensating business with the client.
Commercial documents necessary for loan availment by companies
First, let us define some of the terms in line with the commercial documents which are necessary in the processing of loan availments:
Loan – it is a transaction wherein the owner of the property, called the LENDER, allows another party, the BORROWER, to use the property. The borrower customarily promises to return the property after a specified period with payment for its use, called INTEREST. The documentation of the promise is called a PROMISSORY NOTE when the property is cash.
Collateral -- ASSET pledged to a lender until the loan is repaid. If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan.
Letter of credit – (L/C) An instrument or document issued by a bank guaranteeing the payment of a customer’s draft up to a stated amount for a specified period. It substitutes the bank’s credit for the buyer and eliminates the seller’s risk. A “confirmed letter of credit” is provided by a correspondent bank and guaranteed by the issuing bank. A “commercial letter of credit” is normally drawn in favor of a third party, called the beneficiary.
Trust Receipt – A commercial document whereby the bank releases the goods in the possession of the entrustee but retains ownership thereof while the entrustee shall sell the goods and apply the proceeds for the full payment of his liability with the bank. It is a security arrangement to which a bank acquired ownership of the imported personal property . It is a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.
The failure of the entrustee to return the goods covered by the trust receipt or of the proceeds from the sale thereof shall constitute the crime of estafa.
Promissory note – It is a written promise committing the maker to pay the payee a specified sum of money either on demand or at a fixed or determinable future date, with or without interest.
Mortgage – A debt instrument by which the borrower (mortgagor) gives the lender (mortgagee) a lien on the property as security for the repayment of a loan. The borrower has use of the property, and the lien is removed when the obligation is fully paid. A mortgage normally involves real estate which is called Real Estate Mortgage. For personal property, such as machines, equipment, or tools, the lien is called a chattel mortgage.
Credit – that which is extended to a buyer or borrower on the seller or lender’s belief that that which is given will be repaid. The document evidencing the credit line given to a borrower is called Credit line agreement.
Surety – one who undertakes to pay money or perform other acts in the event the principal fails to do so; A surety is directly and immediately liable for the debt. The document evidencing such is called a surety agreement.
Deposits- Cash, checks or drafts placed with a financial institution for credit to a customer’s account.
The following are the commercial documents which are usually necessary and required in the processing of loan availment in favor of the borrower (corporation):
1. Promissory Note --
2. Credit Line Agreement
3. Real Estate Mortgage
4. Chattel Mortgage
5. Surety Agreement
6. Letter of Credit
7. Trust Receipt
As part of the regulation of the government, the bank (a person extending “credit” must give the debtor (borrower) in writing, a recital of the following upon extending a loan:
1. Cash price;
2. Amount credited if on installment price;
3. Difference between cash and installment price; and
4. Recital of finance charges and what these charges bear to the amount to be financed in percentage.
There are additional charges imposed for the application of loan such as notarial fees, insurance fees, documentary stamp tax, and handling fees. Non-compliance would authorize the debtor to recover any interest payment made.
Loan – it is a transaction wherein the owner of the property, called the LENDER, allows another party, the BORROWER, to use the property. The borrower customarily promises to return the property after a specified period with payment for its use, called INTEREST. The documentation of the promise is called a PROMISSORY NOTE when the property is cash.
Collateral -- ASSET pledged to a lender until the loan is repaid. If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan.
Letter of credit – (L/C) An instrument or document issued by a bank guaranteeing the payment of a customer’s draft up to a stated amount for a specified period. It substitutes the bank’s credit for the buyer and eliminates the seller’s risk. A “confirmed letter of credit” is provided by a correspondent bank and guaranteed by the issuing bank. A “commercial letter of credit” is normally drawn in favor of a third party, called the beneficiary.
Trust Receipt – A commercial document whereby the bank releases the goods in the possession of the entrustee but retains ownership thereof while the entrustee shall sell the goods and apply the proceeds for the full payment of his liability with the bank. It is a security arrangement to which a bank acquired ownership of the imported personal property . It is a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.
The failure of the entrustee to return the goods covered by the trust receipt or of the proceeds from the sale thereof shall constitute the crime of estafa.
Promissory note – It is a written promise committing the maker to pay the payee a specified sum of money either on demand or at a fixed or determinable future date, with or without interest.
Mortgage – A debt instrument by which the borrower (mortgagor) gives the lender (mortgagee) a lien on the property as security for the repayment of a loan. The borrower has use of the property, and the lien is removed when the obligation is fully paid. A mortgage normally involves real estate which is called Real Estate Mortgage. For personal property, such as machines, equipment, or tools, the lien is called a chattel mortgage.
Credit – that which is extended to a buyer or borrower on the seller or lender’s belief that that which is given will be repaid. The document evidencing the credit line given to a borrower is called Credit line agreement.
Surety – one who undertakes to pay money or perform other acts in the event the principal fails to do so; A surety is directly and immediately liable for the debt. The document evidencing such is called a surety agreement.
Deposits- Cash, checks or drafts placed with a financial institution for credit to a customer’s account.
The following are the commercial documents which are usually necessary and required in the processing of loan availment in favor of the borrower (corporation):
1. Promissory Note --
2. Credit Line Agreement
3. Real Estate Mortgage
4. Chattel Mortgage
5. Surety Agreement
6. Letter of Credit
7. Trust Receipt
As part of the regulation of the government, the bank (a person extending “credit” must give the debtor (borrower) in writing, a recital of the following upon extending a loan:
1. Cash price;
2. Amount credited if on installment price;
3. Difference between cash and installment price; and
4. Recital of finance charges and what these charges bear to the amount to be financed in percentage.
There are additional charges imposed for the application of loan such as notarial fees, insurance fees, documentary stamp tax, and handling fees. Non-compliance would authorize the debtor to recover any interest payment made.
Requirements of banks for loan accommodation
Generally, the loan accommodation given to entities are based on the latter’s needs in business. In this regard, the needs will be based on the nature of the business as assessed by the bank. In the usual banking practice, the following are the pre-qualifying documents which are required by the bank before a loan will be extended:
I. Collateral – Accepted collaterals may be in the form of real property, chattels (machineries or fixtures), placements and deposits of the bank.
a) Real property – this is the most secured interest which is regularly accepted by banks as collateral. In case the loan will be approved on the basis of the real property as collateral, the bank will usually grant loan which is equivalent to 60% of the value of the property as assessed by an internal appraiser of the bank. In case the property has improvements, such as building, the real property must be insured against fire.
Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations against real estate shall not exceed 75% of the appraised value of the respective real estate security, plus 60% of the appraised value of the insured improvements, and such loans may be made to the owner of the real estate or to his assignees.
b) Chattels – this is also considered as an accepted secured interest. However, corporations are discouraged to offer chattels as collaterals as these do not have long-term value, unlike real property which increases in value every year. In case the loan will be approved on the basis of the chattel as collateral, the bank will usually grant loan which is equivalent to 50% of the value of the property as assessed by an internal appraiser of the bank.
Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations on security of chattels and intangible properties such as, but not limited to, patents, trademarks, trade names, and copyrights shall not exceed 75% of the appraised value of the security, and such loans and other credit accommodations may be made to the title-holder of the chattels and intangible properties or his assignees.
c) Deposits – this is the most convenient collateral which can be offered by the borrower to the lender. In case the loan will be approved on the basis of the existing deposits as collateral, the bank will grant the loan which is equivalent to 90%-100% of the deposit.
II. Articles of the Incorporation, By-laws, SEC Certificate of Incorporation - This will inform the bank of the borrower’s background, including the company history, nature of its business, products being offered, and the company’s ownership/management.
III. Financial statements for the past two (2) to three (3) years – These documents determine the financial standing of the entity. Cash flows will be reviewed to determine whether the entity is able to cover short term and long term debts. This is based on Section 40 of the General Banking Law of 2000 wherein the bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. The bank will usually request the applicant to wait for six (6) months to determine whether the applicant is qualified for the loan accommodation or not. The six-month period will provide time for the bank to make an appraisal of the property being offered as collateral and provide a credit investigation of the company through plant visits and research.
It is customary in all banking institutions to execute a credit investigation report wherein it will provide the bank with facts to determine whether the applicant is financially qualified to be given a loan accommodation. The credit investigation report is considered an internal confidential document which must not be furnished to the client.
Nevertheless, the loan accommodation will be based on the value of the collaterals as appraised by the bank (lender).
I. Collateral – Accepted collaterals may be in the form of real property, chattels (machineries or fixtures), placements and deposits of the bank.
a) Real property – this is the most secured interest which is regularly accepted by banks as collateral. In case the loan will be approved on the basis of the real property as collateral, the bank will usually grant loan which is equivalent to 60% of the value of the property as assessed by an internal appraiser of the bank. In case the property has improvements, such as building, the real property must be insured against fire.
Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations against real estate shall not exceed 75% of the appraised value of the respective real estate security, plus 60% of the appraised value of the insured improvements, and such loans may be made to the owner of the real estate or to his assignees.
b) Chattels – this is also considered as an accepted secured interest. However, corporations are discouraged to offer chattels as collaterals as these do not have long-term value, unlike real property which increases in value every year. In case the loan will be approved on the basis of the chattel as collateral, the bank will usually grant loan which is equivalent to 50% of the value of the property as assessed by an internal appraiser of the bank.
Except as the Monetary Board may otherwise prescribe, loans and other credit accommodations on security of chattels and intangible properties such as, but not limited to, patents, trademarks, trade names, and copyrights shall not exceed 75% of the appraised value of the security, and such loans and other credit accommodations may be made to the title-holder of the chattels and intangible properties or his assignees.
c) Deposits – this is the most convenient collateral which can be offered by the borrower to the lender. In case the loan will be approved on the basis of the existing deposits as collateral, the bank will grant the loan which is equivalent to 90%-100% of the deposit.
II. Articles of the Incorporation, By-laws, SEC Certificate of Incorporation - This will inform the bank of the borrower’s background, including the company history, nature of its business, products being offered, and the company’s ownership/management.
III. Financial statements for the past two (2) to three (3) years – These documents determine the financial standing of the entity. Cash flows will be reviewed to determine whether the entity is able to cover short term and long term debts. This is based on Section 40 of the General Banking Law of 2000 wherein the bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. The bank will usually request the applicant to wait for six (6) months to determine whether the applicant is qualified for the loan accommodation or not. The six-month period will provide time for the bank to make an appraisal of the property being offered as collateral and provide a credit investigation of the company through plant visits and research.
It is customary in all banking institutions to execute a credit investigation report wherein it will provide the bank with facts to determine whether the applicant is financially qualified to be given a loan accommodation. The credit investigation report is considered an internal confidential document which must not be furnished to the client.
Nevertheless, the loan accommodation will be based on the value of the collaterals as appraised by the bank (lender).
Role of Banks in Financing
The General Banking Law of 2000 (Republic Act 8791) was enacted based on the following State Policy:
“The State recognizes:
"1. The vital role of banks in providing an environment conducive to the sustained development of the national economy; and
"2. The fiduciary nature of banks that requires high standards of integrity and performance;
“In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy.
The term “bank” generally is a corporation formed for the purposes of maintaining savings account and checking accounts, issuing loans and credit, and dealing in negotiable securities issued by governmental entities and corporations. Banks earn money by investing their customers’ deposits. In order to protect the customers against loss, banks are strictly regulated by the Bangko Sentral ng Pilipinas.
Loan stipulations between entities and banks are regulated by the General Banking Law of 2000. However, the parties are free to stipulate additional clauses, terms and provisions as they may seem convenient, provided these stipulations are not contrary to law (i.e. General Banking Law of 2000), morals, good customs, public order and public policy.
The diligence required in banks before granting loans to prospective applicants has been enunciated by the Supreme Court in the following cases:
a) Citibank N.A. vs. Spouses Cabamongan, et al, G.R. 146918, May 2, 2006. “x x x since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence, [Bank of the Philippine Islands vs. Court of Appeals, 383 Phil. 538, 554 (2000); Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667, 681 (1997)] is expected, and high standards of integrity and performance are even required of it. [Sec. 2 of Republic Act 8791, otherwise known as “The General Banking Law of 2000”] By the nature of its functions, a bank is ‘under obligation to treat the accounts of its depositors with meticulous care, [Westmont Bank vs. Ong, G.R. No. 132560, January 30, 2002, 375 SCRA 212,221; Citytrust Banking Corp. v. Intermediate Appellate Court, May 27, 1994, 232 SCRA 559, 564.] always having in mind the fiduciary nature of their relationship. [Simex International (Manila), Inc. Court of Appeals, March 19, 1990, 183 SCRA 360, 367].
b) Development Bank vs. Court of Appeals, 331 SCRA 267 (2000). “While an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title, in the case of a banking institution, it must exercise due diligence before entering into said contract, and cannot rely upon what is or is not annotated on the title. Judicial notice is taken of the standards practiced for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are the real owners thereof.
c) Ibaan Rural Bank vs. Court of Appeals, 321 SCRA 88 (2000). “Banks, being greatly affected with public interest, are expected to exercise a degree of diligence in the handling of its affairs higher than expected of an ordinary business firm.”
Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank.
More of these on my next blog where I will give you insights on the different loan stipulations and agreements being done by banks in the Philippines.
“The State recognizes:
"1. The vital role of banks in providing an environment conducive to the sustained development of the national economy; and
"2. The fiduciary nature of banks that requires high standards of integrity and performance;
“In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy.
The term “bank” generally is a corporation formed for the purposes of maintaining savings account and checking accounts, issuing loans and credit, and dealing in negotiable securities issued by governmental entities and corporations. Banks earn money by investing their customers’ deposits. In order to protect the customers against loss, banks are strictly regulated by the Bangko Sentral ng Pilipinas.
Loan stipulations between entities and banks are regulated by the General Banking Law of 2000. However, the parties are free to stipulate additional clauses, terms and provisions as they may seem convenient, provided these stipulations are not contrary to law (i.e. General Banking Law of 2000), morals, good customs, public order and public policy.
The diligence required in banks before granting loans to prospective applicants has been enunciated by the Supreme Court in the following cases:
a) Citibank N.A. vs. Spouses Cabamongan, et al, G.R. 146918, May 2, 2006. “x x x since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence, [Bank of the Philippine Islands vs. Court of Appeals, 383 Phil. 538, 554 (2000); Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667, 681 (1997)] is expected, and high standards of integrity and performance are even required of it. [Sec. 2 of Republic Act 8791, otherwise known as “The General Banking Law of 2000”] By the nature of its functions, a bank is ‘under obligation to treat the accounts of its depositors with meticulous care, [Westmont Bank vs. Ong, G.R. No. 132560, January 30, 2002, 375 SCRA 212,221; Citytrust Banking Corp. v. Intermediate Appellate Court, May 27, 1994, 232 SCRA 559, 564.] always having in mind the fiduciary nature of their relationship. [Simex International (Manila), Inc. Court of Appeals, March 19, 1990, 183 SCRA 360, 367].
b) Development Bank vs. Court of Appeals, 331 SCRA 267 (2000). “While an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title, in the case of a banking institution, it must exercise due diligence before entering into said contract, and cannot rely upon what is or is not annotated on the title. Judicial notice is taken of the standards practiced for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are the real owners thereof.
c) Ibaan Rural Bank vs. Court of Appeals, 321 SCRA 88 (2000). “Banks, being greatly affected with public interest, are expected to exercise a degree of diligence in the handling of its affairs higher than expected of an ordinary business firm.”
Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank.
More of these on my next blog where I will give you insights on the different loan stipulations and agreements being done by banks in the Philippines.
Sunday, October 10, 2010
Credit Default Swaps (Part 2)
In a CDS transaction, the borrower seeks to obtain a loan from the protection buyer in a CDS. For protection, the protection buyer avails of the CDS by paying a default protection fee from a protection seller based on tradable CDS Index. The borrower can be a private entity or a government (for sovereign debts). The borrower pays interest to the protection buyer for his loan using the LIBOR (London Interbank Offered Rate). The borrower should repay the loan to the protection buyer upon maturity date. In case of default of the borrower, the protection buyer will seek recovery from the protection seller. There are two kinds of settlement to be done by the protection seller depending on the agreement: Physical settlement and Cash Settlement. If a physically-settled CDS is triggered, the protection seller pays the face value of the debt (or another pre-specified amount) to the protection buyer in exchange for the debt itself, which would be worth less than face value given the recent credit event. Triggering a cash-settled CDS would require the protection seller to make a payment to the protection buyer of the difference between the original value of the debt (typically the face value) and the current value of the debt based on a specified valuation method.
Innovation and Current Trends of the CDS
There is a need to place clear and unambiguous terms of “credit event” and “reference entity” in the contract. The ISDA, International Swaps and Derivatives Association, sets standards for all derivative contracts.
In the case of in Ursa Minor Ltd. v. Aon Fin. Prods., Inc., 2000 WL 1010278 (S.D.N.Y. 2000) , Escobel Land Inc. (a company in the Philippines), obtained a $10M loan from Bear Stearns for the construction of condominiums in the Philippines. Escobel also secured a surety bond from Government Service Insurance System ("GSIS"), a Philippines government entity, which guaranteed Escobel's payment to Bear Stearns (BS). BS in turn obtained 1) a CDS from Aon Financial Products Limited ("Aon") as well as 2) an unconditional guarantee ("Guarantee") from Aon Corporation ("Aon") “for whatever reason or cause,” together promising to pay BSIL $10 million plus expenses if GSIS failed to satisfy its obligations under the surety bond. To reduce its own exposure, Aon entered into its own CDS agreement with Société Générale ("SG"), wherein SG agreed to pay Aon upon the occurrence of a defined "credit event," which is default of the Republic of the Philippines or any of its successors.” When Escobel's payment under its BS loan came due, Escobel failed to pay, triggering a demand on GSIS. GSIS refused, arguing that the surety bond might not be enforceable against GSIS because the GSIS representative who supposedly assigned the bond to BS did not have the authority, and because GSIS already had canceled the bond after discovering the collateral that Escobel had offered to secure the bond was not genuine. Due to GSIS' refusal to pay, BS was able to recover from its CDS with Aon agreeing to cover GSIS' default "'for whatever reason or cause," even if the underlying obligation was illegal or invalid.
By this reason, Aon sought to recover from SG based on the same credit event and by its reference entity, which is default of GSIS which is a successor or agency of the Republic of the Philippines. Unfortunately, Aon was not able to recover from SG because the basis or reference entity, the default of GSIS was held not to be a default of the Republic of the Philippines. The GSIS was held not to be a government of the Republic of the Philippines, being a separate entity altogether.
In the case of Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co., 2003 WL 21305355 (S.D.N.Y.), Argentina obtained a loan from Eternity Global in turn obtained a CDS from JP Morgan for a guarantee and promise to pay Eternity Global in case of Argentina’s bankruptcy or default in payment. Subsequently, Argentina sought a “voluntary debt exchange” by exchanging its debts to other foreign bonds in order to minimize payment of interests. By this reason, Eternity Global sought to recover from JP Morgan by reason of such “voluntary debt exchange”. It was held that Eternity Global cannot recover from the CDS because a “voluntary debt exchange program” does not constitute a term for bankruptcy or default in payment.
Another innovation in the over the counter CDS market is the reduction of the notional amount of CDS through a series a portfolio compression cycles, also known as tear-ups (according to ISDA) and has reduced operational, legal and capital costs and improved efficiency of the CDS market. Portfolio compression reduces the number of line items in CDS portfolios without changing the risk parameters of the portfolio. It is done by terminating existing trades and replacing them with smaller number of trades with the same risk profile and cash flows as initial portfolio.
CDS contracts are subject to clearing house rules and regulations. In the US, the Depository Trust and Clearing Corporation (DTCC), considering one of the world’s largest clearing houses.
REFERENCES:
Mike Jakola, Kellog School of Management, Northwestern University, Credit Default Swaps Index Options, June 2, 2006.
“Central Clearinghouse Planned to reduce Counterparty Risk in Credit Default Swaps Market,” Global Finance, July-August 2008.
“Credit Default Swaps Market Outstandings Shrinks as Dealers Tear-up Offsetting Agreements,” Global Finance, December 2008.
“Credit Default Swaps 101: A Primer on Legal Remedies,” Robins, Kaplan, Miller & Ciresi, February 16, 2009 (i.e. visit www.google.com)
“Credit Default Swaps: The Next Crisis?” by Janet Morrissey, March 17, 2008, (i.e. Search time.com)
Innovation and Current Trends of the CDS
There is a need to place clear and unambiguous terms of “credit event” and “reference entity” in the contract. The ISDA, International Swaps and Derivatives Association, sets standards for all derivative contracts.
In the case of in Ursa Minor Ltd. v. Aon Fin. Prods., Inc., 2000 WL 1010278 (S.D.N.Y. 2000) , Escobel Land Inc. (a company in the Philippines), obtained a $10M loan from Bear Stearns for the construction of condominiums in the Philippines. Escobel also secured a surety bond from Government Service Insurance System ("GSIS"), a Philippines government entity, which guaranteed Escobel's payment to Bear Stearns (BS). BS in turn obtained 1) a CDS from Aon Financial Products Limited ("Aon") as well as 2) an unconditional guarantee ("Guarantee") from Aon Corporation ("Aon") “for whatever reason or cause,” together promising to pay BSIL $10 million plus expenses if GSIS failed to satisfy its obligations under the surety bond. To reduce its own exposure, Aon entered into its own CDS agreement with Société Générale ("SG"), wherein SG agreed to pay Aon upon the occurrence of a defined "credit event," which is default of the Republic of the Philippines or any of its successors.” When Escobel's payment under its BS loan came due, Escobel failed to pay, triggering a demand on GSIS. GSIS refused, arguing that the surety bond might not be enforceable against GSIS because the GSIS representative who supposedly assigned the bond to BS did not have the authority, and because GSIS already had canceled the bond after discovering the collateral that Escobel had offered to secure the bond was not genuine. Due to GSIS' refusal to pay, BS was able to recover from its CDS with Aon agreeing to cover GSIS' default "'for whatever reason or cause," even if the underlying obligation was illegal or invalid.
By this reason, Aon sought to recover from SG based on the same credit event and by its reference entity, which is default of GSIS which is a successor or agency of the Republic of the Philippines. Unfortunately, Aon was not able to recover from SG because the basis or reference entity, the default of GSIS was held not to be a default of the Republic of the Philippines. The GSIS was held not to be a government of the Republic of the Philippines, being a separate entity altogether.
In the case of Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co., 2003 WL 21305355 (S.D.N.Y.), Argentina obtained a loan from Eternity Global in turn obtained a CDS from JP Morgan for a guarantee and promise to pay Eternity Global in case of Argentina’s bankruptcy or default in payment. Subsequently, Argentina sought a “voluntary debt exchange” by exchanging its debts to other foreign bonds in order to minimize payment of interests. By this reason, Eternity Global sought to recover from JP Morgan by reason of such “voluntary debt exchange”. It was held that Eternity Global cannot recover from the CDS because a “voluntary debt exchange program” does not constitute a term for bankruptcy or default in payment.
Another innovation in the over the counter CDS market is the reduction of the notional amount of CDS through a series a portfolio compression cycles, also known as tear-ups (according to ISDA) and has reduced operational, legal and capital costs and improved efficiency of the CDS market. Portfolio compression reduces the number of line items in CDS portfolios without changing the risk parameters of the portfolio. It is done by terminating existing trades and replacing them with smaller number of trades with the same risk profile and cash flows as initial portfolio.
CDS contracts are subject to clearing house rules and regulations. In the US, the Depository Trust and Clearing Corporation (DTCC), considering one of the world’s largest clearing houses.
REFERENCES:
Mike Jakola, Kellog School of Management, Northwestern University, Credit Default Swaps Index Options, June 2, 2006.
“Central Clearinghouse Planned to reduce Counterparty Risk in Credit Default Swaps Market,” Global Finance, July-August 2008.
“Credit Default Swaps Market Outstandings Shrinks as Dealers Tear-up Offsetting Agreements,” Global Finance, December 2008.
“Credit Default Swaps 101: A Primer on Legal Remedies,” Robins, Kaplan, Miller & Ciresi, February 16, 2009 (i.e. visit www.google.com)
“Credit Default Swaps: The Next Crisis?” by Janet Morrissey, March 17, 2008, (i.e. Search time.com)
Credit Default Swaps (Part 1)
Credit default swaps are a financial instrument used to transfer and mitigate the risk of credit exposure. They are a bilateral contract between the buyer, who purchases protection of the credit risk, and the seller, who provides protection.
A credit default swap (CDS) is a contract between two parties where a protection buyer pays a premium to the protection seller in exchange for a payment if a credit event occurs to a reference entity. CDS are customizable, over-the-counter products and can be written to trigger in the event of bankruptcy, default, failure to pay, restructuring, or any other credit event of the reference entity. "Credit event" will usually determine whether the protection buyer has reason to demand payment from the protection seller. "Reference entity," which is the entity whose obligation is the subject of the swap.
Credit default swaps are a type of credit derivative that can be used to function as a sort of insurance or hedge against an existing investment. Credit default swaps are the largest type of credit derivative in terms of trading volume.
The CDS market has grown $180 billion in 1997; By 2004 it has grown to $5 trillion; In the 2006, $17 trillion; In 2010, it has an annual business of $70 trillion (notional amount).
As the CDS market increased in importance, tradable CDS indexes arose to allow players to trade a broader spectrum of credits at a lower cost and in a more liquid market (i.e. Dow Jones CDX and International Index Company Itraxx). The composition of each index is determined by member banks and a particular name remains in the index until the CDS is triggered due to a credit event. A new index is formed periodically but each incarnation of the index shares the majority of its names with the previous index. The member banks that help compose and price the index include sixteen major international banks. Each of the member banks makes a market in the CDS index and it is freely tradable with low bid-ask spreads of ½ to ¼ of a basis point. It pays the seller a premium relative to the amount of the debt obligation being covered—typically calculated by multiplying the principal amount by a number of basis points—called the spread—whose value is determined by the credit-worthiness of the third party.
