2019 Amendments to the Revised Rules of Civil Procedure and Revised Rules of Evidence

Legal Updates

Author Atty. Enrico Errol D. Angeles  

On October 8 and 15, 2019, the Philippine Supreme Court issued the 2019 Amendments to the Revised Rules of Evidence and the Amendments to the 1997 Rules of Civil Procedure (collectively the “New Rules”), respectively.  The New Rules will be effective on May 1, 2020 and shall cover (i) all cases filed after the said date; and, (ii) all pending proceedings except to the extent that, in the opinion of the court, their application would not be feasible or would work injustice.

Some of the highlights and major changes under the New Rules:

1.      The New Rules allows filing of a Reply only if the defendant attaches an actionable document to the Answer.

2.      The New Rules gives emphasis to the counsel’s signature in a pleading as it constitutes a certification.  Courts are empowered to impose appropriate sanctions if the requirement of signature on the certification is violated.

3.      The New Rules mandates that every pleading stating a party’s claim or defense shall also state: (i) the names of witnesses; (ii) summary of the witnesses’ intended testimonies and their respective judicial affidavits; and, (iii) documentary and object evidence.

4.      The New Rules permits other modes of filing and service, such as through accredited couriers, facsimile transmission, and transmission by electronic mail or other electronic means as may be authorized by the Supreme Court.

5.      The New Rules authorizes the courts to determine motu proprio whether or not it can render judgment on the pleadings or a summary judgment.

6.      The disqualification by reason of mental incapacity and immaturity of witnesses was deleted in the New Rules, since questions concerning credibility is best addressed to the sound discretion of the court.

It is evident that developments in procedural laws, jurisprudence and digital technology, as well as international conventions, have been incorporated in the New Rules. The Supreme Court also took cognizance of well-known problems and difficulties attending litigation, and addressed the same in certain provisions of the New Rules.  Definitely, the New Rules is a step in the right direction to update and streamline court proceedings, decongest court dockets and deliver just, speedy, and inexpensive justice deserved by all parties.

With the ongoing pandemic, however, it has become obvious that more can and should be done to take advantage of and fully utilize other readily available technology to further ease doing litigation and adapt it to the new “normal”.  It is thus hoped that within the next few weeks, as quarantines that have been imposed are loosened, the Supreme Court will issue measures utilizing technology to address the current challenges in doing litigation.  

Business and Contractual Disruptions During ECQ – Dealing with Force Majeure Events

Legal Updates

Author Atty. Kristine R. Bongcaron  

The measures relating to the implementation of the Enhanced Community Quarantine (ECQ) over  Luzon and the varying degrees of community quarantine in other areas have resulted in the complete or partial suspension of operations and/or closure of various businesses. This situation has in turn resulted in delays and/or inability of parties to meet their respective local or offshore contractual obligations.

With the effects of the ECQ on business operations, it is expected that legal provisions and contractual stipulations relating to force majeure events and extraordinary changes in circumstance that affect the capacity of parties to perform contractual obligations will be put to test.

Force majeure and its effects

Black’s Law Dictionary defines force majeure as superior or irresistible force, and force majeure risk as when business is disrupted due to a factor beyond control.[1] In the Philippines, a fortuitous event may either be an “act of God,” or natural occurrences such as floods or typhoons, or an “act of man,” such as riots, strikes or wars.[2]

Article (Art.) 1174 of the Civil Code of the Philippines (the “Civil Code”) exempts obligors from liability for non-fulfillment of obligations as stipulated in contracts on account of such events due to their unforeseeable or inevitable nature. Said general rule however does not apply when: (a) it is specified by law; (b) it is otherwise declared by stipulation; and (c) the obligation requires the assumption of risk.

To exempt the obligor from liability for a breach of an obligation due to force majeure, the following requisites must likewise concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor.[3]

Extraordinary changes in circumstances

In addition to Art. 1174, other Civil Code provisions limit or exempt liability due to extraordinary changes in circumstances. These are treated in the same manner as fortuitous events.

        a. Doctrine of unforeseen events

           Article 1267 states that when the service has become so difficult as to be manifestly beyond the contemplation of the parties, the 
           obligor may also be released therefrom, in whole or in part.

