WILLS OF FORTUNE (Making your last will and testament)

by Obiter07

Just recently, multi-billionaire New Yorker Leona Helmsley willed $12M to her dog. We may not have the billions to leave behind but we may have a thought or two as to where or to whom certain of our possessions will go and show our appreciation as Ms. Helmsley did.

A will is where one can be “permitted, with the formalities prescribed by law, to control to a certain degree the disposition of his estate, to take effect after his death (ARTICLE 783, New Civil Code).” It is with these formalities that it is almost impossible to dispense with the services of a lawyer.

Every will has to be in writing and should be “executed in a language or dialect known to the testator (ARTICLE 804).” The testator means you if you are the one who wants to make a will provided you are at least 18 years old (ARTICLE 797) and of sound mind at the time of its execution (ARTICLE 798). So it’s ok to lose your marbles later.

“The making of a will is a strictly personal act” (ARTICLE 784). And so the duration or efficacy of the designation of heirs, devisees of legatees (these are the recipients of the testator’s intentions), or the determination of the portion which they are to take, cannot be left to another’s discretion (ARTICLE 785). As there is much respect given to the testator’s intentions, in the event of doubt as regards any disposition, the interpretation shall be made in favor of that which makes the disposition operative (ARTICLE 788).

Being a strictly personal act, persons cannot jointly make a will (ARTICLE 817). Nor can there be a quid pro quo testamentary disposition where an heir is required to provide for the testator or any other person in his (the heir’s) own will (ARTICLE 875).

In the will you spell out how you want your property distributed. Note, however, that you can dispose only of what is called the “free portion” of your estate. You cannot dispose of the “legitime” or property reserved for your compulsory heirs (ARTICLES 841 and 886). This refers to property reserved by law for legitimate children and descendants, or it there are none, then the legitimate parents and descendants, the widow or widower, acknowledged natural and other illegitimate children.

The testator has to subscribe or sign the will himself or have some other person sign it for him. Apart from that, the tricky party is the attestation clause that has to be at the end of every will (ARTICLE 805). It won’t suffice just to have one or two witnesses. You need a group of at least 3 people plus a notary public to make a will. Why? Because a will needs at least 3 instrumental witnesses (ARTICLE 805) and has to be subscribed thereafter before a notary (ARTICLE 806). So much for keeping a will secret right?

And if any one of those witnesses turns out to be a beneficiary to the will, then you need an additional witness. Otherwise, the will insofar as this “interested” witness is concerned will be invalidated and he or she won’t receive anything (ARTICLE 823). What if you can’t come up with the required number? It can be supposed if at that point, if you can’t find three friends to call in, you don’t have that much to give away anyway or that you won’t be missed much. Just keep in mind that a chance at riches can make a friend out of a lot of people.

And apart from signing the will at the end, each and every page of the will must be signed on the left margin and all the pages should be numbered by means of letters (i.e. for page 5, it should read “page five” or “five”) placed in the upper part of each page.

The attestation clause must also contain specific facts, such as the number of pages of the will, and that the testator signed every page thereof and that the instrumental witnesses did the same as well.

To dispense with these formalities, there is the “do-it-yourself” will or the holographic will. “A person may execute a holographic will which must be entirely written, dated, and signed by the hand of the testator himself. It is subject to no other form, and may be made in or out of the Philippines, and need not be witnessed. (678, 688a), (ARTICLE 810).” You just have to write everything down yourself.

Think you are done? Not really, because both kinds of wills have to be considered by the court in something called probate proceedings. This is a process where the court verifies whether the will is sufficient in form and substance. You can have a will go through this procedure while you are still alive or later when you are not (ARTICLE 838).

As a testator, you can make your heirs earn what you intend to give them since you are allowed to impose conditions before they can benefit from your will (ARTICLES 876, 877), provided the conditions are not impossible and not contrary to law or good customs (ARTICLE 873). One such possible condition is to prohibit a spouse from marrying again (or at least get nothing from the will when he or she does)! It reads: “An absolute condition not to contract a first or subsequent marriage shall be considered as not written unless such condition has been imposed on the widow or widower by the deceased spouse, or by the latter’s ascendants or descendants. xxx (ARTICLE 874).”