Unlike hedging with less risky bonds which requires a cash outlay upfront, CDS do not subject the buyer to interest rate risk or funding risk. CDS allow hedgers or speculators to take an unfunded position solely on credit risk. The market originally started as an inter-bank market to exchange credit risk without selling the underlying loans but now involves financial institutions from insurance companies to hedge funds.
The ISDA, International Swaps and Derivatives Association, sets standards for all derivative contracts.
A credit default swap (CDS) is a contract between two parties where a protection buyer pays a premium to the protection seller in exchange for a payment if a credit event occurs to a reference entity. CDS are customizable, over-the-counter products and can be written to trigger in the event of bankruptcy, default, failure to pay, restructuring, or any other credit event of the reference entity. "Credit event" will usually determine whether the protection buyer has reason to demand payment from the protection seller. "Reference entity," which is the entity whose obligation is the subject of the swap.
Credit default swaps are a type of credit derivative that can be used to function as a sort of insurance or hedge against an existing investment. Credit default swaps are the largest type of credit derivative in terms of trading volume.
The CDS market has grown $180 billion in 1997; By 2004 it has grown to $5 trillion; In the 2006, $17 trillion; In 2010, it has an annual business of $70 trillion (notional amount).
As the CDS market increased in importance, tradable CDS indexes arose to allow players to trade a broader spectrum of credits at a lower cost and in a more liquid market (i.e. Dow Jones CDX and International Index Company Itraxx). The composition of each index is determined by member banks and a particular name remains in the index until the CDS is triggered due to a credit event. A new index is formed periodically but each incarnation of the index shares the majority of its names with the previous index. The member banks that help compose and price the index include sixteen major international banks. Each of the member banks makes a market in the CDS index and it is freely tradable with low bid-ask spreads of ½ to ¼ of a basis point. It pays the seller a premium relative to the amount of the debt obligation being covered—typically calculated by multiplying the principal amount by a number of basis points—called the spread—whose value is determined by the credit-worthiness of the third party.
Unlike hedging with less risky bonds which requires a cash outlay upfront, CDS do not subject the buyer to interest rate risk or funding risk. CDS allow hedgers or speculators to take an unfunded position solely on credit risk. The market originally started as an inter-bank market to exchange credit risk without selling the underlying loans but now involves financial institutions from insurance companies to hedge funds.
The ISDA, International Swaps and Derivatives Association, sets standards for all derivative contracts.
Balance of Payment (Part 2)
IV. Methodology
The BOP Methodology Uses a double-entry accounting system. This means that every recorded item should have a debit and a credit, and there should be a net balance of zero.
Balance of Payments credits (act of making an entry) denote increases in liabilities, owners’ equity, revenue and gains; and decreases assets and expenses; debits denote decreases in liabilities, owners’ equity, revenue and gains; and increases in assets and expenses.
The ideal balance of payment should be:
Current Account = Capital Account+ Financial Account
In practice, however, the accounts frequently do not balance. Data for balance of payments estimates often are derived independently from different sources. As a result, there may be a summary net credit or net debit (i.e., net errors and omissions in the accounts). A separate balancing item is used to offset the credit or debit. In our country we call it NET UNCLASSIFIED ITEMS.
Hence:
Current Account= Capital Account+Financial Account (+ - Net Unclassified Items or Balancing Items)
NET UNCLASSIFIED ITEMS (or errors and ommissions) is an offsetting account to bring above-the-line and below-the-line into balance. A positive discrepancy denotes an understatement of receipts and/or overstatement of payments. Conversely, a negative entry denotes an overstatement of receipts and/or understatement of payment.
This separate entry, equal to that amount with the sign reversed, is then made to balance the accounts. Because inaccurate or missing estimates may be offsetting, the size of the net residual cannot be taken as an indicator of the relative accuracy of the balance of payments statement. Nonetheless, a large, persistent residual that is not reversed should cause concern. Such a residual impedes analysis or interpretation of estimates and diminishes the credibility of both. A large net residual may also have implications for interpretation of the investment position statement.
V. Standard Components of the Balance of Payment (BOP)
The following are the Standard components of the BOP:
Current Account which includes goods and services; income; and current transfer
Capital Account and Financial Account (Capital transfer is included in this component which includes debt forgiveness of nonresidents and donations of fixed assets by one econony to another economy. This also includes taxes on capital transfers like gift tax, estate tax)
Current Account
It covers import and export of goods and services. Goods which involves:
General merchandise
Goods for processing
Goods procured in ports by carriers
Non monetary gold
Services involves:
Transportation
Travel
Communication services
Construction services
Insurance services
Financial services
Computer and information Services
Royalties and license fees
Other business services
Personal, cultural and recreational services
Government services
Another classification under Current Account is Income which includes compensation for employees and investment income. Investment income consists of direct investment income, portfolio investment income and other investment income.
Another classification under Current Account is Current Transfer – transfers where no quid pro quo (economic value) is placed. It is classified as a current transfer when it directly affect the level of disposable income and should influence the consumption of goods or services. That is, current transfers reduce the income and consumption possibilities of the donor and increase the income and consumption possibilities of the recipient.
Included in the Current Transfer are:
cash transfers effected between governments for the purpose of financing current expenditures by the recipient government
gifts of food, clothing, other consumer goods associated with relief efforts
Gifts of certain military equipment
Annual contributions made by member governments to international organizations
Payments made by government or international organizations to governments for salaries for technical assistance.
Workers’ remittances (migrants who stay in an economy for a year or more)
Capital Account and Financial Account
Capital account covers all transactions that involve the receipt or payment of capital transfers and acquisition or disposal of nonproduced, nonfinancial assets.
The financial account covers all transactions associated with changes of ownership in the foreign financial assets and liabilities of an economy. Such changes include the creation and liquidation of claims on, or by, the rest of the world.
The foreign financial assets of an economy consist of holdings of monetary gold, SDRs (Special Drawing Rights), and claims on nonresidents. The foreign liabilities of an economy consist of indebtedness to nonresidents.
Components of the Financial Account as a Functional Type
The following are the components of the Financial Account as a Functional Type:
Direct Investment
Portfolio Investment
Reserve Assets
Other Investment
Direct Investment means a significant voice in the management of an enterprise operating outside his or her resident economy, often having substantial equity capital in the enterprise. Combined ownership of 10% or more. Ownership of less than 10% of total equity in an enterprise is already classified as Portfolio Investment.
Portfolio Investment – includes equity securities and debt securities which are traded and tradable in organized and other financial markets. Debt securities include bonds and notes, money market instruments, and financial derivatives that include a variety of new financial instruments. Equity securities covers all instruments and records acknowledging, after the claims of all creditors have been met, claims to the residual values of incorporated enterprises; holders of preferred shares are also included.
Reserve Assets - consist of those external assets that are readily available to and controlled by monetary authorities for direct financing of payments imbalances, for indirectly regulating the magnitude of such imbalances through intervention in exchange markets to affect the currency exchange rate, and/or for other purposes.
The category of reserve assets, comprises monetary gold, SDRs, reserve position in the Fund, foreign exchange assets (consisting of currency and deposits and securities), and other claims.
Other Investment – these are neither classified as direct investment, portfolio investment and reserve assets. This includes short-term (contractual maturity of one year or less) and long-term investments (contractual maturity of more than one year or with no stated contractual maturity)
VI. Functions of the BOP Data
The following are the functions of the BOP data:
• Important for national and international policy formulation (i.e. for external aspects which are necessary for an interdependent world economy);
• Used for analytical studies (causes of payment imbalances and necessity of implementing adjustment measures)
• Indispensable link in the compilation of data for various components of national accounts (those related to the measurement of national wealth)
• The need to account for flows of foreign currency across national boundaries.
• Helps a country evaluate its competitive strengths and weaknesses, and forecast the strength of its currency.
REFERENCES:
John Downes and Jordan Elliot Goodman, Barrons Financial Guides: Dictionary of Finance and Investment Terms, Seventh Edition, 2006.
Bangko Sentral ng Pilipinas, Selected Philippine Economic Indicators, August 2009.
www.bsp.gov.ph
International Monetary Fund, Balance of Payments Manual 5th Edition.
The BOP Methodology Uses a double-entry accounting system. This means that every recorded item should have a debit and a credit, and there should be a net balance of zero.
Balance of Payments credits (act of making an entry) denote increases in liabilities, owners’ equity, revenue and gains; and decreases assets and expenses; debits denote decreases in liabilities, owners’ equity, revenue and gains; and increases in assets and expenses.
The ideal balance of payment should be:
Current Account = Capital Account+ Financial Account
In practice, however, the accounts frequently do not balance. Data for balance of payments estimates often are derived independently from different sources. As a result, there may be a summary net credit or net debit (i.e., net errors and omissions in the accounts). A separate balancing item is used to offset the credit or debit. In our country we call it NET UNCLASSIFIED ITEMS.
Hence:
Current Account= Capital Account+Financial Account (+ - Net Unclassified Items or Balancing Items)
NET UNCLASSIFIED ITEMS (or errors and ommissions) is an offsetting account to bring above-the-line and below-the-line into balance. A positive discrepancy denotes an understatement of receipts and/or overstatement of payments. Conversely, a negative entry denotes an overstatement of receipts and/or understatement of payment.
This separate entry, equal to that amount with the sign reversed, is then made to balance the accounts. Because inaccurate or missing estimates may be offsetting, the size of the net residual cannot be taken as an indicator of the relative accuracy of the balance of payments statement. Nonetheless, a large, persistent residual that is not reversed should cause concern. Such a residual impedes analysis or interpretation of estimates and diminishes the credibility of both. A large net residual may also have implications for interpretation of the investment position statement.
V. Standard Components of the Balance of Payment (BOP)
The following are the Standard components of the BOP:
Current Account which includes goods and services; income; and current transfer
Capital Account and Financial Account (Capital transfer is included in this component which includes debt forgiveness of nonresidents and donations of fixed assets by one econony to another economy. This also includes taxes on capital transfers like gift tax, estate tax)
Current Account
It covers import and export of goods and services. Goods which involves:
General merchandise
Goods for processing
Goods procured in ports by carriers
Non monetary gold
Services involves:
Transportation
Travel
Communication services
Construction services
Insurance services
Financial services
Computer and information Services
Royalties and license fees
Other business services
Personal, cultural and recreational services
Government services
Another classification under Current Account is Income which includes compensation for employees and investment income. Investment income consists of direct investment income, portfolio investment income and other investment income.
Another classification under Current Account is Current Transfer – transfers where no quid pro quo (economic value) is placed. It is classified as a current transfer when it directly affect the level of disposable income and should influence the consumption of goods or services. That is, current transfers reduce the income and consumption possibilities of the donor and increase the income and consumption possibilities of the recipient.
Included in the Current Transfer are:
cash transfers effected between governments for the purpose of financing current expenditures by the recipient government
gifts of food, clothing, other consumer goods associated with relief efforts
Gifts of certain military equipment
Annual contributions made by member governments to international organizations
Payments made by government or international organizations to governments for salaries for technical assistance.
Workers’ remittances (migrants who stay in an economy for a year or more)
Capital Account and Financial Account
Capital account covers all transactions that involve the receipt or payment of capital transfers and acquisition or disposal of nonproduced, nonfinancial assets.
The financial account covers all transactions associated with changes of ownership in the foreign financial assets and liabilities of an economy. Such changes include the creation and liquidation of claims on, or by, the rest of the world.
The foreign financial assets of an economy consist of holdings of monetary gold, SDRs (Special Drawing Rights), and claims on nonresidents. The foreign liabilities of an economy consist of indebtedness to nonresidents.
Components of the Financial Account as a Functional Type
The following are the components of the Financial Account as a Functional Type:
Direct Investment
Portfolio Investment
Reserve Assets
Other Investment
Direct Investment means a significant voice in the management of an enterprise operating outside his or her resident economy, often having substantial equity capital in the enterprise. Combined ownership of 10% or more. Ownership of less than 10% of total equity in an enterprise is already classified as Portfolio Investment.
Portfolio Investment – includes equity securities and debt securities which are traded and tradable in organized and other financial markets. Debt securities include bonds and notes, money market instruments, and financial derivatives that include a variety of new financial instruments. Equity securities covers all instruments and records acknowledging, after the claims of all creditors have been met, claims to the residual values of incorporated enterprises; holders of preferred shares are also included.
Reserve Assets - consist of those external assets that are readily available to and controlled by monetary authorities for direct financing of payments imbalances, for indirectly regulating the magnitude of such imbalances through intervention in exchange markets to affect the currency exchange rate, and/or for other purposes.
The category of reserve assets, comprises monetary gold, SDRs, reserve position in the Fund, foreign exchange assets (consisting of currency and deposits and securities), and other claims.