           This provision states the doctrine of unforeseen events. This is based on the theory that the parties stipulate in the light of certain
           prevailing conditions, and once these conditions cease to exist, the contract also ceases to exist.[4] Considering practical needs
           and the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the
           party prejudiced.[5]

       b. Impossibility of the performance of  obligations

           Art. 1266 provides that the debtor in obligations to do shall also be released when the prestation becomes legally or physically
           impossible without the fault of the obligor. Note that, for the obligation to be considered impossible under this provision, its physical or
           legal impossibility must first be proven.[6]

       c. Extraordinary inflation or deflation of currency

          Art. 1250 on the other hand provides that in case an extraordinary inflation or deflation of the currency stipulated should supervene,    
          the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement
          to the contrary. 

          It is important to note that a worldwide trend in increase in prices will not necessarily result in the justified application of this 
          provision.[7] This will however be applicable in cases of extraordinary inflation. Extraordinary inflation exists when there is a      
          decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the
          value of said currency, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the
          contemplation of the parties at the time of the establishment of the obligation. [8] 

      d. Lease of rural lands

          Particular to lease of rural lands, Art. 1680 states that lessee shall have no right to a reduction of the rent on account of the sterility of
          the land leased, or by reason of the loss of fruits due to ordinary fortuitous events; but he shall have such right in case of the loss of
          more than one-half of the fruits through extraordinary and unforeseen fortuitous events, save always when there is a specific 
          stipulation to the contrary.

          Extraordinary fortuitous events, in this case, are understood to be: fire, war, pestilence, unusual flood, locusts, earthquake, or others
          which are uncommon, and which the contracting parties could not have reasonably foreseen.[9]

Recommendations

It is recommended that business owners review their contracts affected by the ECQ, and determine the relevant force majeure rules that apply (contractual stipulations or by operation of law as above discussed). A review of the relevant force majeure provisions will also assist in compliance of obligations (such notice and mitigation of adverse effects) to address complications brought about by COVID-19 and the imposed quarantine measures.

Business owners, including their counsels, should likewise keep themselves abreast of all laws, regulations and measures issued by competent government agencies. Knowing is key in anticipating contractual fall-outs arising from the ECQ. ECQ-related guidelines and measures issued by authorities would normally contain provisions relating to directives that inhibit business operations, with resulting penalties and remedies, but also the principles and key considerations for the “lockdown” that result to business owners not having any other options but to close or cease operations. 

One approach that is best suited to a company that intends to continue operation and keep their business relationships prior to the ECQ is to map out a plan that either mitigates the impact of the ECQ or voluntarily compensates the counterparty from the effects thereof. This is contract management. While doing this, it is, of course, essential that a company also lays out a general plan involving remedies and courses of actions. This is dispute management.  

The idea of compensation must be looked at from a perspective of one’s inability to actually mitigate the impact during the period of crisis resulting to non-performance of an obligation. In such a case, the party unable to fulfill obligations must be prepared to approach the other party and explore acceptable alternative schemes to satisfy its end of the deal. 

Moving forward, prudent business owners must consider writing into their agreements force majeure provisions to define and/or control liability in case such events occur during the lifetime of their contracts so as not to be dependent on legal provisions alone. It is also helpful to stipulate on the definition of force majeure, procedures for notice to the other party, measures for mitigation, and extended periods for completion of obligations. Likewise, parties may want to include force majeure as a cause for modification of the instrument and/or termination of contracts.

These considerations will of course depend on the type of contract. For instance, service agreements may benefit from additional provisions defining periods for extension in fulfilling obligations the performance of which was affected by the fortuitous event. Distribution agreements may expand their definition of force majeure  to expressly cover delays in transportation and inability to obtain supplies of raw materials. Construction agreements may include modifications in determining delays on account of force majeure.

It has been recognized that operations and expected profits of a business venture are subject to hazards due to the occurrence of fortuitous events.[10] If such were to happen parties are at risk not only of not reaping any profits from their investments but of incurring losses. This cannot be more apparent now. As always, having measures in place to address difficulties arising from fortuitous events and being ready to implement them at the appropriate time provide much needed leeway for companies to adjust once fortuitous events come to pass.

