J.A.B. Bulao & Associates

LEGAL NOTE 0015:  WHAT ARE THE ELEMENTS TO PROVE IN THE PROSECUTION FOR ILLEGAL SALE OF PROHIBITED DRUG? WHAT IS MEANT BY CHAIN OF CUSTODY?

WHAT ELEMENTS MUST BE PROVEN IN A PROSECUTION FOR ILLEGAL SALE OF PROHIBITED DRUG.

The following must be proven under Section 5 of R.A. No. 9165:

(1)   the identity of the buyer and the seller, the object, and the consideration;

(2)   the delivery of the thing sold and the payment therefor.

All these require evidence that the sale transaction transpired, coupled with the presentation in court of the corpus delicti, i.e., the body or substance of the crime that establishes that a crime has actually been committed, as shown by presenting the object of the illegal transaction.^[1][13]

WHAT IS THE PROCEDURE FOR SEIZURE AND CUSTODY OF ILLEGAL DRUG?

Section 21, paragraph 1, Article II of R.A. No. 9165 provides such procedure:

(1)   The apprehending team having initial custody and control of the drugs shall, immediately after seizure and confiscation, physically inventory and photograph the same in the presence of the accused or the person/s from whom such items were confiscated and/or seized, or his/her representative or counsel, a representative from the media and the Department of Justice (DOJ), and any elected public official who shall be required to sign the copies of the inventory and be given a copy thereof[.] (Emphasis supplied.)

WHAT IS RATIONALE FOR STRICT OBSERVANCE OF THIS PROCEDURE:

The illegal drug’s unique characteristic rendering it indistinct, not readily identifiable and easily open to tampering, alteration or substitution either by accident or otherwise.

IS NON-COMPLIANCE BY THE AUTHORITIES OF AFORESAID SECTION 21 FATAL.

People v. Pringas^[2][16] teaches that non-compliance by the apprehending/buy-bust team with Section 21 is not necessarily fatal.  Its non-compliance will not automatically render an accused’s arrest illegal or the items seized/confiscated from him inadmissible.

What is of utmost importance is the preservation of the integrity and the evidentiary value of the seized items, as the same would be utilized in the determination of the guilt or innocence of the accused.^[3][17] 

As provided in Section 21, Article II of the Implementing Rules of R.A. No. 9165:

SECTION 21. Custody and Disposition of Confiscated, Seized and/or Surrendered Dangerous Drugs, Plant Sources of Dangerous Drugs, Controlled Precursors and Essential Chemicals, Instruments/Paraphernalia and/or Laboratory Equipment. – The PDEA shall take charge and have custody of all dangerous drugs, plant sources of dangerous drugs, controlled precursors and essential chemicals, as well as instruments/paraphernalia and/or laboratory equipment so confiscated, seized and/or surrendered, for proper disposition in the following manner:

          (a) The apprehending officer/team having initial custody and control of the drugs shall, immediately after seizure and confiscation, physically inventory and photograph the same in the presence of the accused or the person/s from whom such items were confiscated and/or seized, or his/her representative or counsel, a representative from the media and the Department of Justice (DOJ), and any elected public official who shall be required to sign the copies of the inventory and be given a copy thereof; Provided, that the physical inventory and photograph shall be conducted at the place where the search warrant is served; or at the nearest police station or at the nearest office of the apprehending officer/team, whichever is practicable, in case of warrantless seizures; Provided, further, that non-compliance with these requirements under justifiable grounds, as long as the integrity and evidentiary value of the seized items are properly preserved by the apprehending officer/team, shall not render void and invalid such seizures of and custody over said items[.] 

          x x x x  (Emphasis and underscoring supplied.)

WHY IS THE RATIONALE FOR THE ABOVE?

Strict compliance with the requirements of Section 21 may not always be possible under field conditions; the police operates under varied conditions, and cannot at all times attend to all the niceties of the procedures in the handling of confiscated evidence.^[4][18]

TO BE COVERED BY THE SAVING CLAUSE, WHAT MUST BE PROSECUTION DO?

Even so, for the saving clause to apply, it is important that the prosecution should explain the reasons behind the procedural lapses and that the integrity and evidentiary value of the evidence seized had been preserved.^[5][19]

It must be shown that the illegal drug presented in court is the very same specimen seized from the accused. This function is performed by the “chain of custody” requirement to erase all doubts as to the identity of the seized drugs by establishing its movement from the accused, to the police, to the forensic chemist and finally to the court.^[6][20] 

WHAT IS MEANT BY CHAIN OF CUSTODY?