Other Investment – these are neither classified as direct investment, portfolio investment and reserve assets. This includes short-term (contractual maturity of one year or less) and long-term investments (contractual maturity of more than one year or with no stated contractual maturity)
VI. Functions of the BOP Data
The following are the functions of the BOP data:
• Important for national and international policy formulation (i.e. for external aspects which are necessary for an interdependent world economy);
• Used for analytical studies (causes of payment imbalances and necessity of implementing adjustment measures)
• Indispensable link in the compilation of data for various components of national accounts (those related to the measurement of national wealth)
• The need to account for flows of foreign currency across national boundaries.
• Helps a country evaluate its competitive strengths and weaknesses, and forecast the strength of its currency.
REFERENCES:
John Downes and Jordan Elliot Goodman, Barrons Financial Guides: Dictionary of Finance and Investment Terms, Seventh Edition, 2006.
Bangko Sentral ng Pilipinas, Selected Philippine Economic Indicators, August 2009.
www.bsp.gov.ph
International Monetary Fund, Balance of Payments Manual 5th Edition.
Balance of Payment (Part 1)
I. Introduction
This introduces the concept of the balance of payment (BOP). The format of the balance of payment shall be presented as provided in the BOP Manual, 5th edition as approved by the International Monetary Fund.
Measurement of the external positions of member countries has been a central feature of International Monetary Fund operations since inception. Such measurement is conducted in the dual context of Fund responsibility for surveillance of countries’ economic policies and provision of financial assistance in support of adjustment measures to correct balance of payments disequilibria. Consequently, the Fund has a compelling interest in developing and promulgating appropriate international guidelines for the compilation of sound and timely balance of payments statistics. Such guidelines, which have evolved to meet changing circumstances, have been embodied in successive editions of the Balance of Payments Manual (the Manual) since the first edition was published in 1948. Because of the important relationship between external and domestic economic developments, timely, reliable, and comprehensive balance of payments statistics based on an appropriate and analytically oriented methodology are an indispensable tool for economic analysis and policy making. Indeed, with the growing interdependence of the world’s economies, the need for such statistics—which reflects in part the underlying movement towards greater liberalization and integration of markets—has increased over time.
The revised Manual has been prepared by the Fund’s Statistics Department in close consultation with balance of payments experts in member countries and international and regional organizations (including the Statistical Office of the European Communities, the Organisation for Economic Cooperation and Development, the United Nations, and the World Bank).
II. Concept
The balance of payments (BOP) is the method countries use to monitor all international monetary transactions at a specific period of time.
It is a systematic record of a nation's total payments to foreign countries, including the price of imports and the outflow of capital and gold, along with the total receipts from abroad, including the price of exports and the inflow of capital and gold.
It also draws a series of balances between inward and outward transactions, provides a net flow of transactions between residents of one country and the rest of the world; and reports how that flow is funded. Economic transactions include:
• Exports and imports of goods, such as oil, agricultural products, other raw materials, machinery and transport equipment, computers, white goods and clothing
• Exports and imports of services such as international transport, travel, financial and business services
• Income flows, such as dividends and interest earned by foreigners on investments in a country and by such country investing abroad.
• Financial flows, such as direct investment, investment in shares, debt securities, loans and deposits
• Transfers, which are offsetting entries to any one-sided transactions listed above such as foreign aid and funds brought by migrants to the country.
As defined by the Selected Philippine Economic Indicators, Bangko Sentral ng Pilipinas, balance of payment systematically summarizes, for a specific time period, the economic transactions of an economy with the rest of the world.
As one of the primary functions of the IMF is to prevent financial crises and assist countries in balance of payment difficulties, the collection of standardized, comparable balance of payment data is seen as a core task.
III. Conceptual Framework of the Balance of Payment (BOP)
Most entries in the balance of payments refer to transactions in which economic values are provided or received in exchange for other economic values. These economic values consist of real resources (goods, services and income) and financial items (recorded in the balance of payments at the prices at which the items are acquired or disposed of).
Economic Territory consists of a geographic territory administered by a government; within this geographic territory, persons, goods, and capital circulate freely.
An institutional unit has a center of economic interest and is a resident unit of a country when, from some location (dwelling, place of production, or other premises) within the economic territory of the country, the unit engages and intends to continue engaging (indefinitely or for a finite period) in economic activities and transactions on a significant scale. (One year or more may be used as a guideline but not as an inflexible rule.)
A uniform basis of valuation for the international accounts (both real resources and financial claims and liabilities) is necessary for compiling, on a consistent basis, any aggregate of individual transactions and an asset/liability position consistent with such transactions. In this Manual, the basis of transaction valuations is generally actual market prices agreed upon by transactors.
In the BOP Manual and the System of National Accounts, the principle of accrual accounting governs the time of recording for transactions. Therefore, transactions are recorded when economic value is created, transformed, exchanged, transferred, or extinguished. Claims and liabilities arise when there is change of ownership.
This introduces the concept of the balance of payment (BOP). The format of the balance of payment shall be presented as provided in the BOP Manual, 5th edition as approved by the International Monetary Fund.
Measurement of the external positions of member countries has been a central feature of International Monetary Fund operations since inception. Such measurement is conducted in the dual context of Fund responsibility for surveillance of countries’ economic policies and provision of financial assistance in support of adjustment measures to correct balance of payments disequilibria. Consequently, the Fund has a compelling interest in developing and promulgating appropriate international guidelines for the compilation of sound and timely balance of payments statistics. Such guidelines, which have evolved to meet changing circumstances, have been embodied in successive editions of the Balance of Payments Manual (the Manual) since the first edition was published in 1948. Because of the important relationship between external and domestic economic developments, timely, reliable, and comprehensive balance of payments statistics based on an appropriate and analytically oriented methodology are an indispensable tool for economic analysis and policy making. Indeed, with the growing interdependence of the world’s economies, the need for such statistics—which reflects in part the underlying movement towards greater liberalization and integration of markets—has increased over time.
The revised Manual has been prepared by the Fund’s Statistics Department in close consultation with balance of payments experts in member countries and international and regional organizations (including the Statistical Office of the European Communities, the Organisation for Economic Cooperation and Development, the United Nations, and the World Bank).
II. Concept
The balance of payments (BOP) is the method countries use to monitor all international monetary transactions at a specific period of time.
It is a systematic record of a nation's total payments to foreign countries, including the price of imports and the outflow of capital and gold, along with the total receipts from abroad, including the price of exports and the inflow of capital and gold.
It also draws a series of balances between inward and outward transactions, provides a net flow of transactions between residents of one country and the rest of the world; and reports how that flow is funded. Economic transactions include:
• Exports and imports of goods, such as oil, agricultural products, other raw materials, machinery and transport equipment, computers, white goods and clothing
• Exports and imports of services such as international transport, travel, financial and business services
• Income flows, such as dividends and interest earned by foreigners on investments in a country and by such country investing abroad.
• Financial flows, such as direct investment, investment in shares, debt securities, loans and deposits
• Transfers, which are offsetting entries to any one-sided transactions listed above such as foreign aid and funds brought by migrants to the country.
As defined by the Selected Philippine Economic Indicators, Bangko Sentral ng Pilipinas, balance of payment systematically summarizes, for a specific time period, the economic transactions of an economy with the rest of the world.
As one of the primary functions of the IMF is to prevent financial crises and assist countries in balance of payment difficulties, the collection of standardized, comparable balance of payment data is seen as a core task.
III. Conceptual Framework of the Balance of Payment (BOP)
Most entries in the balance of payments refer to transactions in which economic values are provided or received in exchange for other economic values. These economic values consist of real resources (goods, services and income) and financial items (recorded in the balance of payments at the prices at which the items are acquired or disposed of).
Economic Territory consists of a geographic territory administered by a government; within this geographic territory, persons, goods, and capital circulate freely.
An institutional unit has a center of economic interest and is a resident unit of a country when, from some location (dwelling, place of production, or other premises) within the economic territory of the country, the unit engages and intends to continue engaging (indefinitely or for a finite period) in economic activities and transactions on a significant scale. (One year or more may be used as a guideline but not as an inflexible rule.)
A uniform basis of valuation for the international accounts (both real resources and financial claims and liabilities) is necessary for compiling, on a consistent basis, any aggregate of individual transactions and an asset/liability position consistent with such transactions. In this Manual, the basis of transaction valuations is generally actual market prices agreed upon by transactors.
In the BOP Manual and the System of National Accounts, the principle of accrual accounting governs the time of recording for transactions. Therefore, transactions are recorded when economic value is created, transformed, exchanged, transferred, or extinguished. Claims and liabilities arise when there is change of ownership.
Utilitarianism by John Stuart Mill
I. Summary of Utilitarianism by John Stuart Mill
“Utilitarianism”, by John Stuart Mill, is an essay written to provide support for the value of utilitarianism as a moral theory, and to respond to misconceptions about it.
Mill defines utilitarianism as a theory based on the principle that "actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness." Mill defines happiness as pleasure and the absence of pain. He argues that pleasure can differ in quality and quantity, and that pleasures that are rooted in one's higher faculties (intellectual, moral and aesthetic faculties) should be weighted more heavily than pleasures of lower qualities (i.e. animal pleasures). Furthermore, Mill argues that people's achievement of goals and ends, such as virtuous living, should be counted as part of their happiness. Mill further argues that utilitarianism coincides with "natural" sentiments that originate from humans' social nature. Therefore, if society were to embrace utilitarianism as an ethic, people would naturally internalize these standards as morally binding. Mill argues that happiness is the sole basis of morality, and that people never desire anything but happiness. He supports this claim by showing that all the other objects of people's desire are either means to happiness, or included in the definition of happiness. Mill explains at length that the sentiment of justice is actually based on utility, and that rights exist only because they are necessary for human happiness.
II. Use of the Utilitarian Theory in Ethical Decision Making Process
From the perspective of the organizations, the utilitarian theory is the most frequently advocated theories. It is in fact the philosophical basis for our contemporary notion of democracy as well as the underpinning for microeconomic theory. The local utilitarian view can be considered from local and cosmopolitan organizational perspectives. The local utilitarian view is oriented toward the greatest good for the firm, whereas the cosmopolitan view would encompass a broader perspective that extends beyond the firm (i.e. greatest good for the society at-large).
This theory does provide an objective method for choosing among ends. Initially termed as “hedonistic calculus,” its contemporary terminology is the rational decision making process.
This process involves: identification of the problem, the generation of alternatives, the quantitative evaluation of the alternatives, the selection and implementation of the ‘best’ alternative, and the evaluation of the performance of this decision. While this process has proved to be an efficient method of resolving many organizational dilemmas, it is often found to be lacking when ethical dilemmas are considered. The impact of utilitarian decisions upon the individual or minority presents a further problem. If the greatest good for the greatest number results in the obfuscation or outright denial of individual rights, then the use of utilitarianism as an exclusive theoretical outlook may not be acceptable to those whose rights are being denied.
III. References:
William F. Lawhead, Philosophical Questions (Classic and Contemporary
Readings), 1st Edition, McGraw Hill Higher Education, 2003.
David Lyons, Rights, Welfare and Mill’s Moral Theory, Oxford University
Press, 1994.
James Agarwal & David Cruise Malloy, “The role of existentialism in ethical
business decision-making,” Business Ethics: A European Review, Vol.
9, Number 3, July 2000.
“Utilitarianism”, by John Stuart Mill, is an essay written to provide support for the value of utilitarianism as a moral theory, and to respond to misconceptions about it.
Mill defines utilitarianism as a theory based on the principle that "actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness." Mill defines happiness as pleasure and the absence of pain. He argues that pleasure can differ in quality and quantity, and that pleasures that are rooted in one's higher faculties (intellectual, moral and aesthetic faculties) should be weighted more heavily than pleasures of lower qualities (i.e. animal pleasures). Furthermore, Mill argues that people's achievement of goals and ends, such as virtuous living, should be counted as part of their happiness. Mill further argues that utilitarianism coincides with "natural" sentiments that originate from humans' social nature. Therefore, if society were to embrace utilitarianism as an ethic, people would naturally internalize these standards as morally binding. Mill argues that happiness is the sole basis of morality, and that people never desire anything but happiness. He supports this claim by showing that all the other objects of people's desire are either means to happiness, or included in the definition of happiness. Mill explains at length that the sentiment of justice is actually based on utility, and that rights exist only because they are necessary for human happiness.
II. Use of the Utilitarian Theory in Ethical Decision Making Process
From the perspective of the organizations, the utilitarian theory is the most frequently advocated theories. It is in fact the philosophical basis for our contemporary notion of democracy as well as the underpinning for microeconomic theory. The local utilitarian view can be considered from local and cosmopolitan organizational perspectives. The local utilitarian view is oriented toward the greatest good for the firm, whereas the cosmopolitan view would encompass a broader perspective that extends beyond the firm (i.e. greatest good for the society at-large).
This theory does provide an objective method for choosing among ends. Initially termed as “hedonistic calculus,” its contemporary terminology is the rational decision making process.