[1] 2nd Edition, Black’s Law Dictionary. https://www.freelawdictionary.org/?s=force+majeure. Last accessed on 16 April 2020, at 8:47 p.m.

[2] Philippine Communications Satellite Corporation vs. Globe Telecom, Inc. G.R. No. 147324, 25 May 2004.

[3] Florencia Huibonhoa vs. Court of Appeals, G.R. No. 95897, 14 December 1999.

[4] Rebus sic stantibus in public international law; Naga Telephone Co., Inc. vs the Court of Appeals, G.R. No. 107112, 24 February 1994.

[5] Ibid.

[6] Delfin Gonzalez, Jr. vs. Magdaleno M. Peña, G.R. No. 214303, 30 January 2017.

[7] Florencia Huibonhoa vs. Court of Appeals, G.R. No. 95897, 14 December 1999.

[8] Ibid.

[9] Par. 2, Art. 1680 of the Civil Code.

[10] Nielson and Company, Inc. vs. Lepanto Consolidated Mining Company, G.R. No. L-21601, 28 December 1968.

Shifting to E-Commerce During the Enhanced Community Quarantine

Legal Updates

Author Atty. Kathleen Mae C. Tuason  

On March 17, 2020, Luzon, Philippines has been placed under Enhanced Community Quarantine (ECQ) in response to the global COVID-19 pandemic. Under the ECQ, the Philippine Government mandated, amongst others, that a strict home quarantine be implemented all over the island of Luzon, all forms of mass transportation be suspended, and food and health services be regulated.[1]

The ECQ was later on reinforced under Republic Act No. 11469 or the Bayanihan to Heal as One Act, which provides that the President shall have the power to adopt various temporary emergency measures to respond to the crisis brought about by the pandemic, including  ensuring the availability of essential goods by adopting measures as may be reasonably necessary to facilitate and/or minimize disruption to the supply chain, especially for basic commodities and services, and the regulation and limitation of operation of all sectors of transportation, and regulation of traffic on all roads, including access thereto.

As a result, many business establishments such as restaurants, pharmacies, supermarkets, and other brick and mortar stores have been partially or fully closed for the duration of the ECQ. To address this challenge, many business owners, especially those which offer basic necessities to the public, have opted to employ the use of online platforms to address consumer demand. Such online platforms include offering their products through electronic commerce (e-commerce) websites and applications (i.e. Lazada, Shopee, and Zalora), mobile-based delivery companies (i.e. Grab, Foodpanda, and Lalamove), social networking applications (Facebook and Instagram), and through other websites and online platforms. The increased propensity of usage of these platforms gives rise to many legal and regulatory issues faced both by consumers and sellers alike. 

In the Philippines, the laws and regulations governing businesses and transactions conducted online are still limited. For instance, the primary law applicable for e-commerce transactions would still be Republic Act No. 7394 or the Consumer Act of the Philippines which was enacted way back in 1992, and thus has not yet contemplated present issues and challenges governing e-commerce transactions.The Consumer Act of the Philippines defines “sale” or “distribution” as an act made by a manufacturer or seller, or their respective representative or agent, to make available consumer products, services or credit to the end consumers under a consumer sale transaction, and provides for the prohibition against deceptive sales acts or practices and penalties for the same. Under said law, an act or practice shall be deemed deceptive whenever the producer, manufacturer, supplier or seller, through concealment, false representation of fraudulent manipulation, induces a consumer to enter into a sales or lease transaction of any consumer product or service. This would include instances when a consumer product or service is of a particular standard, quality, grade, style or model when in fact it does not – a deceptive practice usually encountered by consumers when dealing with online sellers of goods.

Fortunately, under Republic Act No. 8792 or the Electronic Commerce Act of 2000 (“E-Commerce Act”), the applicability of the Consumer Protection Act was expressly extended to cover e-commerce transactions. The E-Commerce Act states that violations of the Consumer Protection Act and other relevant laws through transactions covered by or using electronic data messages or electronic documents shall be penalized with the same penalties as provided under such law.