They say you can’t take it with you but you can make sure no one else gets to enjoy it. To get something from a “will,” you may very well have to put up with a “won’t” or two. This could be things like, “Before you ever get a cent from me, you won’t ever get married” or “you won’t drop out of school.” This just goes to show that where there’s a will, there may not necessarily be a “way” to get around it.

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Temps Forever (Justifying Prolonged Project /Contractual Employment)

by Obiter07

It is typical practice for corporations to engage “temps” or temporary employees. Sometimes, this is done over the long term, for periods exceeding 6 months, even extending up to 1 year. The engagement is then renewed after said periods. It may not be uncommon, but is such a practice legal?

Types of Employment

Article 280 of the Code classifies employees into regular, project, seasonal or casual employees. Only the first three (3) classifications are relevant to this discussion.

“ARTICLE 280. Regular and casual employment. — The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreements of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer except where the employment has been fixed for a specific project or undertaking, the completion or termination of which has been determined at the time of the engagement of the employee or where the work or service to be performed is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists. [Emphasis supplied]

Activities Necessary Or Desirable

The Labor Code justifies the practice provided it’s under term/project employment. And the employees should not be performing functions “necessary and desirable” to the company’s usual business or trade. These “necessary and desirable” functions can serve to classify them as regular employees of the principal, regardless of any contractual stipulation to the contrary with the temps themselves or the agency through which they are sourced. In one case, a carpenter who was made to fill up and sign employment contracts for particular projects every 3 months, but did regular carpentry work each time for almost 2 years, was found to be a regular employee of a company engaged in the concrete structural business. MAGANTE vs. NLRC, et al. [G.R. No. 74969.

It should be noted that the courts have recognized the practice of “several government and private institutions and industries of hiring independent contractors to perform special services. These services range from janitorial, security and even technical or other specific services xxx. While these services may be considered directly related to the principal business of the employer, nevertheless, they are not necessary in the conduct of the principal business of the employer.” NERI et al, vs. NLRC, et al, [G.R. Nos. 97008-09. July 23, 1993.]

1 year of service, whether continuous or broken

The continuous service alone for a period of one (1) year with respect to one activity may result in regular employment with respect to the same. SAN MIGUEL CORPORATION vs. NATIONAL LABOR RELATIONS COMMISSION, et al. [G.R. No. 125606. October 7, 1998.]. The Supreme Court has also held that, term employment, while allowed, cannot serve to circumvent an employee’s right to security of tenure. PHILEX MINING CORPORATION vs. NATIONAL LABOR RELATIONS COMMISSION, et al. [G.R. No. 125132. August 10, 1999.] Hence, a painting and maintenance man was held to be a regular employee in a company which manufactures liquors where he performed such services continuously for a period of over 1 year. DE LEON vs. NLRC et al. [G.R. No. 70705. August 21, 1989.]

Regular Employment

In fine, a employee can be considered a regular employee if he (1) performs activities necessary and desirable in the usual trade or business of the employer or (2) has cumulatively rendered at least 1 year of service with respect to an activity and for so long as this activity exists, even if not necessary or desirable to the usual trade or business of the employer.

Labor Only Contracting, Consequences

Temps are usually sourced through what is termed “labor-only contracting” which is prohibited by law. It refers to an arrangement where a subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal and any of the following elements are present:

a) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor/subcontractor are performing activities which are directly related to the main business of the principal; or

b) The contractor or subcontractor does not exercise the right of control over the performance of the work of the contractual employee. (Section 5, D.O. 18-02)

In “labor-only” contracting, the person acting as contractor is considered merely an agent or intermediary of the employer who is responsible to the workers in the same manner and to the same extent as if they had been directly employed by him. Despite any agreement to the contrary, the law establishes an employer-employee relationship between the employer and the employees of the “labor-only” contractor to prevent any violation or circumvention of the provisions of the Labor Code, by holding both the employer and the “labor-only” contractor responsible to the employees. [Tiu vs. NLRC, supra, citing Broadway Motors, Inc. v. NLRC, 156 SCRA 522 (1987), further citing Philippine Bank of Communications v. NLRC, 146 SCRA 347 (1986)].