This process involves: identification of the problem, the generation of alternatives, the quantitative evaluation of the alternatives, the selection and implementation of the ‘best’ alternative, and the evaluation of the performance of this decision. While this process has proved to be an efficient method of resolving many organizational dilemmas, it is often found to be lacking when ethical dilemmas are considered. The impact of utilitarian decisions upon the individual or minority presents a further problem. If the greatest good for the greatest number results in the obfuscation or outright denial of individual rights, then the use of utilitarianism as an exclusive theoretical outlook may not be acceptable to those whose rights are being denied.
III. References:
William F. Lawhead, Philosophical Questions (Classic and Contemporary
Readings), 1st Edition, McGraw Hill Higher Education, 2003.
David Lyons, Rights, Welfare and Mill’s Moral Theory, Oxford University
Press, 1994.
James Agarwal & David Cruise Malloy, “The role of existentialism in ethical
business decision-making,” Business Ethics: A European Review, Vol.
9, Number 3, July 2000.
Law on Obligations and Contracts (Part 3)
C O N T R A C T S
The Law
“Article 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. (1254a)”
Discussion of the Law
Characteristics of a Contract
(1) Mutuality of Contracts. Its validity and performance cannot be left to the will of only one of the parties.
(2) Autonomy of Contracts. Parties are free to stipulate terms and provisions in a contract, as long as these terms and provisions are not contrary to law, morals, good customs, public order and public policy.
The following are valid stipulations in an employment contract:
a) Non-competition agreements – those that impose restrictions on an employer’s ability to compete with a former employer are valid as long as:
It is supported by adequate consideration;
The restraint is confined within the limits that are reasonably necessary for the protection of the employer’s business
Restraint does not impose undue hardship on the employee.
b) Non-solicitation agreements – requirement to newly-hired employees to sign a non-solicitation agreement to obligate the employee not to solicit contacts and fellow employees of the employer. Non-solicitation agreements run for an indefinite period.
c) Confidentiality – imposes upon an employee a duty to keep confidential trade secrets and other confidential company information during employment and after employment. This may also run for an indefinite period.
A Yellow Dog Contract is a promise exacted from workers as a condition of employment that they are not to belong to, or attempts to foster, a union during their period of employment. This constitutes Unfair Labor Practice and considered an illegal stipulation.
(3) Relativity of Contracts. Contracts are binding only upon the parties and their successors-in-interest.
Exceptions:
Stipulation in favor of a third person (stipulation pour autrui) as in a beneficiary of an insurance policy.
Contracts creating real rights
Third person liable to pay damages in case he induces a party to violate his contract.
A Stipulation pour autrui (stipulation in favor of a third person) will prosper as long as the following requisites are present:
It must be for the benefit or interest of the third person;
Such benefit must not be merely incidental;
Contracting parties must clearly and deliberately conferred such benefit or interest upon the third person
That the third person must have communicated his acceptance to the obligor before his revocation.
(4) Consensuality of Contracts. Contracts are perfected by mere consent. and no form is prescribed by law for their validity. Exception: (a) real contracts (such as pledge, chattel mortgage); (b) contracts covered under the Statute of Frauds.
(5) Obligatory Force of Contracts. By the obligatory force of contracts, it constitutes the law as between the parties who are compelled to perform under the threat of being sued in the courts of law.
The Law
“Article 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. (1254a)”
Discussion of the Law
Characteristics of a Contract
(1) Mutuality of Contracts. Its validity and performance cannot be left to the will of only one of the parties.
(2) Autonomy of Contracts. Parties are free to stipulate terms and provisions in a contract, as long as these terms and provisions are not contrary to law, morals, good customs, public order and public policy.
The following are valid stipulations in an employment contract:
a) Non-competition agreements – those that impose restrictions on an employer’s ability to compete with a former employer are valid as long as:
It is supported by adequate consideration;
The restraint is confined within the limits that are reasonably necessary for the protection of the employer’s business
Restraint does not impose undue hardship on the employee.
b) Non-solicitation agreements – requirement to newly-hired employees to sign a non-solicitation agreement to obligate the employee not to solicit contacts and fellow employees of the employer. Non-solicitation agreements run for an indefinite period.
c) Confidentiality – imposes upon an employee a duty to keep confidential trade secrets and other confidential company information during employment and after employment. This may also run for an indefinite period.
A Yellow Dog Contract is a promise exacted from workers as a condition of employment that they are not to belong to, or attempts to foster, a union during their period of employment. This constitutes Unfair Labor Practice and considered an illegal stipulation.
(3) Relativity of Contracts. Contracts are binding only upon the parties and their successors-in-interest.
Exceptions:
Stipulation in favor of a third person (stipulation pour autrui) as in a beneficiary of an insurance policy.
Contracts creating real rights
Third person liable to pay damages in case he induces a party to violate his contract.
A Stipulation pour autrui (stipulation in favor of a third person) will prosper as long as the following requisites are present:
It must be for the benefit or interest of the third person;
Such benefit must not be merely incidental;
Contracting parties must clearly and deliberately conferred such benefit or interest upon the third person
That the third person must have communicated his acceptance to the obligor before his revocation.
(4) Consensuality of Contracts. Contracts are perfected by mere consent. and no form is prescribed by law for their validity. Exception: (a) real contracts (such as pledge, chattel mortgage); (b) contracts covered under the Statute of Frauds.
(5) Obligatory Force of Contracts. By the obligatory force of contracts, it constitutes the law as between the parties who are compelled to perform under the threat of being sued in the courts of law.
Law on Obligations and Contracts (Part 2)
Nature and Effects of Obligations
The following are the rights available to a creditor in obligations to give:
If it is a determinate thing:
1. To compel specific performance
2. To recover damages in case of breach
3. Acquires personal right to the fruits of the thing from the time the obligation to deliver arises
4. Acquires real right over the thing once the thing has been delivered to him
5. Rights over the accessories and accessions.
If it is a generic thing:
1. To ask for performance of the obligation
2. To ask that the obligation be complied with at the expense of the debtor.
A determinate thing is one that is particularly designated or physically segregated from all others of the same class. A generic thing is one whose determination is confined to that of its nature, to the genus to which it pertains such as a horse, a chair. A contract of sale uses a determinate thing, while a contract of loan uses a generic thing.
The following are the obligations of the passive subject in:
a) Obligations to give a determinate thing:
1. To deliver the thing which he has obligated himself to give.
2. To take care of the thing with the proper diligence of a good father of a family.
3. To deliver all its accessories and accessions.
4. To pay damages in case of breach of obligation.
b) Obligations to do:
1. If the debtor fails to do what he is obliged to do, it will be done at his expense.
2. If the work is done in contravention of the tenor of the obligation, it will be re-done at debtor’s expense.
3. If the work is poorly done, it will be re-done at debtor’s expense.
In obligations to do, you will note that you cannot compel the passive subject to perform, otherwise, it will constitute involuntary servitude which is in violation of the Constitution. However, the passive subject may be held liable for damages.
The sources of liability (for damages) of a party in an obligation are as follows:
(1) Fraud. The fraud is incidental fraud (dolo incidente) which is fraud incident to the performance of an obligation. In fraud, there is an intent to evade the normal fulfillment of the obligation and to cause damage.
The fraud is causal (dolo causante) or when fraud used to induce a person to agree to a contract. This kind of fraud is a ground for annulment of the contract plus damages;
(2) Negligence. The negligence referred here, in the case of contracts (i.e. common carrier) is culpa contractual, the lack of diligence or carelessness. Negligence consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, or the time and of the place.
(3) Delay (Mora). The debtor can be held liable for the delay or default in the fulfillment of his obligation only after the creditor has made a demand, judicial or extrajudicial, on the debtor, except:
When the law expressly provides that demand is not necessary;
When the contract expressly stipulates that demand is not necessary;
When time is of the essence;
When demand would be useless.
In a contract of loan, if a particular rate of interest has been expressly stipulated by the parties, such stipulated interest shall be applied. If the exact rate of interest is not mentioned, the legal rate shall be payable (which is 12% per annum under Sec. 1 of the Usury Law).
It is only in contracts of loan, with or without security, that interest may be stipulated and demanded. This interest by way of compensation, must be in writing, otherwise, no interest by way of compensation may be collected.
The debtor in delay is also liable to pay legal interest by way of indemnity for damages, which interest may be agreed upon, and in the absence of any stipulation, the legal interest shall be 12% per annum.
In all cases, interest due shall earn legal interest from the time it is judicially demanded although the obligation may be silent upon this point.
(4) Contravention of the tenor of the obligation. Performance in contravention of the tenor or terms of the obligations means where performance is contrary to what is agreed upon or stipulated thus making the debtor liable for damages.
The following are the rights available to a creditor in obligations to give:
If it is a determinate thing:
1. To compel specific performance
2. To recover damages in case of breach
3. Acquires personal right to the fruits of the thing from the time the obligation to deliver arises
4. Acquires real right over the thing once the thing has been delivered to him
5. Rights over the accessories and accessions.
If it is a generic thing:
1. To ask for performance of the obligation
2. To ask that the obligation be complied with at the expense of the debtor.
A determinate thing is one that is particularly designated or physically segregated from all others of the same class. A generic thing is one whose determination is confined to that of its nature, to the genus to which it pertains such as a horse, a chair. A contract of sale uses a determinate thing, while a contract of loan uses a generic thing.
The following are the obligations of the passive subject in:
a) Obligations to give a determinate thing:
1. To deliver the thing which he has obligated himself to give.
2. To take care of the thing with the proper diligence of a good father of a family.
3. To deliver all its accessories and accessions.
4. To pay damages in case of breach of obligation.
b) Obligations to do:
1. If the debtor fails to do what he is obliged to do, it will be done at his expense.
2. If the work is done in contravention of the tenor of the obligation, it will be re-done at debtor’s expense.
3. If the work is poorly done, it will be re-done at debtor’s expense.
In obligations to do, you will note that you cannot compel the passive subject to perform, otherwise, it will constitute involuntary servitude which is in violation of the Constitution. However, the passive subject may be held liable for damages.
The sources of liability (for damages) of a party in an obligation are as follows:
(1) Fraud. The fraud is incidental fraud (dolo incidente) which is fraud incident to the performance of an obligation. In fraud, there is an intent to evade the normal fulfillment of the obligation and to cause damage.
The fraud is causal (dolo causante) or when fraud used to induce a person to agree to a contract. This kind of fraud is a ground for annulment of the contract plus damages;
(2) Negligence. The negligence referred here, in the case of contracts (i.e. common carrier) is culpa contractual, the lack of diligence or carelessness. Negligence consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, or the time and of the place.
(3) Delay (Mora). The debtor can be held liable for the delay or default in the fulfillment of his obligation only after the creditor has made a demand, judicial or extrajudicial, on the debtor, except:
When the law expressly provides that demand is not necessary;
When the contract expressly stipulates that demand is not necessary;
When time is of the essence;
When demand would be useless.
In a contract of loan, if a particular rate of interest has been expressly stipulated by the parties, such stipulated interest shall be applied. If the exact rate of interest is not mentioned, the legal rate shall be payable (which is 12% per annum under Sec. 1 of the Usury Law).
It is only in contracts of loan, with or without security, that interest may be stipulated and demanded. This interest by way of compensation, must be in writing, otherwise, no interest by way of compensation may be collected.
The debtor in delay is also liable to pay legal interest by way of indemnity for damages, which interest may be agreed upon, and in the absence of any stipulation, the legal interest shall be 12% per annum.
In all cases, interest due shall earn legal interest from the time it is judicially demanded although the obligation may be silent upon this point.
(4) Contravention of the tenor of the obligation. Performance in contravention of the tenor or terms of the obligations means where performance is contrary to what is agreed upon or stipulated thus making the debtor liable for damages.
Law on Obligations and Contracts (Part 1)
To begin, the Law on Obligations and Contracts is defined as s a kind of positive law which deals with the nature and sources of obligations as well as the rights and duties arising from agreements in contracts.
Before discussing the particular concepts on the Law on Obligations and Contracts, it is important to know that in every obligation, one must always observe the general principles on human relations, to wit:
“ART. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.”
Failure to observe the above principle makes a person civilly liable.
O B L I G A T I O N
"Article 1156. An obligation is a juridical necessity to give, to do or not to do."
An obligation is a legal duty, however created, the violation of which may become the basis of an action of law.
Every obligation has four definite elements, without which no obligation can exist, to wit: (1) an active subject, also known as the obligee or creditor, who has the power to demand the prestation; (2) a passive subject, also known as the debtor, who is bound to perform the prestation; (3) an object or the prestation, which is an object or undertaking to give, to do or not to do; (4) The juridical or legal tie, the vinculum which binds the contracting parties. The juridical tie or vinculum is based on the sources of obligation arising from either the law or contract. Law is defined as a rule of conduct, just and obligatory, promulgated by the legitimate authority, for common observance and benefit. On the other hand, contract is defined as “meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or render service.”
It is important to identify the prestation in a certain obligation. Once the prestation is identified, you can determine who the passive subject is whom the active subject can demand fulfillment of the obligation.
A contract of sale and a contract of loan are examples of prestations to give; A contract of labor or a service contract is an example of a prestation to do.