A more recent and updated regulation applicable to e-commerce transactions is the Joint Administrative Order No. 01 series of 2008 issued by the DTI, Department of Health, and Department of Agriculture (Joint Order), which requires online sellers (namely, retailers, sellers, distributors, suppliers or manufacturers engaged in electronic commerce with consumers) to adopt fair and reasonable business practices, including compliance with the Consumer Act of the Philippines, and further requires online sellers to provide for online disclosure of information, including accurate, clear and easily accessible information to identify themselves. Information required include the following:

1)   DTI and/or Securities Exchange Commission (SEC) registration;

2)   Name of the owner/proprietor of a retail establishment in case of a single proprietorship and names of
      directors and other officers in case of a corporation;

3)   Principal geographical address of the retailer, seller, distributor, supplier or manufacturer, and when
      applicable, of offices or agents in the Philippines;

4)   Website, e-mail address or other electronic means of contact, telephone and fax numbers, of the retailer, and
      when applicable, of its offices or agents in the Philippines;

5)   Any relevant local or foreign government registration/license numbers such as but not limited to the local
      government unit’s permit to operate, Taxpayer’s Identification Number (TIN), when applicable;

6)   Contact details about any business association or organization membership, when applicable; and

7)   Representative agent(s) in the Philippines for purposes of summons.

This Joint Order further requires that online sellers provide (a) sufficient, clear, accurate, and easily accessible information about the terms, conditions and costs of the consumer transaction, (b) reliable and secure payment mechanisms,  (c) an operation internal complaint-handling mechanism for consumer complaints, and (d)  procedures for filing consumer complaints with the concerned implementing agencies, both for online sellers located in the Philippines and abroad.

As to compliance with tax laws, Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN Law) provides that within five (5) years from its effectivity, and upon the establishment of a system capable of storing and processing the required data, the BIR shall require taxpayers engaged in e-commerce to issue electronic receipts or sales or commercial invoices in lieu of manual receipts subject to the rules and regulations to be issued by the Secretary of Finance upon the recommendation of the BIR Commissioner and after a public hearing has been held for this purpose. It is noted that the Government has yet to establish such system, and has until 2022 to do so.

Interestingly, the Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular No. 55-2013 which provides that existing tax laws and revenue issuances on the tax treatment of purchases (local or imported) and sale (local or international) of goods or services shall be equally applied with no distinction on whether or not the marketing channel is the internet/digital media or the typical or customary physical medium.

In efforts to address the lack of e-commerce regulations in the Philippines, the DTI, in cooperation with the University of the Philippines Law Center, will be drafting the 2022 Philippine E-Commerce Roadmap, and will be working on enhancing consumer and merchant protection policies, including the integration of e-commerce-specific regulations, and online dispute mechanisms. This is in response to the increase of e-commerce targets which is expected by the DTI to account of 40% to 50% of the Philippine Gross Domestic Product by 2022.[2] It is hoped that through the 2022 Philippine E-Commerce Roadmap, up-to-date laws and regulations and improved enforcement mechanisms be put in place in order to address timely issues involving the Philippine e-commerce business landscape.  


[1] Rodriguez M., (2020-03-16), Home Quarantine, Suspended Transportation + What You Should Know About “Enhanced Community Quarantine”, retrieved from https://www.spot.ph/newsfeatures/the-latest-news-features/81419/enhanced-community-quarantine-luzon-a4362-20200316

[2] Ibanez, J. (2019-10-28), Trade dep’t drafting e-commerce regulations for 2022 road map, retrieved from https://www.bworldonline.com/trade-dept-drafting-e-commerce-regulations-for-2022-road-map/

Enhanced Community Quarantine – Court Operations and Processes

Legal Updates

Author Atty. Eduardo A. Martinez, Atty. Kristine R. Bongcaron


To mitigate the spread of the Corona Virus Disease 2019 or “COVID-19” in the Philippines, the entire Luzon region was placed under Enhanced Community Quarantine (ECQ) from 17 March  until 13 April 2020.[1] The ECQ period was later on extended until 30 April 2020 upon the recommendation of the Inter-Agency Task Force for the Management of Emerging Infectious Diseases.[2] Provinces and cities outside of Luzon have also been placed under lockdown or community quarantines in various degrees to control and minimize the spread of the infection.