In one case, a messenger hired through an agency was held to be a regular employee of the principal bank when the court found that the agency was not a courier service but a recruitment agency. The court thus voided the contract which would have allowed the bank to avoid hiring regular employees by using an agency to provide them with employees to work for periods exceeding 1 year. PHILIPPINE BANK OF COMMUNICATIONS vs. NLRC, et al. [G.R. No. L-66598. December 19, 1986.]

Section 11 of DOLE Department Order No. 18-02 also requires the registration of contractors and subcontractors. Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting. Only accredited contractors should thus be dealt with.

In the end, whatever employment practices they choose, employers must determine whether they risk claims for regular employment, benefits and damages which claims they may find neither necessary nor desirable.

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Executive Privilege … yeah right (or When Executive Privilege really applies)

By Siesta-friendly

Philippine decisions on this matter cite the landmark case U.S. v. Nixon, 418 U.S. 683 (1974), where the U.S. Supreme Court rejected U.S. President Richard Nixon’s claim of absolute executive privilege of immunity from judicial review over high-level government communications. The U.S. SC held that, against the role of the judicial branch to administer justice in criminal cases, the confidentiality of high-level government communications cannot be protected by executive privilege “absent a claim of need to protect military, diplomatic, or sensitive national security secrets”.

Thus, Nixon’s broad claim of “public interest” in the confidentiality of his communications was deemed insufficient basis to protect them as privileged and so he was compelled to surrender his audiotaped conversations and documents which were subpoenaed in connection with criminal cases (including conspiracy to defraud the U.S. and obstruction of justice) filed against some members of his administration. Days later, fearing certain impeachment, Nixon resigned.

Ah, sweet justice, where are you when we need you?

Anyway, lest we digress, the latest Philippine decision on the matter is Senate of the Philippines, et al. vs. Eduardo R. Ermita, et al. (G.R. No. 169777, April 25, 2006) where the Supreme Court (in citing U.S. v. Nixon and other similar cases) likewise acknowledged that the principle of executive privilege is not absolute and that executive privilege -

“whether asserted against Congress, the courts, or the public, is recognized only in relation to certain types of information of a sensitive character … Noticeably absent is any recognition that executive officials are exempt from the duty to disclose information by the mere fact of being executive officials. Indeed, the extraordinary character of the exemptions indicates that the presumption inclines heavily against executive secrecy and in favor of disclosure.”

Thus, in striking down provisions of Executive Order No. 464 (series of 2005)[1], the SC held that -

As far as it required government officials to first secure the President’s consent prior to appearing before Congress, such was invalid as it “is woefully insufficient for Congress to determine whether the withholding of information is justified under the circumstances of each case. It severely frustrates the power of inquiry of Congress.”

As far as it allowed government officials to invoke executive privilege on their own, such was likewise invalid. “In light of this highly exceptional nature of the privilege, the Court finds it essential to limit to the President the power to invoke the privilege. She may of course authorize the Executive Secretary to invoke the privilege on her behalf, in which case the Executive Secretary must state that the authority is “By order of the President,” which means that he personally consulted with her. The privilege being an extraordinary power, it must be wielded only by the highest official in the executive hierarchy.”