To illustrate: In an obligation to pay taxes, the passive subject is the taxpayer, the active subject is the government through the Bureau of Internal Revenue, the prestation is “to give,” specifically to pay taxes, the juridical tie is a source of obligation arising from law.
In an obligation to give Avon Products, the passive subject is the seller, the active subject is the buyer, the prestation is “to give,” specifically to deliver the Avon Products, and the juridical tie is a source of obligation arising from contract.
Before discussing the particular concepts on the Law on Obligations and Contracts, it is important to know that in every obligation, one must always observe the general principles on human relations, to wit:
“ART. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.”
Failure to observe the above principle makes a person civilly liable.
O B L I G A T I O N
"Article 1156. An obligation is a juridical necessity to give, to do or not to do."
An obligation is a legal duty, however created, the violation of which may become the basis of an action of law.
Every obligation has four definite elements, without which no obligation can exist, to wit: (1) an active subject, also known as the obligee or creditor, who has the power to demand the prestation; (2) a passive subject, also known as the debtor, who is bound to perform the prestation; (3) an object or the prestation, which is an object or undertaking to give, to do or not to do; (4) The juridical or legal tie, the vinculum which binds the contracting parties. The juridical tie or vinculum is based on the sources of obligation arising from either the law or contract. Law is defined as a rule of conduct, just and obligatory, promulgated by the legitimate authority, for common observance and benefit. On the other hand, contract is defined as “meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or render service.”
It is important to identify the prestation in a certain obligation. Once the prestation is identified, you can determine who the passive subject is whom the active subject can demand fulfillment of the obligation.
A contract of sale and a contract of loan are examples of prestations to give; A contract of labor or a service contract is an example of a prestation to do.
To illustrate: In an obligation to pay taxes, the passive subject is the taxpayer, the active subject is the government through the Bureau of Internal Revenue, the prestation is “to give,” specifically to pay taxes, the juridical tie is a source of obligation arising from law.
In an obligation to give Avon Products, the passive subject is the seller, the active subject is the buyer, the prestation is “to give,” specifically to deliver the Avon Products, and the juridical tie is a source of obligation arising from contract.
Tuesday, September 28, 2010
Anti-discrimination laws in Australia
Over the past 30 years, the Australian Government has introduced anti-discrimination laws to help protect people from discrimination and harassment.
The following laws operate at a federal level and the Australian Human Rights Commission has statutory responsibilities under them:
* Age Discrimination Act 2004
* Australian Human Rights Commission Act 1986
* Disability Discrimination Act 1992
* Racial Discrimination Act 1975
* Sex Discrimination Act 1984
The above laws strictly impose penalties that make Australian employers vigilant in implementing the same. Indeed, Australia has evolved in terms of its legislation to provide equal opportunities to its citizens, especially in terms of employment. Australian legislation on anti-discrimination and equal employment opportunities provide a foundation for the companies in Australia, especially in hiring, managing and terminating their employees.
In the Philippines, we only have the Labor Code to refer which contains provisions on equal employment opportunities. By reason of the Labor Code of the Philippines, has the Philippines improved in terms of hiring and managing human resources for companies?
Sometimes, interviewers have the tendency to ask questions to applicants such as: "Are you gay, because you look gay," without any relation to the job requirements at all. This line of questioning automatically constitutes a violation of the basic right of an individual for equal employment opportunity. This further poses a concern to some companies which have the tendency to disregard such important detail in terms of training their interviewers on the right questions to ask applicants during job interviews.
Therefore, it can be surmised that it may be good to follow the footsteps of Australia; enact laws on anti-discrimination and equal employment opportunities, providing stiff penalties in case of violation. That way, companies may always be compelled to be on their toes in observing good practices while interviewing job applicants. That may take a long while to evolve, but at least it will be a stepping stone for companies to have structured models in finding the right people for the job.
The following laws operate at a federal level and the Australian Human Rights Commission has statutory responsibilities under them:
* Age Discrimination Act 2004
* Australian Human Rights Commission Act 1986
* Disability Discrimination Act 1992
* Racial Discrimination Act 1975
* Sex Discrimination Act 1984
The above laws strictly impose penalties that make Australian employers vigilant in implementing the same. Indeed, Australia has evolved in terms of its legislation to provide equal opportunities to its citizens, especially in terms of employment. Australian legislation on anti-discrimination and equal employment opportunities provide a foundation for the companies in Australia, especially in hiring, managing and terminating their employees.
In the Philippines, we only have the Labor Code to refer which contains provisions on equal employment opportunities. By reason of the Labor Code of the Philippines, has the Philippines improved in terms of hiring and managing human resources for companies?
Sometimes, interviewers have the tendency to ask questions to applicants such as: "Are you gay, because you look gay," without any relation to the job requirements at all. This line of questioning automatically constitutes a violation of the basic right of an individual for equal employment opportunity. This further poses a concern to some companies which have the tendency to disregard such important detail in terms of training their interviewers on the right questions to ask applicants during job interviews.
Therefore, it can be surmised that it may be good to follow the footsteps of Australia; enact laws on anti-discrimination and equal employment opportunities, providing stiff penalties in case of violation. That way, companies may always be compelled to be on their toes in observing good practices while interviewing job applicants. That may take a long while to evolve, but at least it will be a stepping stone for companies to have structured models in finding the right people for the job.
The principle of Self-settled spendthrift trust
Self-settled spendthrift trusts are very popular under US laws. It is important to look at the basic principle for possible future legislation in the Philippines.
Self-settled trust is a kind of trust where the grantor (i.e. creator, settlor or donor) is one of the beneficiaries, or the sole beneficiary of the trust. Spendthrift trust is a kind of trust where the beneficiary receives income from the trust, but the trustee is prohibited from distributing any of the principal to other parties. As its name implies, a spendthrift trust is a good way to keep an irresponsible son or daughter from squandering his or her inheritance on foolish investments or luxury purchases.
A self-settled spendthrift trust is a kind of trust that is a combination of a self-settled and a spendthrift trust. It is a self-settled trust with a spendthrift provision that the beneficiary (who is also the grantor of the trust) is prohibited from transferring his interest in the trust to other parties (i.e. his creditors).
With a spendthrift trust, the trustee is given discretion to make or not make distributions to beneficiaries. Because distributions are discretionary, beneficiaries are prevented from voluntarily or involuntarily transferring current or future rights in the trust. In other words, beneficiaries cannot give away trust income or principal in advance of receiving it. One effect of such alienation language in a trust is that creditors of a trust beneficiary cannot claim that trust assets are assets of the beneficiary. Therefore, creditors cannot stake a claim against trust assets, but can only collect money that is actually distributed to the beneficiary.
For the self-settled spendthrift trust to work, it is important that trustees must be independent; the grantor cannot be a trustee or co-trustee, and must not perform any of the trustee's duties, such as filing fiduciary tax returns or maintaining trust records. However, the grantor can provide investment advice to the trustee and retain the power to veto trust distributions.
Self-settled trust is a kind of trust where the grantor (i.e. creator, settlor or donor) is one of the beneficiaries, or the sole beneficiary of the trust. Spendthrift trust is a kind of trust where the beneficiary receives income from the trust, but the trustee is prohibited from distributing any of the principal to other parties. As its name implies, a spendthrift trust is a good way to keep an irresponsible son or daughter from squandering his or her inheritance on foolish investments or luxury purchases.
A self-settled spendthrift trust is a kind of trust that is a combination of a self-settled and a spendthrift trust. It is a self-settled trust with a spendthrift provision that the beneficiary (who is also the grantor of the trust) is prohibited from transferring his interest in the trust to other parties (i.e. his creditors).
With a spendthrift trust, the trustee is given discretion to make or not make distributions to beneficiaries. Because distributions are discretionary, beneficiaries are prevented from voluntarily or involuntarily transferring current or future rights in the trust. In other words, beneficiaries cannot give away trust income or principal in advance of receiving it. One effect of such alienation language in a trust is that creditors of a trust beneficiary cannot claim that trust assets are assets of the beneficiary. Therefore, creditors cannot stake a claim against trust assets, but can only collect money that is actually distributed to the beneficiary.
For the self-settled spendthrift trust to work, it is important that trustees must be independent; the grantor cannot be a trustee or co-trustee, and must not perform any of the trustee's duties, such as filing fiduciary tax returns or maintaining trust records. However, the grantor can provide investment advice to the trustee and retain the power to veto trust distributions.
Living Trust
As I have been working with clients lately, I experienced that there are a lot of ways of managing properties without fear of paying huge amount of estate taxes and lawyer's fees for probate. The principle that I am going to share is the principle of LIVING TRUST.
By way of introduction, trust is defined as a legal arrangement by which the assets of one person are transferred to another person or institution for the benefit of a third party. In a trust, the person with the assets (known as the settlor) transfers ownership of his property to someone (the trustee) who promises to administer the property for a third party (the beneficiary) according to the settlor's wishes. Under the Civil Code of the Philippines, "A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards the property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary." (Art. 1440)
In a living trust, the settlor transfers ownership of his property to a trustee who manages it throughout the settlor's lifetime. Upon the death of the settlor, the trustee distributes the trust to the beneficiaries in accordance with the settlor's instructions.
In most cases under US jurisdiction, the settlor of a living trust reserves the right to modify or revoke the trust as long as he lives. This type of living trust is known as revocable trust. If you are creating a revocable living trust, you can name yourself as a trustee, but you will have to name a successor trustee to manage your estate if you become incapacitated and to distribute your assets when you die. In this kind of trust, property will pass automatically to the beneficiaries without the delay and expenses involved in probating a will. Living trusts do not have to be probated.
In the Philippines, banking institutions are designated as trustees for a fee.
This concept will be very useful for people to cut cost on probate expenses and estate taxes.
By way of introduction, trust is defined as a legal arrangement by which the assets of one person are transferred to another person or institution for the benefit of a third party. In a trust, the person with the assets (known as the settlor) transfers ownership of his property to someone (the trustee) who promises to administer the property for a third party (the beneficiary) according to the settlor's wishes. Under the Civil Code of the Philippines, "A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards the property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary." (Art. 1440)
In a living trust, the settlor transfers ownership of his property to a trustee who manages it throughout the settlor's lifetime. Upon the death of the settlor, the trustee distributes the trust to the beneficiaries in accordance with the settlor's instructions.
In most cases under US jurisdiction, the settlor of a living trust reserves the right to modify or revoke the trust as long as he lives. This type of living trust is known as revocable trust. If you are creating a revocable living trust, you can name yourself as a trustee, but you will have to name a successor trustee to manage your estate if you become incapacitated and to distribute your assets when you die. In this kind of trust, property will pass automatically to the beneficiaries without the delay and expenses involved in probating a will. Living trusts do not have to be probated.
In the Philippines, banking institutions are designated as trustees for a fee.
This concept will be very useful for people to cut cost on probate expenses and estate taxes.
Wednesday, September 22, 2010
Book Launch -- September 15, 2010 -- SMX, Mall of Asia
Written by: Danny A. Cabulay and Christine C. Aldeguer
(This was presented during the book launching of my three books, namely: Philippine Tourism Laws, Human Resource Management in the Tourism and Hospitality Industry, and Smart Guide to Apprenticeship and Practicum Training for Accounting, Business Management, Tourism Management and HRM Students)
Slide No. 1
Good afternoon, ladies and gentlemen. May I know who among you have a province to go to during holidays and semestral breaks? May I know who among you have traveled abroad, at least, once. I asked these two question first because I believe every person is a traveler by nature. Traveling and tourism are two related human activities that date back as old as the history of mankind.
Slide No. 2
But as we travel and tour various places and establishments, what we do not know it that there is a possibility that our rights may be violated. This is the reason why Dean Danny Cabulay and I decided to write our very first book, Philippine Tourism Laws. There are so many laws that affect travelers and tourists alike.
Slide No. 3
In the past 10 years, statistics reveal that 1,721 airplanes crashed resulting in 12,241 fatalities. In the US, 76 million people get sick and sometimes get hospitalized annually due to contaminated food eaten in restaurants. Again, in the US, 4.4 million luggages were reported missing while in transit in various airlines and the worst airline is Southwest Airline accounting for a whopping 14% share of total lost luggages. These are just some of the glaring figures why we need to study Tourism Laws.
Slide No. 4
Tourism law may be defined as a body of rules or principles of action which deals with the regulation, authority, relations and obedience among members of a society involved in tourist travel and accommodation. It includes persons traveling from place to place for pleasure (tourist), and business establishments or persons engaged in the occupation of providing various services for tourists. Our country is governed by many statutes, administrative orders, judicial decisions, rules and regulations. It is imperative to take a closer look on these which affect our tourism industry.
The growth and development of the tourism industry is imperative in the context of regional and countryside development. It generates employment, trade and business opportunities. It also promotes strong backward and forward linkages with other industries such as transport, real estate and property development-- hotels/resorts, gift shops, restaurants, jewelry, and construction among others. Consider the following situations where tourism laws should have been very handy, without which our country or the world would have been a better place to live.