In line with the appeal of the Government for the general public to stay home to control the further spread of COVID-19, the Supreme Court implemented guidelines to limit movement and travel of justices, judges and their skeleton staff.[3] It likewise issued guidelines on the procedure for filing motions, pleadings, and other court submissions during the ECQ period.[4]

A. Physical closure of courts

Under Administrative Circular No. 32-2020, all courts nationwide shall be physically closed except for urgent matters. Litigants, lawyers, prosecutors and the general public are  therefore advised to first contact the proper court through any of its identified hotlines, email addresses and Facebook accounts to determine if their matter is urgent.

A list of the hotlines, email addresses and Facebook accounts of all courts nationwide may be accessed through – http://sc.judiciary.gov.ph/hotlines/.

B. Urgent matters that may be acted upon by the courts during ECQ

Note that under Administrative Circular No. 32-2020, a court will only act upon the concern raised if it determines that  it is an urgent matter. While not exhaustive, the Supreme Court in an earlier issuance identified matters as urgent:[5]

o   Petitions, motions and pleadings in relation to bail;

o   Petitions, motions and pleadings in relation to habeas corpus;

o   Promulgation of judgments of acquittals;

o   Reliefs for those who may be arrested during the ECQ period; and

o  Other related actions filed in relation to measures imposed at the local or national levels to address the declared health emergency
 

C. Suspension of court actions not deemed urgent matters

Accordingly, all court actions not considered urgent and scheduled during the period from 15 March 2020 until 30 April 2020 are suspended and shall be rescheduled.[6] For court actions with prescribed periods, these periods shall likewise be extended for thirty (30) calendar days counted from 1 May 2020.[7]

D. Electronic submissions to courts

With respect to the filing of petitions and appeals, complaints, motions, pleadings and other court submissions due up to 30 April 2020, the Supreme Court granted an extension of 30 calendar days from 1 May 2020.[8] Nevertheless, parties may still make submissions within the reglementary period on or before 30 April 2020 through  electronic means, if available.[9]

While the courts shall remain physically closed to all court users, the courts shall continue to operate from 9:00am to 3:00pm, Monday to Friday until April 30, 2020.[10] All electronic communications referred to above, must be transmitted by court users from 8:30am to 2:00pm.[11]

Particular to the electronic filing of criminal complaints, informations, and posting of bails, the Supreme Court under Administrative Circular No.33-2020 dated 31 March 2020 and OCA Circular No. 89-2020 dated 3 April 2020 further provided the following guidelines:

    1.    Filing of criminal complaints and informations

     o     Criminal complaints and informations, together with other supporting documents, may be filed through electronic transmission or email before the proper first or second level court during the duration of the public health emergency declared by the President in accordance with existing law.[12] Once the complaint or information is received by the court, the Clerk of Court shall refer the same to the judge on duty who shall personally evaluate the complaint or the resolution of the prosecutor, and its supporting evidence.[13]

·          
       o     The Judge shall personally evaluate the same within three (3) days from the filing of the Complaint or Information.[14] Thereafter  –

–   The Judge may either dismiss it outright, or

–   If the Judge finds probable cause, he or she shall issue a warrant of arrest or commitment order.

–   In case of doubt on the existence of probable cause, the Judge may order the prosecutor to submit, through electronic transmission, additional evidence within three (3) days from notice and the issue must be resolved by the court within ten (10) days from the filing of the Complaint or Information.

         o      All court orders, pleadings, and other submissions electronically submitted must be in PDF format.[15] In addition, pieces of evidence which are not documentary in nature may be photographed and converted into PDF, but must be authenticated by a certification of the person submitting such evidence as a true photo reproduction thereof.[16] All pleadings must be under oath and indicate the case number, case title, and the caption, title or heading of the pleading.[17]