Section 1(b) of Dangerous Drugs Board Regulation No. 1, Series of 2002 defines “chain of custody” as follows:

“Chain of Custody” means the duly recorded authorized movements and custody of seized drugs or controlled chemicals or plant sources of dangerous           drugs or laboratory equipment of each stage, from the time of seizure/confiscation to receipt in the forensic laboratory to safekeeping to presentation in court for destruction. Such record of movements and custody of seized item shall include the identity and signature  of the person who held temporary custody of the seized item, the date and time when such transfer of custody were made in the course of safekeeping and use in court as evidence, and the final disposition[.]^[7][21]

Every link must be accounted for.

SOURCE: PEOPLE OF THE PHILIPPINES VS. JAY LORENA Y LABAG (G.R. NO. 184954, 10 JANUARY 2011, VILLARAMA, JR., J.) SUBJECTS: PROSECUTION OF ILLEGAL SALE OF PROHIBITED DRUGS; CHAIN OF CUSTODY OF PROHIBITED DRUGS. (BRIEF TITLE: PEOPLE VS. LORENA)

RECENT RULING ON INJUNCTION.

 WHEN IS IT PROPER TO ISSUE AN INJUNCTIVE WRIT?

 For an injunctive writ to issue, a clear showing of extreme urgency to prevent irreparable injury and a clear and unmistakable right to it must be proven by the party seeking it.

WHAT IS THE PRIMARY OBJECTIVE OF A PRELIMINARY INJUNCTION?

The primary objective of a preliminary injunction, whether prohibitory or mandatory, is to preserve the status quo until the merits of the case can be heard.^[1][5]

[T]he rule is well-entrenched that the issuance of the writ of preliminary injunction rests upon the sound discretion of the trial court. It bears reiterating that Section 4 of Rule 58 gives generous latitude to the trial courts in this regard for the reason that conflicting claims in an application  for  a  provisional  writ  more  often  than not involve a factual determination which is not the function of appellate courts. Hence, the exercise of sound judicial discretion by the trial court in injunctive matters must not be interfered with except when there is manifest abuse, which is wanting in the present case.^[2][6]  (emphasis and underscoring supplied)

WHEN YOU RAISE GRAVE ABUSE OF DISCRETION AS GROUND TO NULLIFY AN INJUNCTIVE WRIT WHAT MUST YOU PROVE?

You must prove that there is a capricious and whimsical exercise of judgment, equivalent to lack or excess of jurisdiction.  Or the power must be exercised in an arbitrary manner by reason of passion or personal hostility, and it must be patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law. ^[3][7]

WHAT IS THE JURISDICTIONAL FOUNDATION FOR THE ISSUANCE OF A WRIT OF INJUNCTION?

The jurisdictional foundation for the issuance of a writ of injunction rests on:

–                     the  existence of a cause of action;

–                     the probability of irreparable injury; and

–                     the prevention of multiplicity of suits.

SOURCE: SPOUSES ISAGANI AND DIOSDADA CASTRO VS. SPOUSES REGINO SE AND VIOLETA DELA CRUZ, SPOUSES EDUARDO AND CHARITO PEREZ AND MARCELINO TOLENTINO (G.R. NO. 190122, 10 JANUARY 2011,   CARPIO MORALES, J.)

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IMPLEMENTING RULES AND REGULATIONS OF

LENDING COMPANY REGULATION ACT OF 2007

(REPUBLIC ACT NO. 9474)

RULE 1. Title

These Rules shall be known as the Implementing Rules and

Regulations of Republic Act No. 9474, otherwise known as the

“Lending Company Regulation Act of 2007” promulgated pursuant to

Section 10 thereof.

RULE 2. Definition of Terms

As used in these Implementing Rules, the following definitions shall

apply:

(a) Act shall refer to Lending Company Regulation Act of 2007.

(b) Affilliate shall refer to a corporation, the voting stock of which,

to the extent of fifty percent (50%) or less, is owned by a bank or

quasi-bank which is related or linked to such institution

through common stockholders or such other factors as may be

determined by the Monetary Board of the BSP.

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(c) Subsidiary shall refer to a corporation more than fifty percent

(50%) of the voting stock of which is owned by a bank or quasibank.

(d) Branch Office – shall include an extension office, unit, satellite

office, etc. of a lending company with a Certificate of Authority

to operate as such.