Slide No. 5
TERRORISM. We will not forget what happened during the December 30, 2000 Light Railway terrorist attack, also known as the Rizal Day Attack where many have died and one hundred victims injured. These victims’ only concern was to avail of the enjoyment of traveling from one place to another through the convenience of the Light Railway Transit. Would it have made a difference if the LRT management strictly followed security measures in order to deter such attacks?
Slide No. 6
Similarly, the recent Quirino Grandstand hostage taking surely put the country in the blacklist of large tourist markets like Hongkong.
Slide No. 7
THE OIL SPILL IN THE GUIMARAS ISLANDS. The oil tanker M/T Solar I, carrying more than two million liters of bunker fuel, sank on August 11, 2006 at the Guimaras Strait off the coast of the Guimaras and Negros Occidental provinces, causing some 500,000 liters of oil to pour into the strait. Such oil spill has adversely affected marine sanctuaries and mangrove reserves in three out of five municipalities in Guimaras Island. Feeding and reproduction in these grounds are also hindered and these organisms became susceptible to diseases. Its effects on corals are swollen tissues, excessive production of mucus and tissue degeneration. For marine birds and mammals, such as whales and dolphins, their insulation and buoyancy are affected since their feathers and fur become matted and soaked with oil. Definitely, the oil spill in the Guimaras Islands has made news all over the world, not to mention in the Philippine Tourism industry. Allegations have been made stating that the tanker only had a capacity of 1.2 million, implying the possibility of overloading. Other investigations have claimed that the captain of the ship has no capacity to manage it. Would it have made a difference if tourism laws were taken more seriously in order to prevent such devastating incident?
Slide No. 8
THE 2007 GLORIETTA EXPLOSION. This occurred in the Glorietta 2 section at Ayala Center in Makati on October 19 2007. The blast killed eleven and injured at least 126 persons. The most probable cause, according to authorities, was the accumulation of methane gas in the building's septic tanks, as well as other combustible materials in its basement. Authorities, however, are not ruling out the possibility of a terrorist attack and are still investigating the incident to discover the true cause of the explosion. Whether or not it is caused by an accident or terrorist attack, tourism laws also play a vital role in assessing liabilities and responsibilities of the government and the management of Glorietta 2.
Slide No. 9
TRAGEDY AT SEA. The sinking of the MV Princess of the Stars at the height of typhoon Frank put the Philippine Coast Guard and the owners of Sulpicio Lines in a very bad light. Whoever is responsible for the death and injury of the passengers in MV Princess of the Stars, you cannot, however, remove the fact that tourism laws still play a vital part in assessing the responsibilities and liabilities, not only the ship captain and owner of the MV Princess of the Stars, but also the proper government agency.
Slide No. 10
Today, society has evolved wherein business establishments engaged in tourism have been in the food service, hotel service, transportation service, travel and tour operations, events management and even medical tourism, among others, all for the interest of gratification, happiness, amusement, entertainment, safety and security of people traveling from place to place.
Slide No. 11
E-commerce has now been considered a way of necessity to do business in tourism. All things being considered, it will not be denied that there are now various or even millions of commercial transactions involved in tourism. In addition, numerous regulations are being imposed by the different government agencies in order to promote tourism development for national interest, security and safety. Hence, there is a need to study the different principles and statutes governing tourism development.
Slide No. 12
So, why is there a need to study tourism laws? These are the four reasons:
First, it protects the rights of travelers and tourism workers. Every Filipino has at least experienced becoming a traveler in one part of his life. It would be worthwhile to take a closer look on the different statutes governing these rights.
Slide No. 13
Second, to preserve tourism resources so that future generations can enjoy. We know that as responsible Filipinos, we can be instrumental in being part of this endeavor of preserving tourism resources such as our infrastructure, natural and human resources, museums, art collections, etc. so that our children, grand children, great grand children, great great grandchildren would be happy and delighted to enjoy them.
Slide No. 14
Third, to provide better tourism services. I have been working with practitioners, entrepreneurs and businessmen in the tourism industry. And one thing I have observed is that they have this mission of providing excellent service to the Filipino people.
Slide No. 15
Lastly, to promote growth of the tourism industry. We have a new Secretary of Tourism, Honorable Alberto Lim, who promises to revive the industry as soon as the bureaucracy is given a much needed reorganization and enhancement of its operational and marketing budgets. In this regard, tourism laws will be instrumental in helping our government generate income for our country’s survival and growth so that we can compete in a global economy.
Slide No. 16
Our book Philippine Tourism Laws is unique in the sense that it is not your regular law book that is boring to read. We have incorporated numerous cases and case studies which the students can easily understand and relate to. The teachers have choices of activities at the end of each chapter that will make the teaching of the subject more interesting and livelier.
Slide No. 17
We have discussed the following chapters comprehensively:
• The Philippine Constitution
• Law on Obligations and Contracts
• Law on Partnership and Corporation
• Law on Sales, Agency, and Credit Transactions
• The Tourism Public Sector
• Laws Regulating Transportation Establishments
• Laws Regulating Accommodation Establishments
• Laws Regulating Travel and Tour Services
Slide No. 18
• Laws Regulating Restaurants and Other Tourism-Oriented Establishments
• Laws Regulating Professional Congress Organizers
• Laws Related to Tourism Investments and Finance
• Labor Law
• Insurance Law
• Tourism and Hospitality Management Education
• Formalities of Entry In and Exit from the Philippines
• Special Topics
Slide No. 19
In the final analysis, it is very important to study Tourism Laws in order to be more effective as a tourism professional. Ignorance of the law excuses no one. A good grasp of tourism laws can even save the company thousands if not millions of pesos from expensive litigation cases. Thus, we also highly recommend that every manager and employee in a tourism or hospitality-related establishment should get a copy of our book Philippine Tourism Laws. Get one now, read it, understand the chapters. It is never too late.
Slide No. 20
For our last book, Human Resource Management in the Tourism and Hospitality Industry, we have really recognized the importance of human resources being the most valuable assets of any company. One needs to ask these three questions: (1) Did you hire the right people? (2) Did you train and pay them well? (3) Are they contributing to the goals of the organization?
Slide No. 21
Human resources is broad and generally encompasses four areas – personnel management, training, labor relations and organizational development.
Slide No. 22
Through the years, HR has evolved from the simple mom and pop type of operation to the multinational corporation and transnational corporation set up we have today.
Slide No. 23
Today, as organizations have grown and modernized rapidly, the demands of customers have also become more complex. This only means that the HR manager must keep up with all these new and emerging challenges.
Slide No. 24
How was the attendance checked in the 1960s until 1990s. It was through the old bundy clock.
Slide No. 25
In the current decade, more and more companies are using finger scanners, iris scanners, voice recognition systems, and other biometric driven systems.
Slide No. 26
Everyday, there is growing evidence that the tourism and hospitality industry is evolving at a rapid pace. It is, therefore, imperative that HR managers are abreast with new techniques, new strategies, and new methods of solving critical problems. HR practitioners nowadays are seen as strategic partners at the corporate level. They could make or break an organization.
Slide No. 27
Look at what happened to Hyatt Regency Manila.
Slide No. 28
Northwest Airlines in the United States.
Slide No. 29
Grand Boulevard Hotel, which holds the record for the most number of violations in the Labor Code, and many other establishments
Slide No. 30
The critical issues that HR managers are confronted with today are: (1) technological advancement, (2) labor cost, (3) quality and innovation, (4) globalization, (5) multiculturalism and diversity management, (6) employee empowerment and intrapreneurship, and (7) the balanced HR scorecard
Slide No. 31
In our book, we discussed emerging trends that will happen in the field of Human Resources Management. There’s a lot to know and anticipate about the future. For example, many high-tech unusual hotels are currently being constructed with very challenging features. For example, The Apeiron Dubai in the United Arab Emirates,
Slide No. 32
Waterworld Hotel in China.
Slide No. 33
Caspian Plus Hotel in Azerbaijan. Have you ever thought what kind of employees will be needed for these fabulous hotels in the future?
Slide No. 34
Well, if a diminutive brilliant Filipina conquered the Whitehouse to feed the most powerful man in the world and his distinguished guests, then, nothing is impossible.
Slide No. 35
As one Filipina puts it candidly, “there’s nothing major major problem that we could not surpass.” Just remember, all schools who will prescribe our books will get a complimentary CD containing the test banks and powerpoint lecture presentations for the teachers. Mabuhay po ang tourism industry ng Pilipinas. Thank you and have good day.
(This was presented during the book launching of my three books, namely: Philippine Tourism Laws, Human Resource Management in the Tourism and Hospitality Industry, and Smart Guide to Apprenticeship and Practicum Training for Accounting, Business Management, Tourism Management and HRM Students)
Slide No. 1
Good afternoon, ladies and gentlemen. May I know who among you have a province to go to during holidays and semestral breaks? May I know who among you have traveled abroad, at least, once. I asked these two question first because I believe every person is a traveler by nature. Traveling and tourism are two related human activities that date back as old as the history of mankind.
Slide No. 2
But as we travel and tour various places and establishments, what we do not know it that there is a possibility that our rights may be violated. This is the reason why Dean Danny Cabulay and I decided to write our very first book, Philippine Tourism Laws. There are so many laws that affect travelers and tourists alike.
Slide No. 3
In the past 10 years, statistics reveal that 1,721 airplanes crashed resulting in 12,241 fatalities. In the US, 76 million people get sick and sometimes get hospitalized annually due to contaminated food eaten in restaurants. Again, in the US, 4.4 million luggages were reported missing while in transit in various airlines and the worst airline is Southwest Airline accounting for a whopping 14% share of total lost luggages. These are just some of the glaring figures why we need to study Tourism Laws.
Slide No. 4
Tourism law may be defined as a body of rules or principles of action which deals with the regulation, authority, relations and obedience among members of a society involved in tourist travel and accommodation. It includes persons traveling from place to place for pleasure (tourist), and business establishments or persons engaged in the occupation of providing various services for tourists. Our country is governed by many statutes, administrative orders, judicial decisions, rules and regulations. It is imperative to take a closer look on these which affect our tourism industry.
The growth and development of the tourism industry is imperative in the context of regional and countryside development. It generates employment, trade and business opportunities. It also promotes strong backward and forward linkages with other industries such as transport, real estate and property development-- hotels/resorts, gift shops, restaurants, jewelry, and construction among others. Consider the following situations where tourism laws should have been very handy, without which our country or the world would have been a better place to live.
Slide No. 5
TERRORISM. We will not forget what happened during the December 30, 2000 Light Railway terrorist attack, also known as the Rizal Day Attack where many have died and one hundred victims injured. These victims’ only concern was to avail of the enjoyment of traveling from one place to another through the convenience of the Light Railway Transit. Would it have made a difference if the LRT management strictly followed security measures in order to deter such attacks?
Slide No. 6
Similarly, the recent Quirino Grandstand hostage taking surely put the country in the blacklist of large tourist markets like Hongkong.
Slide No. 7
THE OIL SPILL IN THE GUIMARAS ISLANDS. The oil tanker M/T Solar I, carrying more than two million liters of bunker fuel, sank on August 11, 2006 at the Guimaras Strait off the coast of the Guimaras and Negros Occidental provinces, causing some 500,000 liters of oil to pour into the strait. Such oil spill has adversely affected marine sanctuaries and mangrove reserves in three out of five municipalities in Guimaras Island. Feeding and reproduction in these grounds are also hindered and these organisms became susceptible to diseases. Its effects on corals are swollen tissues, excessive production of mucus and tissue degeneration. For marine birds and mammals, such as whales and dolphins, their insulation and buoyancy are affected since their feathers and fur become matted and soaked with oil. Definitely, the oil spill in the Guimaras Islands has made news all over the world, not to mention in the Philippine Tourism industry. Allegations have been made stating that the tanker only had a capacity of 1.2 million, implying the possibility of overloading. Other investigations have claimed that the captain of the ship has no capacity to manage it. Would it have made a difference if tourism laws were taken more seriously in order to prevent such devastating incident?
Slide No. 8
THE 2007 GLORIETTA EXPLOSION. This occurred in the Glorietta 2 section at Ayala Center in Makati on October 19 2007. The blast killed eleven and injured at least 126 persons. The most probable cause, according to authorities, was the accumulation of methane gas in the building's septic tanks, as well as other combustible materials in its basement. Authorities, however, are not ruling out the possibility of a terrorist attack and are still investigating the incident to discover the true cause of the explosion. Whether or not it is caused by an accident or terrorist attack, tourism laws also play a vital role in assessing liabilities and responsibilities of the government and the management of Glorietta 2.
Slide No. 9
TRAGEDY AT SEA. The sinking of the MV Princess of the Stars at the height of typhoon Frank put the Philippine Coast Guard and the owners of Sulpicio Lines in a very bad light. Whoever is responsible for the death and injury of the passengers in MV Princess of the Stars, you cannot, however, remove the fact that tourism laws still play a vital part in assessing the responsibilities and liabilities, not only the ship captain and owner of the MV Princess of the Stars, but also the proper government agency.