2.    Posting of Bail

                  o     The initial online submission of requirements for bail may be availed of by an accused who has been charged during or before the court prior to the start of this public health emergency period.[18]

     o     The Judge shall determine if the accused shall be admitted to bail as a matter of right. If so, and once the accused has submitted all the requirements for bail, which may also be electronically transmitted to the court, the Judge shall examine the same, and if complete and compliant, shall sign the approval of the bail and the consequent release order.[19]

     o    The Judge on duty may reduce the amount of bail initially fixed, upon motion of the accused and after giving the prosecutor the opportunity to comment within a non-extendible period of twenty-four (24) hours from the filing, which motion and order to file comment thereon may also be sent electronically.[20]

     o     Actions on the reduction of bail shall be decided within twenty-four (24) hours from the expiration of the period to comment on the motion for reduction of bail, with or without comment from the prosecutor.[21]

     o    The approval of the bail and the consequent release order shall then be electronically transmitted to the Executive Judge who, within the same day shall transmit the same to the proper law enforcement authority or detention facility to enable the release of the accused.[22]

–    Upon request, the accused, or his or her representative, shall likewise be furnished certified true copies of the approval of the bail and release order, within the same day of their issuance. [23]

–    The certified true copy or the electronically transmitted approval of Bail and release order shall be sufficient to cause the release of the accused.[24]


3.    Payment of court fees related to electronic submissions

               o     Payment of all court fees related to an electronically transmitted complaint or information, and all other court submissions for purposes of bail, shall be coursed through any branch of the Land Bank of the Philippines.[25]

    o     Payment shall be coursed only after the issuance of an online assessment by the respective Office of the Clerk of Court. [26]

    o    The online assessment shall include the amount to be deposited and the specific account where the amount shall be deposited. [27]

[1] Memorandum of the Executive Secretary dated 16 March 2020 on Community Quarantine Over the Entire Luzon and Further Guidelines for the Management of the Coronavirus Disease 2019 (Covid-19) Situation dated 16 March 2020 (the “Guidelines“); Section 3(b) of the Guidelines defines ECQ measure “where strict home quarantine shall be implemented in all households; transportation shall be suspended; provision for food and essential health services shall be regulated; and heightened presence of uniformed personnel to enforce quarantine procedures will be implemented”.

[2] Memorandum of the Executive Secretary dated 7 April 2020 on Extension of the Enhanced Community Quarantine Over the Entire Luzon Until 30 April 2020.

[3] Administrative Circular No. 32-2020 dated 20 March 2020; Administrative Circular No. 34-2020 dated 8 April 2020.

[4] Administrative Circular No. 33-2020 dated 31 March 2020 on Online Filing of Complaint or Information and Posting of Bail Due to the Rising Cases of COVID 19 Infection.
[5] 5, Administrative Circular No. 31-2020 dated 16 March 2020, on Rising Cases of COVID-19 Infection.

[6] 8, Administrative Circular No. 34-2020 dated 8 April 2020.

[7] 9, Administrative Circular No. 34-2020 dated 8 April 2020.

[8] 7, Administrative Circular No. 34-2020 dated 8 April 2020.

[9] Ibid.

[10] Administrative Circular No. 34-2020 dated 8 April 2020.

[11] Ibid.
[12] 2 and 8, Administrative Circular No. 33-2020 dated 31 March 2020.
[13] 2, Administrative Circular No. 33-2020 dated 31 March 2020.
[14] 3, Administrative Circular No. 33-2020 dated 31 March 2020.

[15] 5, OCA Circular No. 89-2020 dated 3 April 2020.

[16] Ibid.

[17] Ibid.
[18] 1 and 6, Administrative Circular No. 33-2020 dated 31 March 2020.
[19] 4, Administrative Circular No. 33-2020 dated 31 March 2020.

[20] Ibid.

[21] Ibid.
[22] 5, Administrative Circular No. 33-2020 dated 31 March 2020.

[23] Ibid.

[24] Ibid.

[25] 6, OCA 89-2020 dated 3 April 2020.
[26] Ibid.
[27] Ibid.

Rent Concessions during the Enhanced Community Quarantine Period

Legal Updates

Author Atty. Erika B. Paulino  

 Atty. Maria Melita Rae J. Fernandez

(Authors’ Note: This article has been updated as of May 5, 2020.)