(e) BSP shall refer to the Bangko Sentral ng Pilipinas.

(f) Certificate of Authority (CA) shall refer to a certificate issued by

the SEC in favor of a lending company to engage in the business

of lending regulated by R.A. No. 9474 and its Implementing

Rules and Regulations.

(g) Charges on loan shall refer to agreed upon interest rate, service

charge, penalty, discount, and such other charges incidental to

lending activity.

(h) Debtor shall refer to a borrower or person granted a loan by a

lending company.

(i) Monetary Assets shall refer to total assets inclusive of valuation

reserves and deferred income but shall not include investments

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in real estate, in shares of stock of real estate development

corporations or in real estate based projects, leasehold rights

and improvements, fixed assets, foreclosed properties and

prepayments.

(j) Lending company shall refer to a corporation engaged in

granting loans from its own capital funds or from funds sourced

from not more than nineteen (19) persons. It shall not be

deemed to include banking institutions, investment houses,

savings and loan associations, financing companies,

pawnshops, insurance companies, cooperatives and other credit

institutions already regulated by law. The term lending company

shall be synonymous with lending investor.

(k) Networth shall refer to the excess of assets over liabilities, net

of appraisal surplus, unbooked valuation reserves, capital

adjustments, overstatement of assets and unrecorded liabilities.

(l) Quasi-Bank shall refer to a non-bank financial institution

authorized by the BSP to engage in quasi-banking functions and

to borrow funds from more than nineteen (19) lenders through

the issuance, endorsement or assignment with recourse or

acceptance of deposit substitutes as defined in Section 95 of

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Republic Act No.7653 (the “New Central Bank Act”) for purposes

of relending or purchasing of receivables and other obligations.

(m) SEC or Commission shall refer to the Securities and

Exchange Commission

RULE 3. Requirements for Organization

(a) Form of Organization

A lending company shall be established as a stock corporation.

i. Existing Lending Companies organized as single

proprietorships or partnerships shall, within a period of

one (1) year from the effectivity of the Act, organize

themselves as a stock corporation with the minimum

capitalization prescribed under the Act and secure a

Certificate of Authority to operate a lending company.

Otherwise, they shall be disallowed from engaging in the

business of granting loans to the public.

ii. The words “Lending Company” or “Lending Investor” or

any other word descriptive of its primary activity of

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granting loans to the public except words commonly used

to identify financing companies shall always be included

in the corporate and trade name.

(b) Requirements for Securing an Authority – A lending company

shall file with SEC four (4) copies of a duly accomplished

application form to operate as a lending company, signed under

oath by the President, together with the following documents in

the prescribed form:

i. Information Sheet;

ii. NBI clearance of each director/officer;

iii. Foreign directors/officers, in addition to the NBI

Clearance, shall submit a clearance from the Bureau of

Immigration (BI), a photocopy of his passport showing a

valid visa or stay in the Philippines, ACR i-card, and a

work permit issued by the Department of Labor and

Employment;

iv. President’s Sworn Statement and Undertaking that the

corporation will not accept or solicit investments, other

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than loans, from more than 19 persons without SEC

approval, and upon presentation of valid claims, it shall

immediately indemnify or return the investments of

persons from said unauthorized public solicitation of

funds; Moreover, the sworn statement shall likewise

contain an undertaking that the country or state of the

foreign applicant allows Filipino citizens and corporations

to do lending business therein.

v. For an existing lending investor applying for a Certificate

of Authority, it shall submit an external auditor’s sworn

statement and undertaking that based on his/her

examination of the corporate books of accounts and other

related records of the corporation, it has not accepted or

solicited investments, other than loans, from more than 19

persons without prior compliance with Sections 8 and 12

of the Securities Regulation Code and its Amended

Implementing Rules and Regulations.

vi. Business plan including method of marketing its product

and sources of the funds and maturities of credit; and

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vii. Statement of its compliance with Rule 17.1(2)(A)(i) and (ii)

of the Amended Implementing Rules and Regulations of

the Securities Regulation Code.

(c) Branches, Extension or Satellites Offices or Units.

i. Loan transactions shall be booked in the authorized offices of

the lending company;

ii. No lending company shall establish or operate a branch,

extension office or unit or satellite office without prior

approval by the SEC. The following documents shall be

submitted for the opening of a branch office:

1) Information Sheet on the proposed branch;

2) NBI clearance of the manager, cashier and

administrative officer of the proposed branch;

iii. The Certificate of Authority to operate a branch, extension

office, unit or satellite office shall be coterminous with that of

the Head Office.