The SC concluded that –

“Congress undoubtedly has a right to information from the executive branch whenever it is sought in aid of legislation. If the executive branch withholds such information on the ground that it is privileged, it must so assert it and state the reason therefor and why it must be respected.” [emphasis supplied]

So the next time any government official clams up citing executive privilege in connection with a Congressional hearing (in aid of legislation) remember that:

1) such can only be done by the President or by the Executive Secretary upon authority of the President, and

2) the reason/s why the information is deemed protected by executive privilege must be specified. It is improper for any other government official, however high-level, to invoke executive privilege on his own. And mere claims of ‘confidentiality” or “public interest” are clearly insufficient.

In time, to avoid further confusion and misuse of the principle, it is hoped that a ruling can be made stating specifically that executive privilege shall not prevail to hide crimes and misdemeanors by any government official.

[1] “Ensuring Observance Of The Principle Of Separation Of Powers, Adherence To The Rule On Executive Privilege And Respect For The Rights Of Public Officials Appearing In Legislative Inquiries In Aid Of Legislation Under The Constitution, And For Other Purposes”.

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Corporate Disillusion (How to Dissolve your Corporation)

By Siesta-friendly

You’ve realized one reason or another that the corporation you’ve given life to needs to say goodbye to the world. It will not be that easy as you have to go through the notorious Philippine government red tape. But, it will be clean and will (it is hoped) not give you sleepless nights.

Here’s how the corporation can say goodbye properly. First, you decide to shorten its corporate life which is set at 50 years by default in the articles of incorporation. You set up a meeting (together or separately) with at least a majority of the directors/trustees and stockholders/members where the majority of both directors/trustees and stockholders/members agree to amend the articles of incorporation to shorten the corporate term. Note that your by-laws may require a higher number of votes for such an amendment. You must follow what your by-laws provide so you will need to double-check that (whether it’s 2/3 vote, 3/4, etc.).

Then you will need to get a Tax Clearance from the BIR. First, obtain BIR Form No. 1905 (Application for Registration Information Update). Then, submit that together with the following:[1]

1. Letter of request stating the reason for termination of business (which is shortening of corporate term in this case)

2. Original BIR Certificate of Registration

3. Books of Accounts

4. Inventory List of Unused Receipts and Invoices

5. Unused Receipts and Invoices for cancellation

6. Proof of payment of existing liabilities

7. Board Resolution / Notice of Dissolution (if Corporation / Partnership)

Then wait (we hope, not endlessly) for the issuance of the Tax Clearance.

Don’t rejoice too soon once you get the Tax Clearance. There’s more. If your corporation was accredited with some government agency, you will have to get an Indorsement/Clearance from them regarding your corporate dissolution. The SEC will require submission of this Indorsement/Clearance.

Now, to the SEC where you will need to submit the following:[2]

1. Directors’/Trustees’ (if non-stock) Certificate – a notarized document signed by a majority of the directors/trustees and the corporate secretary, certifying the amendment of the Articles of Incorporation shortening the corporate term, the votes of the directors/trustees and stockholders/members, and the date and place of the stockholders’/members’ meeting

2. Amended Articles of Incorporation indicating the change in the corporate term

3. Audited financial statements as of date of the stockholders’ meeting approving the dissolution or any date thereafter but not earlier than 60 days prior to the date of filing of the application

4. List of creditors, if any, and the consent of the creditors; or certification as to non- existence of creditors

5. BIR tax clearance

6. Publisher’s affidavit of the publication of the notice of dissolution of the corporation (once a week for 3 consecutive weeks)

7. Indorsement/Clearance from other government agencies, if applicable

In cases where there are creditors and the consent of the creditors was not secured, the application should be in the form of a petition to be filed with Office of General Counsel of the SEC.

And, that’s it! Although don’t be fooled by the relative short list of requirements; don’t forget what we cited earlier: the notorious red tape. Also, since government agencies are incorrigibly indecisive about their requirements and/or procedures, be sure to get the latest list of requirements always.

Finally, note that there is a short corporate afterlife of 3 years from the time the corporation would have been so dissolved, “for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established.”[3]

[1] Taken from http://www.bir.gov.ph/reginfo/regriu.htm. Accessed October 4, 2007.
[2] Taken from http://www.sec.gov.ph/. Accessed October 4, 2007.
[3] Sec. 122, Batas Pambansa Blg. 68 (The Corporation Code Of The Philippines). May 1, 1980.