On April 4, 2020, the Department of Trade and Industry (DTI) issued Memorandum Circular No. 20-12 (the “DTI Circular”) prescribing guidelines on the concessions on residential and commercial rents during the period of the Enhanced Community Quarantine (ECQ).  This implements Section 4 (bb) of the Bayanihan to Heal As One Act (Republic Act No. 11469), empowering the President to adopt temporary emergency measures in order to respond to the crisis brought about by the COVID-19 pandemic. One such power is to:

“(bb) Provide for a minimum of thirty (30)-day grace period on residential rents falling due within the period the enhanced community quarantine, without incurring interests, penalties, fees, and other charges”.

The Philippine Ports Authority (PPA) likewise extended the rental and concession fee payments of PPA lessees and port terminal operators falling due within the ECQ period under Memorandum Circular No. 17, Series of 2020 (the “PPA Circular”), which was published on April 25, 2020.

DTI Circular

The DTI Circular covers only “residential rent”and “commercial rent of MSMEs”. 

§  Residential rent refers to any amount paid for the use or occupancy of a residential unit (i.e., bedspaces, rooms, dormitories, apartments, houses, buildings, and/or land on which another’s dwelling is located used principally for residential or dwelling purposes), regardless of the mode and terms of payment. The DTI Circular does not appear to qualify with respect to eligible categories of lessees of residential units (whether individuals or corporates), unlike in respect of commercial rent.

§  Commercial rent, on the other hand, refers to any amount paid by MSMEs for the use or occupancy of a commercial space (i.e., land, offices, buildings, centers, shops. Facilities and any other property used principally for commercial purposes, which denote any activity for which profit is the main aim or revenue is received), regardless of the mode and terms of payment.

§  MSMEs (or Micro, Small and Medium Enterprises), as defined under the Magna Carta for Micro, Small and Medium Enterprises (MSMEs) (Republic Act No. 6977, as amended), refer to any business activity or enterprise engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation, whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, must have value falling under the following categories:

Micro               :           not more than P3,000,000.00

Small                :           P3,000,001.00 – P15,000,000.00

Medium           :           P15,000,001.00 – P100,000,000.00

Following are the guidelines on rent concessions provided under the DTI Circular:
 

What concessions are granted under the DTI Circular on residential rents?
 
A minimum 30-day grace period shall be granted on residential rents falling due within the ECQ period, without incurring interests, penalties, fees and other charges.
 
What concessions are granted under the DTI Circular on commercial rents?
 
A minimum 30-day grace period shall be granted on commercial rents falling due upon MSMEs that have temporarily ceased operations within the ECQ period, without incurring interests, penalties, fees and other charges.
 
In addition, lessors of commercial rents for MSMEs who wish to extend greater generosity may:

  1. a.   Totally or partially waive the commercial rents that fall due during the ECQ period;
  2. b.   Grant reprieve or discounted amount of commercial rents due after the ECQ period;
  3. c.   Open for renegotiation the Lease Term Agreements with the lessees; or
  4. d.   Use other recourse to mitigate the impact of the ECQ to the MSMEs.

Please note, however, that the language of the DTI Circular is couched in permissive terms; hence, the grant of such additional concessions to MSMEs would depend on the goodwill of the lessor.

What are the requirements for MSMEs to be eligible for concessions?

Only MSMEs that have temporarily ceased operations due to the ECQ are covered by the commercial rent concession.  

To be eligible for the concessions, MSMEs must signify to their respective lessors their request for assistance by providing supporting documents, such as, but not limited to, financial statements as proof of enterprise size, and/or lease contract as proof of tenancy.

Do the concessions granted under the DTI Circular apply only to the island of Luzon?

No. The DTI Circular was issued pursuant to the Bayanihan to Heal As One Act, which is a national law, hence, the concessions apply to the entire Philippines.

What is the period of coverage of the ECQ?

The ECQ originally covers the period from March 17, 2020 to April 12, 2020. It was subsequently extended to April 30, 2020, and thereafter until May 15, 2020, unless earlier lifted or extended by the President as circumstances may warrant.

When does the minimum 30-day grace period start?

The mandatory 30-day grace period commences from the due date of the residential or commercial rent falling due within the ECQ period.  For example, if the rent is due on April 10, 2020, then the lessee shall be entitled to a grace period of 30 days from April 10, 2020, making the extended due date May 10, 2020. Following the further extension of the ECQ, the new due date for the April rent is on June 10, 2020.