Slide No. 10
Today, society has evolved wherein business establishments engaged in tourism have been in the food service, hotel service, transportation service, travel and tour operations, events management and even medical tourism, among others, all for the interest of gratification, happiness, amusement, entertainment, safety and security of people traveling from place to place.
Slide No. 11
E-commerce has now been considered a way of necessity to do business in tourism. All things being considered, it will not be denied that there are now various or even millions of commercial transactions involved in tourism. In addition, numerous regulations are being imposed by the different government agencies in order to promote tourism development for national interest, security and safety. Hence, there is a need to study the different principles and statutes governing tourism development.
Slide No. 12
So, why is there a need to study tourism laws? These are the four reasons:
First, it protects the rights of travelers and tourism workers. Every Filipino has at least experienced becoming a traveler in one part of his life. It would be worthwhile to take a closer look on the different statutes governing these rights.
Slide No. 13
Second, to preserve tourism resources so that future generations can enjoy. We know that as responsible Filipinos, we can be instrumental in being part of this endeavor of preserving tourism resources such as our infrastructure, natural and human resources, museums, art collections, etc. so that our children, grand children, great grand children, great great grandchildren would be happy and delighted to enjoy them.
Slide No. 14
Third, to provide better tourism services. I have been working with practitioners, entrepreneurs and businessmen in the tourism industry. And one thing I have observed is that they have this mission of providing excellent service to the Filipino people.
Slide No. 15
Lastly, to promote growth of the tourism industry. We have a new Secretary of Tourism, Honorable Alberto Lim, who promises to revive the industry as soon as the bureaucracy is given a much needed reorganization and enhancement of its operational and marketing budgets. In this regard, tourism laws will be instrumental in helping our government generate income for our country’s survival and growth so that we can compete in a global economy.
Slide No. 16
Our book Philippine Tourism Laws is unique in the sense that it is not your regular law book that is boring to read. We have incorporated numerous cases and case studies which the students can easily understand and relate to. The teachers have choices of activities at the end of each chapter that will make the teaching of the subject more interesting and livelier.
Slide No. 17
We have discussed the following chapters comprehensively:
• The Philippine Constitution
• Law on Obligations and Contracts
• Law on Partnership and Corporation
• Law on Sales, Agency, and Credit Transactions
• The Tourism Public Sector
• Laws Regulating Transportation Establishments
• Laws Regulating Accommodation Establishments
• Laws Regulating Travel and Tour Services
Slide No. 18
• Laws Regulating Restaurants and Other Tourism-Oriented Establishments
• Laws Regulating Professional Congress Organizers
• Laws Related to Tourism Investments and Finance
• Labor Law
• Insurance Law
• Tourism and Hospitality Management Education
• Formalities of Entry In and Exit from the Philippines
• Special Topics
Slide No. 19
In the final analysis, it is very important to study Tourism Laws in order to be more effective as a tourism professional. Ignorance of the law excuses no one. A good grasp of tourism laws can even save the company thousands if not millions of pesos from expensive litigation cases. Thus, we also highly recommend that every manager and employee in a tourism or hospitality-related establishment should get a copy of our book Philippine Tourism Laws. Get one now, read it, understand the chapters. It is never too late.
Slide No. 20
For our last book, Human Resource Management in the Tourism and Hospitality Industry, we have really recognized the importance of human resources being the most valuable assets of any company. One needs to ask these three questions: (1) Did you hire the right people? (2) Did you train and pay them well? (3) Are they contributing to the goals of the organization?
Slide No. 21
Human resources is broad and generally encompasses four areas – personnel management, training, labor relations and organizational development.
Slide No. 22
Through the years, HR has evolved from the simple mom and pop type of operation to the multinational corporation and transnational corporation set up we have today.
Slide No. 23
Today, as organizations have grown and modernized rapidly, the demands of customers have also become more complex. This only means that the HR manager must keep up with all these new and emerging challenges.
Slide No. 24
How was the attendance checked in the 1960s until 1990s. It was through the old bundy clock.
Slide No. 25
In the current decade, more and more companies are using finger scanners, iris scanners, voice recognition systems, and other biometric driven systems.
Slide No. 26
Everyday, there is growing evidence that the tourism and hospitality industry is evolving at a rapid pace. It is, therefore, imperative that HR managers are abreast with new techniques, new strategies, and new methods of solving critical problems. HR practitioners nowadays are seen as strategic partners at the corporate level. They could make or break an organization.
Slide No. 27
Look at what happened to Hyatt Regency Manila.
Slide No. 28
Northwest Airlines in the United States.
Slide No. 29
Grand Boulevard Hotel, which holds the record for the most number of violations in the Labor Code, and many other establishments
Slide No. 30
The critical issues that HR managers are confronted with today are: (1) technological advancement, (2) labor cost, (3) quality and innovation, (4) globalization, (5) multiculturalism and diversity management, (6) employee empowerment and intrapreneurship, and (7) the balanced HR scorecard
Slide No. 31
In our book, we discussed emerging trends that will happen in the field of Human Resources Management. There’s a lot to know and anticipate about the future. For example, many high-tech unusual hotels are currently being constructed with very challenging features. For example, The Apeiron Dubai in the United Arab Emirates,
Slide No. 32
Waterworld Hotel in China.
Slide No. 33
Caspian Plus Hotel in Azerbaijan. Have you ever thought what kind of employees will be needed for these fabulous hotels in the future?
Slide No. 34
Well, if a diminutive brilliant Filipina conquered the Whitehouse to feed the most powerful man in the world and his distinguished guests, then, nothing is impossible.
Slide No. 35
As one Filipina puts it candidly, “there’s nothing major major problem that we could not surpass.” Just remember, all schools who will prescribe our books will get a complimentary CD containing the test banks and powerpoint lecture presentations for the teachers. Mabuhay po ang tourism industry ng Pilipinas. Thank you and have good day.
Monday, September 6, 2010
It takes a great leader to admit mistakes
Throughout my lifetime, I only see few leaders who would admit mistakes and take full responsibility. I grew up from a proud family where admission is tantamount to admission of guilt. That is why I learned to never admit mistakes, no matter what. But when I became an academic manager, I learned there is nothing wrong in admitting mistakes. Admitting mistakes with all humility makes one a great leader.
I first experienced a leader being humble and taking full responsibility for the mistakes of his managers during the reign of Dr. Edilberto De Jesus. It was in the year 2001 when the university he worked in had an issue on the computerized enrollment. Since the computerized enrollment system was not tested fully, there were a lot of problems encountered which resulted to a breaking of the glass door at the university's electronic library, defective queuing system, complaints from students who waited for a week just to be enrolled, and complaints from enrollment advisers (faculty members) who were not educated enough on how to enroll students using the electronic system of enrollment. There were managers who were actually responsible for the negligent act. But it was Dr. Edilberto de Jesus who took full responsibility of the ineffectiveness of the untested computerized enrollment system. It took guts to take full responsibility and be accountable at that. Since then, I have learned to respect the man for being a humble gentleman.
When I learned that our President Noynoy Aquino publicly announced that he is taking full responsibility for the HK Hostage Crisis, I suddenly remembered my experience with Dr. Edilberto de Jesus. It really takes a man to publicly admit mistakes of his officials and be accountable. President Aquino is not a man of angst, he is a man who is genuinely serving Filipinos. From the moment President Aquino admitted his mistakes, I once again found another great leader next to Dr. Edilberto de Jesus.
To the people who said that a public apology from President Noynoy Aquino regarding the HK hostage aftermath is unnecessary, YOU ARE STILL LIVING IN THE DARK AGES.
It takes a great leader to be humble and admit mistakes without giving any justification. Taking full responsibility for the acts of his officials is an experience for our dear President in his first year term. Our public officials and leaders should learn from it and then move on to better serve their constituents. President Aquino's noble intentions have been clear from the beginning. No matter how people react, I still say it takes a great leader to admit his mistakes and take full responsibility at that.
I first experienced a leader being humble and taking full responsibility for the mistakes of his managers during the reign of Dr. Edilberto De Jesus. It was in the year 2001 when the university he worked in had an issue on the computerized enrollment. Since the computerized enrollment system was not tested fully, there were a lot of problems encountered which resulted to a breaking of the glass door at the university's electronic library, defective queuing system, complaints from students who waited for a week just to be enrolled, and complaints from enrollment advisers (faculty members) who were not educated enough on how to enroll students using the electronic system of enrollment. There were managers who were actually responsible for the negligent act. But it was Dr. Edilberto de Jesus who took full responsibility of the ineffectiveness of the untested computerized enrollment system. It took guts to take full responsibility and be accountable at that. Since then, I have learned to respect the man for being a humble gentleman.
When I learned that our President Noynoy Aquino publicly announced that he is taking full responsibility for the HK Hostage Crisis, I suddenly remembered my experience with Dr. Edilberto de Jesus. It really takes a man to publicly admit mistakes of his officials and be accountable. President Aquino is not a man of angst, he is a man who is genuinely serving Filipinos. From the moment President Aquino admitted his mistakes, I once again found another great leader next to Dr. Edilberto de Jesus.
To the people who said that a public apology from President Noynoy Aquino regarding the HK hostage aftermath is unnecessary, YOU ARE STILL LIVING IN THE DARK AGES.
It takes a great leader to be humble and admit mistakes without giving any justification. Taking full responsibility for the acts of his officials is an experience for our dear President in his first year term. Our public officials and leaders should learn from it and then move on to better serve their constituents. President Aquino's noble intentions have been clear from the beginning. No matter how people react, I still say it takes a great leader to admit his mistakes and take full responsibility at that.
Saturday, August 21, 2010
Opportunity Cost -- Principle and Application
When I took my MBA and DBA, I came upon this principle which an accountant, financial or economic analyst should know. It's called "opportunity cost."
As defined by Stephen L. Slavin in his book "Microeconomics", the thing we give up, (i.e. our second choice) is called the opportunity cost of our choice. Therefore, the opportunity cost of any choice is the foregone value of the next best alternative.
There are a lot of ways of using this principle. For example, I am connected with a virtual freelance consultancy where I earn at least $100 a week, granting that I do not leave the house and do not spend money on gasoline or transportation. Once I start meeting my other clients outside my virtual freelance consultancy for a week, my opportunity cost will be $100 for such week, as I have this foregone value of the next best alternative. Consequently, I have to make sure that the earnings I derive from my clients outside my virtual freelance consultancy be more than (or at least equal to) the fees I will collecting should I have been working on my virtual freelance consultancy during such week.
What lesson can you derive from using the principle of "opportunity cost"? It simply means that when you make a major decision in life, make sure that it is worthwhile with a quantifiable value in mind. You should never make choices based on emotions or instinct alone, otherwise you might experience an opportunity loss in economics. Therefore, you must always have a quantifiable basis in making a huge decision in life.
I know a friend of mine who had a lot of job offers. He usually decides the best choice after plotting the pros and cons through a matrix of percentage criteria or a SWOT analysis for every job offer. It sounds really profound and weird if you are to present this to a layman. But what he does in his life makes him stable and successful in his career.
On the other hand, financial analysts or entrepreneurs make huge decisions in their companies after considering the risks involved. But I doubt if they decide based on instinct alone; they also decide on the basis of a calculated risk assessment.
There are a lot of people out there who just decide on pure emotions without any calculated assessment in mind. Man is created as a rational being; it's time to use that gift in making decisions in life.
As defined by Stephen L. Slavin in his book "Microeconomics", the thing we give up, (i.e. our second choice) is called the opportunity cost of our choice. Therefore, the opportunity cost of any choice is the foregone value of the next best alternative.
There are a lot of ways of using this principle. For example, I am connected with a virtual freelance consultancy where I earn at least $100 a week, granting that I do not leave the house and do not spend money on gasoline or transportation. Once I start meeting my other clients outside my virtual freelance consultancy for a week, my opportunity cost will be $100 for such week, as I have this foregone value of the next best alternative. Consequently, I have to make sure that the earnings I derive from my clients outside my virtual freelance consultancy be more than (or at least equal to) the fees I will collecting should I have been working on my virtual freelance consultancy during such week.
What lesson can you derive from using the principle of "opportunity cost"? It simply means that when you make a major decision in life, make sure that it is worthwhile with a quantifiable value in mind. You should never make choices based on emotions or instinct alone, otherwise you might experience an opportunity loss in economics. Therefore, you must always have a quantifiable basis in making a huge decision in life.
I know a friend of mine who had a lot of job offers. He usually decides the best choice after plotting the pros and cons through a matrix of percentage criteria or a SWOT analysis for every job offer. It sounds really profound and weird if you are to present this to a layman. But what he does in his life makes him stable and successful in his career.
On the other hand, financial analysts or entrepreneurs make huge decisions in their companies after considering the risks involved. But I doubt if they decide based on instinct alone; they also decide on the basis of a calculated risk assessment.
There are a lot of people out there who just decide on pure emotions without any calculated assessment in mind. Man is created as a rational being; it's time to use that gift in making decisions in life.
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