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(d) Licensing Fees:

i.Initial Application Fees shall be paid to SEC at the time of

filing of application

1) Head Office –

A fee of 1/10 of 1% of the paid-up capital of the

lending company shall be paid for the issuance of

a Certificate of Authority to Operate as a Lending

Company.

2) Branch, extension office, unit or satellite office

A fee of 1/10 of 1% of the assigned capital of the

branch, extension office, unit or satellite office

shall likewise be paid for the issuance of an

original Certificate of Authority.

ii. Annual fee –

An annual fee shall be paid not later than forty five (45) days

before the anniversary date of the CA.

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1) Head Office – 1/8 of 1% of the required paid-up

capital

2) Branch Office – 1/8 of 1% of the required paid-up

capital

(e) Commencement of Operations

A corporation/company that has been duly registered and

granted a Certificate of Authority to Operate as a Lending

Company shall commence operations within one hundred

twenty (120) days from date of grant of such authority.

Failure to commence operations within said period shall be a

ground for the suspension of its CA.

(f) Lending Companies shall use at least 51% of their funds for

direct lending purposes.

(g) The total investment of a lending company in real estate and in

shares of stock in a real estate development corporation and

other real estate based projects shall not at any time exceed

twenty-five (25%) percent of its networth.

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RULE 4. Capital

(a) A Lending Company shall have a minimum paid-up capital of

One Million Pesos (PhP1,000,000.00), unless the SEC prescribes

a higher minimum capitalization, if warranted by the

circumstances.

i. Lending companies established and in operation with a

lower paid-up capital prior to the effectivity of the Act shall

comply with the capital requirement within three (3) years

from the date of effectivity of the Act. For this purpose,

said lending companies shall, within sixty (60) days from

effectivity of these Rules, provide the SEC a sworn

statement by the President, indicating the schedule of their

capital build-up within the three (3) year period.

ii. Should a branch, extension, satellite office or unit be

established, the excess of the required minimum paid-up

capital may be applied to the additional capital requirement

for the proposed branch, extension, satellite office or unit,

as follows:

PhP300,000.00 : Metro Manila and other first

class cities;

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PhP150,000.00 : Second class and other cities;

and

PhP 75,000.00 : Municipalities

(b) In case of failure to comply with the aforementioned capital

requirement, the authority of a lending company to operate as

such shall be suspended, after due notice and hearing, for a

period of thirty (30) days.

RULE 5. Citizenship Requirements

(a) A majority of the voting stock of the lending company shall be

owned by citizens of the Philippines.

(b) The percentage of foreign-owned voting stocks in any lending

company shall be determined by the citizenship of the

individual stockholders. In the case of corporations owning

shares in a lending company, the citizenship of the individual

owners of voting stock in such corporations shall be the basis

in the computation of the percentage.

(c) If the percentage of foreign owned voting stock in any Lending

Company existing prior to the effectivity of the Act is in excess

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of forty-nine (49%), it shall not be increased but may be

reduced and once reduced, shall not be increased thereafter

beyond 49% of the voting stock.

(d) No foreign national may be allowed to own stock unless the

country of which he is a national accords reciprocal rights to

Filipinos.

RULE 6. Amount and Charges on Loans

(a) A lending company may grant loans in such amounts and

interest rates and charges as may be agreed upon between the

lending company and the debtor:

(b) In accordance with the Truth in Lending Act and prior to the

consummation of the transaction, a lending company shall

furnish each debtor a disclosure statement, setting forth, to

the extent applicable, the following information:

i. The principal amount of loan;

ii. Rate of interest of the loan;

iii. Service or processing fee, if any;

iv. Amortization schedule;

v. Any penalty charge for late amortization payment;

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vi. Collection fee, if any;

vii. Notarial fee;

viii. All other fees in connection with the loan transaction;

ix. Description of the collection and lien enforcement

procedures; and

x. Method of calculating the total amount of obligation in case

of default.

RULE 7. Maintenance of Books of Accounts and Records

(a) Every lending company shall maintain books of accounts and

records as may be required by the SEC and prescribed by the

Bureau of Internal Revenue and other government agencies. In

case a lending company engages in other businesses, it shall

maintain separate books of accounts for these businesses.

(b) The Manual of Accounts prescribed by the BSP for lending

investors shall continue to be adopted by lending companies

for uniform recording and reporting of their operations, until a

new Manual of Accounts shall have been prescribed by the

SEC.