Can a lessor refuse to extend the 30-day grace period?

No. The 30-day grace period is mandatory for residential units and eligible MSME-lessees of commercial units, and the lessor may not refuse the extension thereof.

How will cumulative rents which fall due within the ECQ be paid?  Is this subject to immediate repayment on the extended due date following the lifting of the ECQ?

The cumulative amount of rents which fall due within the ECQ shall be equally amortized in the six months following the end of the ECQ period, and shall be added to the rents due on those succeeding months, without interest, penalties, fees, and charges. It is, however, unclear how the amortized unpaid rents will be treated for short-term leases (e.g. month-to-month leases, or leases with a term of six months or less).

To illustrate:

The monthly rent due on March 30, 2020 is P

12,000.00. Applying the grace period, the extended due date for the March rent is on April 30, 2020, and in view of the extension of the ECQ, the further extended due date for the March rent is on May 30, 2020.

Now, the rental falling due on April 30, 2020 of P

12,000 shall likewise be subject to a 30-day grace period, so the new due date for the April rent is on May 30, 2020.

Assuming that the ECQ is lifted after May 15, 2020, the amount of rent due on May 30, 2020 shall be:

May RentP12,000.00
March Rent (P12,000 / 6 months)P2,000.00
April Rent (P12,000 / 6 months)P2,000.00
P16,000.00

Can a lessee require the lessor to refund residential and commercial rents already paid during the ECQ period?

Lessors are not obligated to refund covered rents that have already been paid. However, should the lessor choose not to refund such rents, the lessor is required to grant a 30-day grace period for the next rent due without incurring interest, penalties, fees, and charges.

May a lessee be evicted from the rented unit or space if he/she/it fails to pay the rent due after the lifting of the ECQ?

No eviction for failure to pay the residential or commercial rent due may be enforced within a 30-day period after the lifting of the ECQ. For example, if the ECQ period ends on May 15, 2020, the lessee who has failed to pay rent due may not be evicted until after June 15, 2020.  

What are the penalties imposable on lessors for violation of the provisions of  the DTI Circular?

The DTI Circular states that, “as provided under the Bayanihan to Heal As One Act, lessors who shall refuse to provide 30-day grace period to lessees shall be penalized with imprisonment of not less than two months or a fine of not less than ten thousand pesos (P

10,000.00), or both, at the discretion of the court.”

Note, however, that under the DTI Circular and the Bayanihan to Heal As One Act, only the refusal to provide the 30-day grace period is punishable. The DTI Circular is silent as regards the penalties for other violations, such as the imposition of interests, fees, penalties, and charges on covered rents, and the eviction of defaulting lessees within the 30-day period following the lifting of the ECQ.

PPA Circular

Similarly, the PPA extended the rental and concession fee payments of PPA lessees and port terminal operators falling due within the ECQ period under  its Memorandum Circular No. 17, Series of 2020 (the “PPA Circular). Under the PPA Circular, all PPA lessees and port terminal operators who are required to pay rental dues and concession fees under their lease contracts, agreements, guidelines or undertaking, are granted a minimum 30-day grace period on rental dues and concession fees falling within the ECQ period, without incurring interest, penalties, fees and other charges.

Likewise, the 30-day grace period starts from the last due date of the rental and concession fees falling due within the ECQ period. It imperative to note that under the PPA Circular, payment of rental and concession fees are only deferred for 30 days. Upon the expiration of the 30-day grace period, such deferred rental and concession fees must be paid immediately. Otherwise, a 12% interest and a 25% penalty charge per annum will be imposed on late payments.

Despite the issuance of the guidelines, several questions still remain unanswered. Are MSMEs which provide basic necessities but which voluntarily ceased operations during the ECQ also covered? Do the concessions only apply to areas that are declared to be under ECQ?  Can the lessee be made to waive the applicability of the concessions granted? What happens if the lessor grants a 30-day grace period, but imposes interest thereon? How will cumulative unpaid rents be treated, especially in respect of short-term (e.g., month-to-month) leases? Will this result in the automatic extension of the lease term? These are just some of the issues that still need clarification. Further supplemental issuances are needed in order to fully clarify the implementation of the concessions on residential rents and commercial rents of MSMEs.

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