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Do the Co-op!

By Siesta-friendly

There is a type of business entity that is not common in the Philippine context. Yet, this is arguably the most helpful in uplifting people’s social and economic welfare. Clearly, cooperatives have yet to lead the way in our economic arena the way they have done so abroad.

Being based on the principle of self-help, co-ops are well-suited to provide services especially in a country often lacking adequate basic services. In other countries, co-ops have been established to provide electricity, telephone services, health services, insurance, etc. to their members. Imagine how easily product/services can be availed of, how much costs can be cut, or how damage, injury or loss can be compensated, if the reliance was shifted from the government to the cooperative.

Banking on collective power, co-ops can obtain/sell for their members products/services at terms more advantageous to them than if the same were obtained/sold by an individual acting alone. Retail store co-ops are classic examples but the principle applies across the board. In fact, co-op members can avail of their co-op’s products/services at cost because a co-op is primarily established to serve them (not to reap profits). The potential of having a powerful lobby group is another plus for the co-op system. Our neglected farmers, for one, can be better heard banded together than if individually pushing for government support.

The principle of cooperation ensures the maximization of production, processing, marketing and/or purchasing strength to come up with quality products/services and offer them at cost to its members. Members can readily share in the use of expensive machinery, equipment, tools, etc. previously beyond their reach. Having a co-op also ensures a captive market for the co-op’s products/services thereby guaranteeing regular business.

The co-op policy of one vote per member promotes a more democratic decision-making process and better protects each member’s interest.

Co-ops are of different types and have different purposes. They are formed when people combine their resources (funds, property, skills) to fulfill a common need. The Cooperative Code of the Philippines[1] allows at least 15 persons to form a co-op for any or all of the following purposes:

1) To encourage thrift and savings mobilization among the members;

2) To generate funds and extend credit to the members for productive and provident purposes;

3) To encourage among members systematic production and marketing;

4) To provide goods and services and other requirements to the members;

5) To develop expertise and skills among its members;

6) To acquire lands and provide housing benefits for the members;

7) To insure against losses of the members;

8 ) To promote and advance the economic, social and educational status of the members;

9) To establish, own, lease or operate co-op banks, co-op wholesale and retail complexes, insurance and agricultural/industrial processing enterprises, and public markets;

10) To coordinate and facilitate the co-op activities; and

11) To undertake any and all other activities for the effective and efficient implementation of the provisions of the Code.

Accordingly, the Code recognizes these types of co-ops:[2]

a. Credit Cooperative - promotes thrift among members and creates funds for loans for productive and provident purposes;

b. Consumers Cooperative - procures and distributes commodities to members and non-members;

c. Producers Cooperative - undertakes joint production whether agricultural or industrial;

d. Marketing Cooperative – supplies production inputs to members and markets their products;

e. Service Cooperative - engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication and other services; and

f. Multipurpose Cooperative - combines 2 or more of the business activities of the other types of co-ops.

Difference with Corporations

Although the co-op’s General Assembly (comprising all its members) is the principal policy-making body, like corporations, the co-op’s daily affairs are managed by the board of directors. However, unlike corporations, the co-op’s director/officer/employee handling the co-op’s funds, securities or property is required to provide adequate bond for the faithful performance of his duties and obligations.[3]

Like corporations, co-op members also have shares but a member cannot own or hold more than 20% of the co-op’s share capital.[4] And unlike corporate shareholders, a co-op member is liable for the co-op’s debts to the extent of his contribution to the co-op’s share capital.[5]

Co-op members don’t have dividends but they share proportionately in the co-op’s net surplus. The net surplus comprises the excess of payments made for the products/services bought from the co-op.[6] At the end of the fiscal year, the net surplus is distributed as follows: 1^st at least 10% to the reserve fund (more like a revolving capital), then 2^nd no more than 10% to the education and training fund (for members), and 3^rd no more than 10% to an optional fund (for necessary expenses, say, for real property), the balance takes the form of the ROI (return on investment) and patronage funds.[7]

When a member purchases his co-op’s goods/services, he pays full price and only gets the difference between the net price and the mark-up upon the distribution of the net surplus, usually at the end of the fiscal year, in the form of patronage funds.