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RULE 8. Authority of the SEC

Lending Companies shall be under the supervision and regulation of the

SEC.

(a) Reports – Lending companies shall file with the SEC the

following reports / manuals in accordance with the following

schedules:

Kind of report / manual Due Date

General Information Sheet (GIS)

Within thirty (30)

days from annual

meeting, as stated in

its SEC approved bylaws

Audited Financial Statements

prepared by an external auditor

accredited by the SEC

Within One Hundred

Twenty (120) days

from end of fiscal

year, as stated in its

SEC approved bylaws

Special Forms for Financial

Statements in Electronic Format

Within thirty (30)

days from the last day

of submission of the

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annual Audited

Financial Statements

Interim semi-annual financial

statements (using Special Form)

including the following:

• • Balance Sheet;
• • Income and Expense

statement;

• • Cash flow
• • Statement of Changes in

Equity

• • Schedule of Liabilities
• • List of Directors and Officers
• • Aging of Receivables

Every July 15 and

January 15

(b) The SEC may examine the Books of Accounts and other

records of the lending company.

(c) Administrative Sanctions – The SEC shall, at its discretion,

impose upon any lending company a basic fine of P10,000.00

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and P100.00 for each day of continuing violation but such

daily fine shall not exceed P50,000.00 for the following:

i. Violation of the Act and its Implementing Rules and

Regulations;

ii. Violation of the terms and conditions of the Certificate of

Authority;

iii. Violation of any lawful order, decision, or ruling of the

Commission;

iv. Unjustified refusal to have its bank of accounts audited;

and

v. Continuous failure to comply with SEC requirements.

The penalty of suspension shall be imposed in case of three

(3) violations and revocation in case of four (4) violations.

RULE 9. Delineation of Authority between SEC and the BSP

Lending companies shall be under the supervision and regulation of

the SEC, Provided, those lending companies which are subsidiaries

and affiliates of banks and quasi-banks shall be subject to BSP

supervision and examination in accordance with Republic Act

No.7653.

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RULE 10. Acts Punishable and Persons Liable

A fine of not less than Ten Thousand Pesos (PhP10,000.00) and not

more than Fifty Thousand Pesos (PhP50,000.00) or imprisonment of

not less than six months but not more than ten (10) years or both, at

the discretion of the court, shall be imposed upon:

(a) Any person who shall engage in the business of a lending

company without a validly subsisting authority to operate from

the SEC;

(b) The president, treasurer and other officers of a corporation,

including the managing officer thereof, who shall knowingly

and willingly

i. Engage in the business of a lending company without a

validly subsisting authority from the SEC;

ii. Hold themselves out to be a lending company, either

through advertisement on whatever form, whether in its

stationery, commercial paper, or other document, or

through other representations;

iii. Make use of a trade or firm name containing the words

lending company or “lending investor” or any other

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designation that would give the public the impression that

it is engaged in the business of a lending company as

defined in the Act without the appropriate SEC authority;

and

(c) Violators or violations of the provisions of the Act;

(d) Any officer, employee or agent of a lending company who shall:

i. Knowingly and willingly make any statement in any

application, report, or document required to be filled under

the Act, which statement is false or misleading with respect

to any material fact;

ii. Overvalue or aid in overvaluing any security for the purpose

of influencing in any way the action of the company in any

loan;

(e) Any officer, employee or examiner of the SEC directly charged

with the implementation of the Act or of other government

agencies who shall commit, connive, aid, or assist in the

commission of acts enumerated under Subsection 1 and 2 of

this Rule.

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RULE 11. Applicability of Other Laws

The provisions of Republic Act No. 3765, otherwise known as the

“Truth in Lending Act of the Philippines,” Republic Act No. 7394 or the

“Consumer Act of the Philippines” and other existing laws, insofar as

they are not in conflict with any provisions of this Act, shall have a

suppletory applicability to Lending Companies.

RULE 12. Effectivity of Implementing Rules and Regulations

These Implementing Rules and Regulations shall take effect fifteen

(15) days from publication in two (2) newspapers of general

circulation.

Adopted by the Commission En Banc on August 23, 2007.

Mandaluyong City, Philippines.

FE B. BARIN

Chairperson

MA. JUANITA E. CUETO

Commissioner

JESUS ENRIQUE G. MARTINEZ

Commissioner

RAUL J. PALABRICA

Commissioner

THADDEUS E. VENTURANZA

Commissioner