RETAIL TRADE NATIONALIZATION LAW(Note: Material on the Retail Trade Liberalization Law will not be included in this

reviewer.   Supplement to follow) 1. 1.       Retail Trade – any act, occupation, or calling of habitually selling direct to the

general public, merchandise, commodities, or goods for consumption

Jurisprudence has held that the term “retail” should be associated with and limited to goods for personal, family or household use, consumption and utilization.  The Retail Trade Nationalization Law refers to “consumption goods” or “consumer goods” which directly satisfy human wants and desires and are needed for home and daily life.  Excluded from the law are those goods which are considered generally raw material used in the manufacture of other goods, or if not, as one of the component raw material, or at least as elements utilized in the process of production and manufacturing.

1. 2.       Elements of What Constitutes Retail Trade:1. a.       The seller habitually engages in selling;2. b.       The sale is direct to the general public; and3. c.       The object of the sale is limited to merchandise, commodities or goods for

consumption.1. 3.       General Rule: After 1964, only Filipinos or corporations whose capital is 100%

Filipino may engage in retail trade.1. 4.       Exceptions, that is, instances when aliens may engage in retail trade in the

Philippines:1. a.       manufacturer or processor if capital does not exceed P5,000.00;2. b.       farmer or agriculturist when selling his products;3. c.       manufacturer or processor selling to industrial or commercial users or

consumers who use the produce to render service to the general public or to produce or manufacture goods which are sold by them to the public;

4. d.       hotel owners or keepers of restaurants included or incidental to the hotel business;

5. e.       sale by a manufacturer or processor to the Government or its agencies, including government owned and controlled corporations.

1. 5.       Query:    How to determine citizenship of shares of the corporation when they are not held directly by individuals, but in turn held by another entity?

Answer:  apply the GRANDFATHER RULE, to wit:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.  Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital respectively, of

which belong to Filipino citizens, all of the said shares shall be recorded as owned by Filipinos.  But, if let’s say, 50% of the capital stock belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shares shall be recorded as belonging to aliens.

However, while a corporation with 60% Filipino and 40% foreign equity ownership is considered a Philippine national for purposes of investment, it is not qualified to invest in or enter into a joint venture agreement with corporations or partnerships, the capital or ownership of which under the Constitution or other special laws are limited to Filipino citizens only.  Hence, for purposes of the law, whatever the percentage of Filipino  ownership in the owning corporation, the foreign ownership would always render a portion of its holding in the company as foreign equity and would disqualify the corporation to engage in retail trade.

ANTI-DUMMY ACT1. 1.       The Act penalizes Filipinos who permit aliens to use them as nominees or

dummies to enjoy privileges reserved for Filipinos or Filipino corporations.  Criminal sanctions are imposed on the president, manager, board member or persons in charge of the violating entity and causing the latter to forfeit its privileges, rights and franchises.

1. 2.       Disqualified aliens cannot intervene in the management, operation, administration or control of the business reserved to Filipinos whether as an officer, employee or laborer, with or without remuneration, except when:

1. a.       alien takes part in technical aspects;2. b.       provided that no Filipino can do such technical work; and3. c.       with express authority from the President, upon the recommendation of

the department head concerned.1. 3.       By way of exception, the following may participate in management:

1. a.       Aliens may be elected to the Board of Directors to the extent of their allowable share in the capital of the corporation (in partially nationalized industries).

2. b.       A registered enterprise may employ foreign nationals in supervisory, technical, and advisory positions for a period of 5 years subject to extension.

3. c.       Where majority of stocks of a pioneer enterprise is owned by foreign investors, the following positions may be held by foreign nationals:

n  president

n  treasurer

n  general manager

n  equivalent positions

1. 4.       A Filipino common-law wife of an alien is not barred from engaging in the retail business provided she uses capital exclusively derived from her paraphernal properties; however, allowing her common-law alien husband to take part in the management of the retail business would be a violation of the law.

1. 5.       What doing business means:1. a.       soliciting orders, purchases, service contracts;2. b.       opening offices whether called liaison offices or branches;3. c.       appointing representatives or distributors who are domiciled in the

Philippines or who in any calendar year stay in the country for a period totaling 180 days or more;

4. d.       participating in the management or supervision or control of any domestic firm, entity or corporation in the Philippines;

5. e.       any other act or acts that imply continuity in commercial dealings1. 6.       When commissioned merchants/investors or commercial brokers act in their

own name in selling foreign products, the foreign firm manufacturing these products is not doing business in the Philippines.

1. 7.       When a local corporation or person acts in the name of a foreign firm, the latter is doing business in the Philippines.

