How to Conduct Due Diligence in the Philippines


           In this diverse society, it is inevitable that at one point in our lives, we will have to conclude or close deals with strangers.  Although in an ideal world, trust should be sufficient, it is difficult, if not outright dangerous, to rely solely on good faith. Whether we are hiring an employee, buying land, contracting out work or closing a contract, it is necessary that we conduct our own due diligence or investigation of the person that we are dealing with.


               Due diligence is a precautionary measure conducted before concluding business with another. In can simply refer to investigating the background of a person or company to ensure that such entities are trustworthy.  Thus, before buying land, the buyer usually conducts due diligence on the land and the seller.  In hiring employees, the employer investigates on the background of the applicant.  Before signing a contract, both parties conduct due diligence on each other.


          Due diligence is very important because it seeks to pacify the parties on uncertainties concerning the transaction.  It ensures that everything is above board and that the transaction will go on smoothly, without troubles ensuing from third parties, encumbrances or other factors which will militate against the adherence of the parties to the contract.  In view of the numerous scams and deceits, due diligence has become commonplace in any business transaction.


                 In hiring an employee, most employers require an NBI (National Bureau of Investigation) Clearance to determine if an applicant has pending cases.  Furthermore, employers call up the references cited in the Applicant’s resume to know more about the applicant’s past employment history.  This is very important because it enables the employer to discern why the applicant left his previous employment.  If an employee was fired because of grave misconduct or theft, then it would be wise for an employer to shy away from hiring such applicant.  Improper resignation can also be a red flag for the employer.  Under existing labor laws, an employee should give thirty (30) days prior notice to the employer before resigning.  Gone are the days when resignations are effective immediately.  This is to enable the employer to find a suitable replacement and for the employee to wrap up and devise a system for the proper turn-over of accounts.


                 When it comes to contracts, most parties conduct due diligence on each other.  If one is dealing with a corporation, it is necessary to ensure that the corporation is legitimate.  One can go to to check the articles of incorporation and other corporate documents.  It is highly recommended to read the latest General Information Sheet (GIS) of the company to determine the present stockholders and directors.  A visit to the Securities & Exchange Commission can also be made to get these documents.  These documents are essential since contracts entered into by a corporation must be supported by a corresponding Board Resolution and Secretary’s Certificate. However, when dealing with sole proprietorships, the DTI website can only provide the trade name and address at its website .  Thus, it would be best to ask for the DTI Certificate of Registration from the other party, in addition to mayor’s permit and BIR Registration.  Moreover, if one is verifying the trademark of a company or person, the website of the Intellectual Property Office (IPO) at is instructive.


                    If you are dealing with a lawyer, you can go to the Supreme Court website to check if the person is indeed a lawyer.  For engineers, architects, dentists and other profession, you can go to the website of the Professional Regulatory Commission  or visit their central office in Sampaloc, Manila to verify if an individual is a licensed professional.


                The traditional google search can also yield results.  A person’s facebook, linked-in or multiply page can tell you something about the person’s disposition. Moreover, asking for feedback from people who know the contracting party is helpful.  This is common in supply contracts since the reliability and trustworthiness of the supplier is primordial in such transactions.


                 When buying land, due diligence on the seller and the land itself is a must.  Do not rely solely on the title furnished by the seller.  One must conduct his own investigation by going to the Land Registration Authority (LRA) and verify the title himself.  The LRA has microfilms of land titles in the Philippines.  Although this is still a work in progress, most land titles are already in their database.  If the title is not in the LRA, visit the Register of Deeds where the land is located. A personal verification is of utmost importance to determine if there are liens or encumbrances on the property.


                       One must also ascertain if the land is subject of litigation.  Sadly, we do not have a central database of pending cases for all courts.  One must have to go to each and every city to determine if there is a pending case.  Thus, it is usual to go to the Office of the Executive Clerk of Court of Regional Trial Courts and Office of the Clerk of Court of the Municipal Trial Court where the land is located and where the seller resides. It is also necessary to visit the Office of the City Prosecutor to ascertain if the seller has a pending criminal case subject of a preliminary investigation before the prosecutor.


               Pertinently, one must also personally conduct an ocular inspection of the land to see if there are occupants, lessees and informal settlers.  It must be noted that the buyer is obliged to respect the existing lease on the property.  More importantly, one cannot just forcefully evict the occupants therein but must instead lodge the necessary unlawful detainer or forcible entry case before the courts.


Nicolas & De Vega Law Offices is a full service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 4706126, +632 4706130, +632 4016392 or e-mail us at [email protected].