Tax Benefits

Apart from the social and economic benefits, the tax benefits granted to co-ops add further attraction. Consider: co-ops transacting business with both members and non-members shall not be subject to tax on their transactions to members. In addition, such co-ops when dealing with non-members shall enjoy the following tax exemptions:

1) Co-ops with accumulated reserves and undivided net savings of not more than P10M shall be exempt from all taxes. They are also exempt from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally as certified by the DTI.

2) Co-ops with accumulated reserves and undivided net savings of more than P10M shall pay the following taxes at the full rate:

(a) Income tax on the amount allocated for interest on capitals, provided that the same tax is not consequently imposed on interest individually received by members;

(b) Sales tax on sales to non-members, provided that all co-ops are exempt from the payment of income and sales taxes for a period of 10 years from registration.

For co-ops whose exemptions were removed by E.O. 93,[8] the 10-year period shall be reckoned from the E.O’s effectivity date. Co-ops created after the Code’s approval shall be granted the same exemptions, the period of which shall be reckoned from the date of registration with the Cooperative Development Authority (CDA); provided that at least 25% of the net income of the co-op is returned to the members in the form of interest and/or patronage refunds;

(c) All other taxes unless otherwise provided herein; and

(d) Donations to charitable, research and educational institutions and reinvestment to socio-economic projects within the co-op’s area of operation may be tax deductible.

3) All co-ops shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies, provided that all sales or services rendered for non-members shall be subject to the applicable percentage taxes except sales made by producers, marketing or service co-ops.

4) Any judge in his capacity as notary public, ex officio, shall render service, free of charge, relating to either the administration of oath or acknowledgment of (a) articles of cooperation of a co-op and (b) instruments of loan from co-op not exceeding P50,000.00.

5) Any register of deeds shall accept for registration, free of charge, any (a) instrument relative to a loan by a co-op which does not exceed P50,000.00 or (b) the deeds of title of any property acquired by the co-op or (c) any document drawn in connection with any action brought by the co-op or with any court judgment rendered in its favor or (d) any instrument relative to a bond of any accountable officer of a co-op for the faithful performance of his duties and obligations.

6) Co-ops shall be exempt from the payment of all court and sheriff’s fees in connection with all actions brought under the Code.

7) All co-ops shall be exempt from putting up a bond for bringing an appeal against the decision of an inferior court or seeking to set aside any third party claim.

8 ) Any security issued by a co-op, shall be exempt from provisions of the Securities Act provided such security shall not be speculative.[9]

Economic Survey

If you want to consider the co-op way, one of the first things you must do is to come up with an economic survey containing the structure, purposes and economic feasibility of the proposed co-op, including the area of operation, the size of membership and other pertinent data.[10] Not only will this help you figure out all the details you need to determine if you need to, can, and will push through with the proposed co-op, but this survey is 1 of the primary documents required by the CDA prior to registration.

Once you’re ready, just go to the CDA and have your co-op registered there.

^[1] Section 6,Republic Act No. 6938.

^[2] Section 23, ibid.>

^[3] Section 57, ibid.

^[4] Section 74, ibid.

^[5] Section 30, ibid.

^[6] Section 86, ibid.

^[7] Section 87, ibid.

^[8] “Withdrawing All Tax And Duty Incentives, Subject To Certain Exceptions, Expanding The Powers Of The Fiscal Incentives Review Board And For Other Purposes.” December 17, 1986.

^[9] Section 62, ibid.

^[10] Section 11, ibid.

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