1. 8.       The following are NOT doing business:1. a.       mere investment as a shareholder by a foreign entity in domestic

corporations duly registered to do business;2. b.       exercise of rights as such investor;3. c.       having a nominee director or officer to represent interests in such

corporation;4. d.       appointing a representative or distributor domiciled in the Philippines

which transacts business in its own name and for its own accounts.2. 1.       Purpose:

1. a.       to encourage use of and to promote transactions based on trust receipts;2. b.       to regulate the use of trust receipts

TRUST RECEIPTS LAW1. 2.       Definition:

A written/printed document signed by the ENTRUSTEE in favor of the ENTRUSTER whereby the latter releases the goods, documents or instruments tot he possession of the former upon the ENTRUSTEE’S promise to hold said goods in trust for the ENTRUSTER, and to sell the goods, etc. WITH THE OBLIGATION TO TURN OVER THE PROCEEDS THEREOF TO THE EXTENT OF WHAT IS OWING TO THE ENTRUSTER; or to return the goods if UNSOLD, or for other purposes.

1. 3.       Trust receipts are denominated in Philippine currency or acceptable and eligible foreign currency.

1. 4.       ENTRUSTER is not liable as principal or vendor under any sale or contract to sell made by the ENTRUSTEE.

1. 5.       Risk of loss is borne by the ENTRUSTEE.

1. 6.       Pending the duration of the trust agreement, the ENTRUSTER’S security interest cannot be prejudiced by claims of creditors of the ENTRUSTEE.

1. 7.       Loss of goods pending the dispossession shall not extinguish the obligation to the ENTRUSTER  for the value thereof.

 LETTERS OF CREDIT1. 1.       Kinds:

1. a.       Commercial Letters of Credit2. b.       Traveler’s Letters of Credit

1. 2.       No protest required in case of dishonor.1. 3.       Issued to definite persons and not to order, thus, non-negotiable.1. 4.       Limited to a fixed account.

 PRICE TAGS LAW1. 1.       It requires articles of commerce sold at retail to bear prices.

JOINT ACCOUNTS1. 1.       It exists when a merchant interests himself in the transaction of another

merchant, contributing thereto the amount of capital they may agree upon, and participating in the favorable or unfavorable results thereof in the proportion they may determine.

1. 2.       Joint accounts do not adopt a firm name.1. 3.       No suit may be maintained – investor and third persons dealing with the

merchant conducting business.1. 4.       It is not subject to any formal requirement for validity; it may be oral.

 BULK SALES LAW1. 1.       Purpose: meant to protect creditors of businessmen against preferential or

fraudulent transfers1. 2.       The law covers all transactions, whether done in good faith or not, or whether or

not the seller is in a state of insolvency, that fall within the description of what is a “bulk sale.”

1. 3.       Types of transactions which are treated as “bulk sales”:1. a.       Sale, transfer, mortgage or assignments of a stock of goods, wares,

merchandise, provisions, or materials otherwise than in the ordinary course of trade;

2. b.       Sale transfer, mortgage or assignments of all, or substantially all, of the business of the vendor, mortgagor, transferor, or assignor;

3. c.       Sale, transfer, mortgage, or assignment of all, or substantially all, of the fixtures and equipment used in the business of the vendor, mortgagor, transferor, or assignor.

1. 4.       Only creditors at the time of the sale in violation of the law are within the protection of the laws and creditors subsequent to the sale are not covered.

1. 5.       Even if the transaction falls within the definition of “bulk sale”, the following are not deemed covered by the law:

1. a.       If the vendor, mortgagor, transferor or assignor produces and delivers a written waiver of the provisions of the law from his creditors as shown by verified statements;

2. b.       The law does not apply to executors, administrators, receivers, assignees in insolvency, or public officers, acting under process.

1. 6.       Obligations when transaction is a bulk sale:1. a.       The vendor must deliver to such vendee a written statement of:

n  names and addresses of all creditors to whom said vendor or mortgagor may be indebted;

n  amount of indebtedness due or owing to each of said creditors

1. b.       The vendor must apply the purchase money to the pro-rata payment of bona fide claims of the creditors as shown in the verified statement.

2. c.       The seller, at least 10 days before the sale, shall:

n  make a full detailed inventory of the goods, merchandise, etc., cost price of each article to be included in the sale

n  notify every creditor at least 10 days before transferring possession of the goods, of the price, terms and conditions of the sale

1. 7.       Consequences of Violation of Requirements under #6 above stated:1. a.       When 6(a) above is not complied with, the sale itself is void; the seller will

be criminally liable.2. b.       When 6(b) above is not complied with, the sale itself is also void; seller is

also criminally liable.3. c.       When 6(c) is not complied with, the sale is not void; no criminal liability on

the seller.